Wyndham’s asset-light select service franchise business model and portfolio in the economy and mid-scale segments will help it survive the COVID-19 pandemic, company executives said during the first-quarter earnings call last week.
CEO Geoffrey Ballotti said Wyndham brands are poised for a quick recovery when travel demand returns.
“Our customer profile in the U.S. is about 70% leisure and 90% drive-to, making us less reliant on business days and air travel.” Ballotti said. “While the impact of Covid-19 continues to evolve, as this pandemic abates in the U.S., our franchisees should be the first to benefit.”
Wyndham, which owns brands like Days Inn, Super 8, and La Quinta, has nearly 5,900 of its 6,300 U.S. hotels open, with about 90% of them located outside of major cities in leisure-friendly drive-to destinations, which will be among the first to return once travel rebounds.
“As people begin to travel and we begin to see and believe that they will, the first thing they want to do is get in their car and drive to visit family members and friends,” Ballotti said.
In China, nearly 1,400 hotels of 1,600 are now operating and registering occupancy gains. At the peak of COVID-19, approximately 1,200 hotels were shuttered. In the past two weeks, numbers in the single digits and teens have climbed to around 20%, Ballotti said, adding it’s “encouraging” to begin to see leisure travel pick up in China.
In the select service space, a majority of Wydham’s portfolio, hotels are less labor-intensive and typically, operate at higher margins than full-service hotels. Ballotti said majority of Wyndham hotels can support debt service at occupancy levels of approximately 30% before receiving any governmental assistance which lowers this 30% breakeven considerably.
Revenues declined 12% to $410 million, compared with $468 million during the same period last year.
RevPAR at franchised hotels dropped 23% globally due to COVID-19 travel restrictions. U.S. properties averaged a 17% decline, while those in China plunged 70%. Internationally, Wyndham hotels saw a 37 decline in RevPAR. Wyndham’s managed portfolio registered a 21% drop in RevPAR overall. Executives said they cannot predict future RevPAR trending given all the uncertainty.
Converting independent hotels to brands has always been an important part of Wyndham's consistent room growth through both up and down cycles. With over 15,000 independent economy and mid-scale hotels in the United States, Ballotti said development efforts would focus heavily on conversion candidates. This approach helped expand Wyndham’s system 3% grow during the 2008-09 global financial crisis. Of projects in the pipeline, about 52% are conversions, and 85% of US hotels added in the first quarter were conversions, he noted.
“Independents are not receiving the support that many of their branded competitors are,” Ballotti noted. “We opened 60% more rooms in '08 and 40% more rooms in '09 than we did in 2019, and the majority of that came from independents. And I think that is going to be the case, coming out of this in 2021, 2022, 2023, where independents will be much more likely to consider.”