Choice says it is ahead of the pack

Choice Ascend

Choice Hotels, the franchise-only operator well known for its Comfort brand, says it has negotiated pandemic-struck 2020 better than peers.

The company said its US revenues per available room (RevPAR) were around 25 percentage points better than rivals in the fourth quarter. The gap in the second and third second quarters was around 20 percentage points.

It said the gap widened at the same time as RevPAR numbers improved across the board.

Choice’s domestic RevPAR declines were running at around 60% as the pandemic first hit in March last year – while peers were down 80%. Choice revenues recovered to be down around 25% in the fourth quarter while competitors were down around 50%.

In the current year to date, RevPAR has declined by approximately 18% compared to the same period of 2020.

Patrick Pacious, president and chief executive officer, said: "Despite a year of unprecedented challenges brought upon us by the pandemic, Choice Hotels drove results that significantly outperformed the industry.”

Choice is ultimately cautious about the outlook. In terms that are currently echoed across the hospitality sector, Mr Pacious said: “The ultimate and precise impact of COVID-19 on full year 2021 is still unknown at this time and will depend on numerous factors, including future levels of resurgence in COVID-19 cases, the pace of vaccination rollout and vaccines' effectiveness, the duration and scope of mandated travel and other restrictions, the confidence level of consumers to travel and the pace and level of the broader macroeconomic recovery.”

But the company sounded some notes of optimism while refraining from giving formal guidance on the first quarter of 2021. There would be quarter-by-quarter improvements in RevPAR in the three months to 31 March versus the same periods of 2020 and 2019, it said.

Choice has confidence in part because 90% of its domestic properties are in drive-to locations and it is strong in mid-market hotels.

Total revenues fell by 28% to $193 million in the fourth quarter compared to the same three months of 2019. Full year revenues fell 31% to $774 million.

Net income was $7.9 million in the fourth quarter compared to $42 million and $75 million across 2020 against $223 million for the 2019 full year. In the 2020 periods, diluted earnings per share was 14 cents and $1.35 respectively.

Choice said it went into the pandemic with a healthy balance sheet and after adding debt to boost liquidity at the start of the COVID-19 crisis it remains within long-term leverage target of debt-to earnings before interest, tax, depreciation and amortisation of between three and four times.

It added: “Choice navigated the impact of the pandemic without having to renegotiate debt covenants, refinanced a portion of debt to extend its debt maturity profile, and capitalized on favourable credit markets to significantly reduce the company’s effective cost of borrowings.”

The company has suspended the payout of dividends, it said: “while the COVID-19 pandemic is significantly impacting travel.”

Insight

It is all very well for Choice to say it is doing better than its competitors. But if the competitors are doing badly, the achievement may be a shallow one.

Choice has done well to register net profits in 2020 when red ink is splashing all over the financial reports of so many operators. Again, though, that just means the pain is milder not that the pain has gone away or was ever there in the first place.

The franchise model gives Choice some immunities from some market pressures. Hard times fuel franchise growth, meanwhile, as hitherto independent operators are attracted by the protections that can come with a recognisable brand.

At the same time, franchisees are entrepreneurs who may invest more than they have in the success of the hotel, or hotels, they run. But while they have skin in the game, their skins can be get burnt if the game gets too hot to handle. Choice needs to keep a close eye on temperatures in the hospitality industry.