Results

Hyatt hopes for China, conversions

Hyatt Hotels Corporation hailed recovery in China and South Korea, but added that demand was building more slowly elsewhere.

The group said that it expected to see a rising number of conversions compensate for a slowing in rooms growth.

The company said that, by managing costs, increasing productivity and having a lower mix of F&B revenues it had effectively reduced the break-even occupancy level of its full-service hotels by at least five percentage points around the world and in some cases more.

Mark Hoplamazian, president & CEO, told analysts: “Our colleagues are reimagining both the guest experience and the manner in which we operate hotels to optimise results even at significantly reduced levels of occupancy.”

Shifts in operations have included a reduction in staff numbers, with experienced staff offering more services, expansion of grab-and-go F&B concepts and new in-room experiences such as spa kits and mixology kits.

Joan Bottarini, CFO, said that the group was “prepared for an uneven recovery” and would continue to rework its operating model.

Hyatt had 80% of its hotels open at the end of June and approximately 87% at the end of July. The group planned to have most of the remaining hotels open within the next couple of months.

Looking to China, which accounted for around 10% of the group’s fees and 5% of earnings, Hoplamazian said: “Our revpar index in the second quarter for full service hotels in Greater China has reached levels about 15 points higher than 2019 indicating that we are significantly outperforming our competition through the early stages of this recovery.

“China serves as a great example that travel recovery is possible even without pharmaceutical treatments or a vaccine as long as proper, well-coordinated actions are taken to significantly reduce the spread of the virus.”

Greater China full-service open hotel occupancy levels started to rise off their lows during the first quarter to about 22% in April and have since climbed to approximately 55% in July.

Elsewhere in the world, the picture was mixed, with the rate of growth and demand moderating in the middle of July following the July 4th holiday due to the impact of rising case counts in certain areas and many cross-border travel restrictions that remained in place across the world.

Occupancy levels for open full service and select service hotels in the Americas ranged from a low of approximately 6% and 15% respectively in April to approximately 21% and 43% for July.

Adjusted Ebitda for the quarter was negative $117m, with a reported system-wide revpar decline of approximately 89% in constant dollars. As of 30 June, Hyatt’s total liquidity inclusive of cash and equivalence combined with borrowing capacity was almost $3bn, which it said would allow it to operate at second quarter 2020 demand levels for an additional 36 months.

The group said that it expected net room growth to be more in the range of 4% to 4.5% this year, as opposed to the original guidance of 6.5% to 7%. Hoplamazian said that the group was seeing consecution delays and “isolated terminations” but that “helping to offset some of that be additional conversion opportunities that we're pursuing; some of which we expect to realise prior to the end of the year”.

The CEO said that he expected to see solid progress on full-service development around the world with particular strength in our Asia-Pacific segment. Select service production in the US had slowed due to constraints on financing, but that, in the long term, he expected “significant opportunities for global growth” of the select service brands given Hyatt’s “relatively modest market penetration across the globe”.

He concluded: “The second quarter was challenging but in line with what we expected. We do believe the worst is behind us and we're seeing positive signs developing around the world with some clear pockets of strength.”

 

Insight: As one would expect from a pandemic, all hotel companies are being hit with the same issue, but much as the hit varies on the human victims, not all will see the same response.

So Hoplamazian has echoed what we are seeing elsewhere in terms of booking windows: in the US over 65% of full-service bookings and over 75% of select service bookings were being made only four days ahead of the date of stay. As as for leisure demand, it’s all drive to not drive through: “the answer in a nutshell is go local, go as local as possible”.

But whereas at Accor the plan is to lean on the economy and budget core, Hyatt was in the early stages of having a select services core and is finding that the US has stalled on development here. It has hopes of conversions, but wouldn’t be drawn on numbers and, well, good news on China, but at 5% of earnings it’s not in the same position of cheeriness about the region that we expect to see from IHG next week.

The good news for Hyatt is that it is sitting on a stack of cash. Yes, having to mix your own cocktails in your room is not the level of service associated with the group, but it can, if it needs, bolster that select service area by buying its way out of trouble. And it has a fair amount of trouble to pick from.