Hyatt’s Asset-Light Strategy, Expansion In New Markets To Counter Starwood-Marriott Merger
Hyatt (NYSE: H) has market share growth in all of its major operating regions, including the Americas, EAME and Asia Pacific, in the past few quarters, driven by its increasing presence in new and untapped markets, asset recycling strategy and strong loyalty program to counter the Starwood-Marriott merger. This was further helped by strength in travel among both business and leisure customers, but its Q4 earnings were negatively impacted by losses from its co-branded credit card program. Hyatt’s managed and franchised revenues have been consistently performing better than the company’s other segments, both in terms of revenue growth and margins. Accordingly, we expect more management agreements from Hyatt in the coming quarters.
Despite all the positive signs, Hyatt still faces a major threat from the Starwood-Marriott merger last year, which has the potential to take away some of Hyatt’s loyal customers due to the combined entity’s presence in almost all geographic locations and attractive loyalty programs. Hyatt made some changes in its existing loyalty program, calling the new program “World of Hyatt,” which it hopes will offset some of the pressure from the Starwood-Marriott entity. However, ongoing renovations at many properties will likely continue to its cash flows.
Hyatt Grew Market Share On The Back Of Managed And Franchised Businesses
Hyatt has managed to grow its overall market share in the hospitality industry despite the aforementioned challenges. Hyatt said that its RevPAR index grew in all of its primary operating regions – Americas, EAME and Asia Pacific – in 2016 based on Smith Travel Research data. A major contributor to this growth was Hyatt’s managed and franchised business, which grew nearly 8% in Q4’16. Hyatt’s increasing presence in Mainland China, Hong Kong, and Tokyo has resulted in solid growth in its management and incentive fees in recent quarters. We expect this momentum to continue going forward, as about 75% of Hyatt’s rooms in the pipeline are located outside the U.S., and a major chunk of that is in the Asia-Pacific region. Also, about 75% of the rooms in its pipeline are comprised of the third-party owned properties which will be managed by Hyatt. Further, over 20% of its pipeline rooms are comprised of third party-owned franchise properties.
High Capital Expenditures, Credit Card Program To Pressure Profits
Hyatt’s 2016 capital expenditures were near $210 million, driven by renovations and some openings. The company expects to double its capex in 2017 due to the expansion and redevelopment of the three Miraval assets, increased corporate development activity, leasehold improvements related to Hyatt’s new headquarters and increased renovation activity at its owned and leased hotels. We believe that the increased capex will put pressure on Hyatt’s profits in the coming quarters.
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