Results

‘Risk tolerance’ of consumers growing, says Choice

There were signs that “consumers’ risk tolerance is climbing”, according to Choice Hotels International’s president & CEO, Pat Pacious.

The CEO identified a number of trends, including an extended leisure period as work and school became more flexible.

Pacious told analysts: “We believe that the strategy of growing our limited service brands in the right segments and right locations will allow us to grow share in the long term. We are starting to see trends emerge which will have a long-term impact on the sector. The trend towards remote working is creating more options as to where and when activities take place, affording Americans more flexibility in when they travel for leisure.

“For the past two months we saw leisure demand extended. Road trips have been growing, helped by lower gas prices and since the pandemic, Americans are taking more road trips. With over 4,000 hotels within a mile of an interstate exit, we are well located in the right markets. Travellers are also rediscovering the great American outdoors.

“We believe that, in uncertain times, the consumer will be looking for more moderately-priced offerings. Another effect of the pandemic is demand for longer-term hotel segments. Finally, there are signs that consumers risk tolerance is climbing. Americans’ likelihood to stay in a hotel on a leisure trip is at its highest since mid-March.”

The comments were made as the company reported a 28.8% drop in domestic revpar on the year for the third quarter, with occupancy consistently exceeding 50% since the week of 21 June, through October 24. The company's extended-stay portfolio saw average domestic systemwide occupancy rates of 74%, with Pacious adding: “All of our limited service brands had significant revpar gains against their competitive set”.

Looking ahead, the company said that fourth-quarter domestic revpar through 24 October had continued the pattern of sequential quarterly improvement, and was expected to decline by approximately 25% on the year.

Adjusted Ebitda was $74.9m, a 34% drop on the year.

The company awarded 81 domestic franchise agreements in third quarter 2020, a 19% fall on the year. Of the total domestic franchise agreements awarded in the quarter, nearly three-quarters were for conversion hotels and over 40% were executed in September. Pacious said: “Developers choose our brands as they seek to book the value of their hotels. We have a conversion brand to suit most price points.”

Pacious said that it had continued to grow its estate in the upscale, midscale and extended stay segments.

The group cut total net debt against the previous quarter, to $886m, against $936m. The company's total available liquidity was approximately $792m at the end of the period. CFO Dominic Dragisich said: “We are confident that we can weather the storm and strategically invest in growing our brands and system size.”

 

Insight: Pacious hailed his sober and experienced owners last quarter and there was more of the same this time around, as he commented that Choice’s “franchisees have experience leading their businesses through down cycles”, with the CFO commenting that, with the franchisees also avoiding the temptation of dropping rates, it was looking very sturdy going into the next quarter. The company’s breakeven is, generally, 30%, so 50% is almost a bonus.

The picture at Choice was much the same as that at Wyndham - it’s not the height of glamour but it sure does work at times like these. What makes the pair interesting is when Pacious makes comments about the long-term shifts which were set to outlive the pandemic.

As Hilton’s Chris Nassetta noted earlier this season, the limited service brands are those which are currently attracting investors. While it is hoped that the higher-spending leisure traveller will start to come back, the legacy of the pandemic is that there will be more of the more attractively-priced hotels out there in the market. And it is those sober and experienced owners who have the experience running them, rather than the big boys.