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Zacks Industry Outlook Highlights: Belmond, Hyatt, InterContinental Hotels Group, Marriott International and Wyndham Worldwide

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For Immediate Release

Chicago, IL – November 2, 2017 – Today, Zacks Equity Research discusses the Industry: Hotels, Part 2, including Belmond Ltd. , Hyatt (H - Free Report) , InterContinental Hotels Group (IHG - Free Report) , Marriott International, Inc. (MAR - Free Report) and Wyndham Worldwide Corporation .

Industry: Hotels, Part 2

Link: https://www.zacks.com/commentary/134877/us-hotels-bank-on-expansion-unique-offerings-for-growth

Despite the surge of new inventory in the marketplace along with economic and political upheaval in certain pockets all over the world, confident consumers are likely to bode well for hotels.

Also, as people are steadfast on spending time with loved ones over the upcoming holiday season and keep looking for unique experiences at all price points, hoteliers believe that their diverse portfolio of travel offerings can continue to deliver on that growing demand.

Thus, we see no reason why the U.S. hotel industry should not continue to enjoy gains on both the top and the bottom lines in the near term, albeit at a more modest pace than the past two or three years.

In fact, there are plenty of reasons to be optimistic about the broader hotel industry over both the short and the long terms. Below, we discuss what investors can look forward to:

Demand-Supply Gap Favorable:Improving economic indicators are blessings for the hotel industry as these have perked up leisure and business travel demand. Though group occupancy has been mostly down of late, higher transient occupancy indicate that demand is being lifted by individual travelers, both domestic and international.

Notably, the supply-demand environment in the United States has been favorable since 2010 with growth in demand outpacing supply growth. Though, of late, the gap between demand and supply growth has narrowed considerably and occupancy growth has slowed, higher average daily rates (ADRs) are expected to keep driving revenue per available room (RevPAR).

Meanwhile, the recent hurricanes have had a mixed impact on U.S. hotels. Though major hotel markets that were affected saw dramatic performance declines, evacuation destinations experienced significant performance growth.

Surely, renovation and rebuilding work will take time and prove costly. Yet this could bring good news for the U.S. hotel industry, given the expected moderation of demand going forward. This is because the number of rooms under construction could fall considerably in the near term, resulting in a slower rise in supply.

In fact, hotels that are able to re-open shortly could see higher demand in the coming months as residents dislocated by the storm or flooding look for a place to stay in the interim and from increased influx of hurricane-related visitors. Notably, even if room demand remains steady, occupancy rates can be expected to rise as supply declines. Though ADRs are likely to remain largely unaffected, the slightly stronger occupancy projections may push RevPar higher.

Thus, taking into account the positive economic outlook for the remainder of the year and impact of hurricanes, we expect the gap to remain favorable in 2017 as well. Notably, PricewaterhouseCoopers (PwC) is projecting demand (2.1% rise) to outpace supply (increase of 2%) once again in 2017. This will lead to the eighth successive year of occupancy growth for the U.S. lodging industry.

Differentiated Offerings to Boost Growth: Hotel chains are meticulously working on guest satisfaction via brand conversion and re-modeling to gain competitive advantage. In fact, brand perception is likely to have a growing influence on the mass market as well as luxury space. With the market becoming increasingly saturated, especially the luxury segment, hotels will have to differentiate themselves.

Brands that can offer something uniquely compelling are likely to grab market share and thus their ability to innovate will hold the key to success. Therefore, ace hoteliers like Marriott, Belmond Ltd. and Hyatt are firing on all cylinders to sync their brands to the order of the day.

Moreover, in recent times, brand development is being shaped not only by economic trends, but also by millennials’ tastes. It is Gen Y that constitutes a major portion of the current tourism market and their tastes and expectations are widely different from their preceding generations.

According to players in the hospitality sector, eco-awareness, wellness and brand distinctiveness are important themes for this generation. Big hotel brands are thus launching more lifestyle hotels, which are mainly boutique brands that benefit from the parent companies’ infrastructure. These include brands like Marriott’s Element, Aloft and Edition; Andaz by Hyatt; and InterContinental Hotels Group’s Hotel Indigo.

International Expansion: Major hoteliers are exploring growth opportunities abroad, especially in the emerging markets and the outlying areas surrounding major cities. Hoteliers are forging ahead with expansion plans in emerging markets with great long-term potential despite looming macroeconomic concerns.

A number of U.S.-based hoteliers are targeting the unsaturated markets in Asia-Pacific, the Middle East, Brazil, Russia and Africa. Within Asia, China promises significant growth, despite an economic slowdown, with visits expected to increase substantially ahead. Notably, China is the largest source market for outbound travel now. In fact, Chinese outbound travel is set to boom further with 700 million trips projected over the next five years.

Interestingly, the country is a major revenue contributor for Marriott International, Inc. In fact, Marriott recently entered into a joint venture with Alibaba, the largest e-commerce platform in the world. With this partnership, the company aims to capture a greater share of this growing Chinese travel market, expand membership of its loyalty programs and reduce distribution costs.

Apart from China, India is becoming a hot spot for U.S.-based hoteliers with its emergence as a global business hub. Although economic growth rates are slightly lower than China, the country has great long-term growth potential as a tourism market.

Notably, Hyatt Hotels Corp. is also continuously looking to expand its brand presence and enter under-penetrated markets such as India and China. Among others, Japan, Indonesia, Australia, Singapore and Thailand continue to attract travelers. The key players in the industry are also targeting the high-potential Middle East countries such as Turkey and United Arab Emirates (UAE) that offer strong infrastructure.

Many of the hoteliers are also looking to leverage from Latin America’s upsurge in accommodation demand. In this respect, Wyndham Worldwide Corporation’s Hotel Group announced the acquisition of Latin America's leading Fen Hotels in Dec 2016. Meanwhile, with an increasing number of managed and franchised limited service hotels in Mexico, Colombia and Brazil, Marriott expects its distribution in the Caribbean and Latin American region to increase 75% by 2018.

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