Hyatt reported a stronger than expected set of Q2 2022 results, with revenue growing by about 123% year-over-year to $1.48 billion, driven by improving travel demand, room rentals, and occupancy rates. Adjusted earnings stood at about $0.46 per share, compared to a loss in the year-ago quarter.
Hyatt Hotels completed the acquisition of Apple Leisure Group to expand its management & franchise business. As a part of the asset-light strategy, the company has been divesting its owned properties and entering into management service contracts. The company has extended its divestiture plan to repay the debt raised to fund this acquisition.
Nearly 80% of Hyatt’s earnings will likely be contributed by the management & franchise business by 2024. Comparing this with a 67% contribution targeted for 2022 – the company seems aggressive with its strategy.
The M&F segment earns fees on long-term management or franchise agreements with third-party property owners. Thus, low occupancy rates due to the pandemic pose less of a downside risk to the company’s long-term valuation.
Below are key drivers of Hyatt Hotels value that present opportunities for upside or downside to the current Trefis price estimate for Hyatt Hotels:
For additional details, select a driver above or a division from the interactive Trefis split for Hyatt Hotels at the top of the page.
Hyatt Hotels is a global hospitality company that manages, franchises, owns, and develops a Hyatt portfolio of hotels, resorts, and residential and vacation ownership properties worldwide. Hyatt Hotel’s worldwide portfolio comprised 974 properties (235,272 rooms and units) as of Dec 31, 2020.
Hyatt’s full-service hotels and resorts operate under five established brands, Park Hyatt, Andaz, Hyatt, Grand Hyatt, and Hyatt Regency. Besides these, the company has two select service brands, Hyatt Place and Hyatt House. In 2013, the company added the Hyatt Ziva and Hyatt Zilara, all-inclusive resort brands, to its portfolio. Hyatt Hotels managed, franchised, and owned properties are also spread across 52 countries worldwide.
Hyatt Hotels derives nearly 42% of its revenue from owned and leased hotels. Each brand represents a different category of hotels, and each brand has a different set of competitors. For instance, Park Hyatt falls under the luxury segment and competes with prominent names in luxury hotels such as Four Seasons and Ritz Carlton. Similarly, Grand Hyatt falls under the upper scale segment and competes with other brands such as Shangri-La, Mandarin Oriental, and InterContinental.
We believe that the management of third-party-owned hotels is the primary source of value for Hyatt because:
The profitability of managed and franchised hotels increases significantly if we ignore reimbursement costs. Moreover, for third-party-owned hotels, the capital expenditures are borne by the property owner. On the contrary, Hyatt’s owned-properties business is capital intensive due to the high costs involved in developing new properties and maintaining the existing ones.
Hyatt Hotels has a wide presence on the globe. It operates in 52 countries and 20 of the 25 most populous urban centers worldwide. These properties also provide a platform to expand in other markets and geographies. The management and franchising model works well for most hotel players, and they focus on expanding the same. Thus the third-party-owned hotels will continue to drive the growth for the company in the foreseeable future.
Hotel operations are usually linked with the macro-economic environment and tourism in the region. However, to better understand the causal relationship, we ran a regression analysis on the data from 2007 to 2014 with hotel RevPAR (revenue per available room) as the dependent variable and the U.S. personal disposable income growth and international visitors growth as independent variables. We arrived at an R-square of 0.82 for these variables, which, being on the higher side, indicates a relatively high level of correlation. To strengthen our argument, we also computed the F-significance, which defines the significance of independent variables to the response variable. In this case, the F-significance is 0.03, indicating a very strong relationship between these variables. Hence, we know that, historically, both U.S. personal disposable income growth and international visitors’ growth are highly correlated with hotel RevPAR growth.
The rapid expansion of social media has significantly enhanced the relationship between the hospitality industry and its guests. The reputation, service quality, the staff, etc., are determined through various social media platforms, including online travel forums and customer-led ranking sites such as TripAdvisor.
According to a report by a leading hotel chain, in the U.S., in just one day, brands are mentioned 3.3 billion times in 2.4 million online conversations. The report also mentioned that over 33% of the people surveyed consider comments on TripAdvisor to be of great importance in selecting a luxury hotel. This is one of the reasons why the hotel sector is investing heavily in new technologies and building an online social media strategy. InterContinental’s 2014 Trends Report states that the rise of technology-led personalization helps shape and tailor guest’s experiences.
The recovery in global economies and sophisticated financial markets of emerging economies will drive international visitation. The U.S., in particular, will benefit from the Discover America campaign, which will drive the average guest spend as well as the occupancy levels of the hotels. Leisure demand from other countries such as China will stimulate global demand for hospitality. The globalization of travel will prove to be a massive force for the hospitality industry. And Hyatt Hotels will benefit from its diverse brands and properties spread across the globe.