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 select 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 around the world. Hyatt Hotel's worldwide portfolio consist of 719 properties (182,913 rooms and units as of Dec 31, 2017).
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. Additionally, Hyatt Hotels managed, franchised and owned properties are spread across 52 countries around the world.
Hyatt Hotels derives nearly 47.5% of its revenue from its owned and leased hotels, similar to other players in the industry. Each brand represents a different category of hotel and each brand has different set of competitors. For instance, Park Hyatt falls under luxury segment and competes with prominent names in luxury hotels such as Four Seasons and Ritz Carlton. Similarly, Grand Hyatt falls under upper scale segment and competes with other brands such as Shangri-La, Mandarin Oriental and InterContinental.
We believe that management of third party owned hotels is the primary source of value for Hyatt because:
Hyatt's margins from managed and franchised hotels is about 4 times higher than that of it owned and leased hotels. In 2017, third party owned hotels margins stood at 92% as compared to 23% for owned and leased hotels. This significant difference is due to the reimbursement of costs and expenses by the third party property owners to Hyatt, which otherwise the company has to bear for its owned properties. This translates into higher margins for Hyatt's managed and franchised properties.
Moreover, Hyatt's owned properties business is capital intensive due to high costs involved in developing new properties and maintaining the existing ones. On the other hand, for third party owned hotels, the capital expenditures are borne by the property owner.
Hyatt Hotels has a wide presence on the globe. It operates in 52 countries and in 20 of the 25 most populous urban centers around the globe. These properties also provide a platform to expand in other markets and geographies. The model of managing and franchising works well for majority of the 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 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 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, which also indicates a very strong relationship between these variables. Hence, we know that, historically, both U.S. personal disposable income growth and international visitors growth are both highly correlated with hotel RevPAR growth.
The rapid expansion of social media have 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 their selection of 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 experience.
Given the recovery in global economies and sophisticated financial markets of emerging economies will drive the 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. There is leisure demand from other countries such as China that will stimulate demand for hospitality globally. The globalization of travel will prove to be a massive force for hospitality industry. Hyatt Hotels in particular will benefit from its diverse brands and properties spread across the globe.
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