While
the company had plenty of positive news in its Q2 earnings, a dropoff in
business in Greater China has caused Hyatt to reduce some full-year guidance.
CHICAGO — One region weighed
down Hyatt Hotel Corp.’s second-quarter earnings above all else — Greater
China. Q2 RevPAR in the region ($86.34) was down 3.2% compared to the same
quarter in 2023. It was up in every other region, including a whopping 17.6% in
Asia Pacific, excluding Greater China.
Those numbers helped lower the
Chicago-based company’s full-year guidance for some key numbers, as it reduced
its RevPAR and adjusted EBITDA in its second-quarter earnings release on
Tuesday.
Those numbers contrasted with a
slew of positive news from the company: systemwide RevPAR increased by 4.7%
year over year for Q2, and net room growth is projected at 5.5% to 6% for the year
compared to 2023. The gains helped Hyatt generate record gross fee revenue of
$275 million in the quarter.
At the same time, Hyatt’s
pipeline reached a new record of 130,000 rooms (for approximately 670 hotels),
up 9% year over year, while its loyalty program saw membership increase by 21%
year over year to a record 48 million members.
Hyatt CFO Joan Bottarini said
the soft numbers are due to a decline in domestic travel inside China (with
residents traveling to places like Japan and South Korea instead) and a lack of
inbound travel into the country. “The demand expectations that we
have going forward, given what we’re seeing around travel outside outbound
China and other regions in Asia Pacific, and the decline in domestic travel,
[is the decline] will continue in the second half of the year,” she said.
Bottarini said the numbers are
impacting Greater China's total revenue and GOP margins, as well as Hyatt's
fees.
Hyatt President and CEO Mark
Hoplamazian said the increase in outbound travel in China is significant and
“probably higher than we would have otherwise thought.” He said the biggest
problem is the lack of inbound travel and business coming into the country. “We have said for a couple of
quarters now, and it’s embedded in our outlook, that we believe inbound
[airline] lift into China will improve in the fourth quarter or towards the end
of the year, but we have not had that in China to date,” he said. “If you go to
pre-pandemic levels, there was plenty of outbound travel. Everyone talked about
outbound travel from China being a major driver of world global travel demand,
and if that was true, then it’s beginning to be true again. But what was
[happening] then was an equal measure of high-rated business coming into
China, and that’s not present currently.”
Q2 results
Hoplamazian said leisure
transient revenue decreased approximately 2% in Q2 but was up 2% when excluding
the impact of Easter, significant renovations of several key U.S. resorts and
the company’s hotels in Maui, which also had a slower-than-expected recovery
after last year's wildfires.
“Our business transient customer
segment had the largest growth rate during the quarter, with revenue up
approximately 14%,” he said. “Bookings for business travel over the next two
months look very strong, led by corporate-negotiated accounts… While there were
signs of slowing demand in lower chain scales, we saw strength among the
high-end consumer as luxury RevPAR increased 6.9%, driven by hotels in Europe
and Asia Pacific, excluding China.”
In the short-term vicinity, July was extraordinarily strong in terms of total bookings. The bookings that we’re getting are not just filling rooms at compromise rates. We are realizing great ADRs… We also have a swelling of tentative business that is really striking.”
Mark Hoplamazian
Hoplamazian also said he’s been
impressed with how strong group business has performed overall. “In the short-term vicinity,
July was extraordinarily strong in terms of total bookings,” he said. “The
bookings that we’re getting are not just filling rooms at compromise rates. We
are realizing great ADRs… We also have a swelling of tentative business that is
really striking.”
Hyatt’s RevPAR strengths came
from three regions: Asia Pacific, excluding Greater China (up 17.6%), Europe
(up 10.5%) and the Americas, excluding the U.S. (up 9.2%). RevPAR inside the
U.S. was up 2.3% compared to 2Q23.
Eighteen new hotels and over
3,200 rooms joined the Hyatt portfolio in Q2 in addition to previously
announced sales of Park Hyatt Zurich, Hyatt Regency San Antonio Riverwalk and
Hyatt Regency Green Bay and the acquisition of the “me and all” hotels brand
from Lindner Hotels. Hyatt said it expects to close on the sale of an asset by
the end of August (R.W. Baird's Michael Bellisario said it’s the 1,640-key Hyatt Regency Orlando)
which would complete the company’s $2 billion asset sell-down commitment.
Hoplamazian said that in the
second quarter, about one-third of Hyatt’s room openings were conversions, and
he thinks that number will be close to 50% for the second half of the year.
Last month, Hyatt was rumored to
be pursuing an acquisition of Standard Hotels, but that was not mentioned in
the earnings call.
Hyatt still has an opportunity
for more M&A, Hoplamazian said. “Since the first quarter… I’ve
been talking about the fact that we see a robust opportunity, and real
opportunities, not just theoretical, to do portfolio deals,” he said.
“Sometimes that means doing a strategic partnership, like a portfolio deal,
like the Lindner deal… Sometimes, they come in the form of an acquisition, a
brand or a management platform.”
Through the first half of the
year, Hyatt has total debt of $3.8 billion and total liquidity of approximately
$3.5 billion, including $1.9 billion in cash or cash equivalents and short-term
investments. The company has borrowing availability of nearly $1.5 billion
under its revolving credit facility.
Other notes from Q2
earnings:
- Hyatt’s comparable systemwide
all-inclusive resorts net package RevPAR increased 3% for 2Q23
- Net income was $359 million and
adjusted net income was $158 million
- Adjusted EBITDA was $307
million
- Hyatt repurchased approximately
907,000 shares of Class A common stock for $134 million
- Full-year net income is
projected between $1.055-1.115 million
- Full-year adjusted EBITDA is
projected between $1.135-1.175 million
What the analysts
said
Analyst Michael Bellisario of
R.W. Baird said Hyatt’s adjusted RevPAR and EBITDA reductions are likely due to
slowing growth in Greater China. “Still lots of moving pieces in
Hyatt’s model as a result of the segment realignment, and we view expectations
as recently reduced following hotel brand peers’ earnings reports last week,”
he said. “Nonetheless, 2Q24 Adjusted EBITDA of $307 million missed Baird/Street
forecasts at $308-$312 million, and full-year guidance was reduced ~2%.”
Analyst C. Patrick Scholes of
Truist Securities said the earnings miss is similar to comments made by
Marriott last week about weakness in China. “We view the miss as driven by
core operations (net fees of $259 million compared to consensus of $273
million)... While commentary in the earnings release was minimal as to the
earnings performance and slightly lowered 2024 guidance, we speculate that, like
Marriott, weakness in Greater China was a driver in the miss and impactful in
the FY guide revision… Additionally, we believe there may be some negative
impact on 3Q in the Caribbean from the recent hurricane.”