What Are Hyatt’s Key Sources Of Revenue?

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H: Hyatt Hotels logo
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Hyatt Hotels

Hyatt Hotels (NYSE: H) is structured into four primary operating segments – Owned and Leased Hotels, Americas Management and Franchising, ASPAC Management and Franchising, and EAME/SW Asia management and franchising. Below we expand on these divisions, their recent performance and what to expect going forward. You can see more on our interactive dashboard on Hyatt’s Growth Prospects. You can adjust any of the company’s key drivers to see the impact of changes in the overall revenues, earnings, and valuation. In a subsequent note, we will discuss our detailed forecasts for each of these segments.

Overview Of Segments

  • Owned and Leased hotels, the largest segment, operates owned and leased full service and select service hotels. Comparable hotels, which are hotels that have operated for the entirety of the relevant period without undergoing any interruptions such as renovation or damage, account for about 86% of the total revenue for the segment. The revenue is generated via room rentals, food and beverage sales, and other ancillary services and it primarily comes from three categories of customers – transient, group, and contract. Over the last few years, revenue from this segment has been relatively flat. This is unsurprising, as the company is in the midst of its asset recycling program. In its efforts to focus more on the franchise based model, Hyatt is disposing of hotels from its Owned and Leased hotels segment and investing a larger portion of the proceeds in select service hotels. That said, the stabilization of the U.S. economy has resulted in a rise in consumer spending. Consequently, the demand for luxury hotels has been on a rise, which has inadvertently helped the segment’s RevPAR performance. Furthermore, the company continues to generate higher income from the food and beverage business. Given the company’s focus on disposing of its assets, we expect the segment to experience modest growth in the next few years.
  • Management and Franchising segments, which include Americas, ASPAC, and EAME/SW regions, generate revenue through franchise fees, long-term management agreements, and license fees for vacation ownership properties. Furthermore, the company also derives revenues related to payroll costs. In such agreements, Hyatt manages employees, sales, marketing, and technology costs for which it receives reimbursements from the third-party property owner. Over the last few years, the company has used the sales proceeds from the asset recycling program to expand its select service hotels. In the last five years alone, Hyatt has expanded its global select service portfolio by about 71%, and it plans to double its portfolio in the next five years. To achieve this, the company plans to dispose of $1.5 billion of real estate by the end of 2020. Furthermore, China has become one of the main focus areas for the company and rightly so. Given the country’s booming economy, there is potential for growth. We expect this line of business to do well going forward.
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