For Immediate Release
Chicago, IL – June 13, 2018 – Today, Zacks Equity Research discusses the Industry: Hotels, Part 2, including Marriott International, Inc. (MAR - Free Report) , Hyatt Hotels Corp. (H - Free Report) , Hilton Worldwide (HLT - Free Report) , Choice Hotels (CHH - Free Report) and WyndhamWorldwide .
Industry: Hotels, Part 2
Impressive performances by U.S. hotel companies in first-quarter 2018 has raised expectations for the remainder of the year.
Underpinning this favorable view is the positive outlook for the U.S. economy, thanks to healthy consumer spending, a strong labor market, rising government expenditures and increased consumer confidence.
The U.S. economy is anticipated to grow at an annualized rate of 4% in the second quarter, per the Atlanta Federal Reserve’s GDPNow forecast model (as of May 25). This marks a sharp increase from 2.3% GDP growth registered in the first quarter of 2018. Robust domestic data gives an indication that the industry will continue its bull run in the second half of 2018.
Thus, there are plenty of reasons to be optimistic about the broader hotel industry over the short and the long term. Below, we discuss what investors can look forward to in the coming period:
Steady Growth in Demand
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 decelerated, higher average daily rates (ADRs) will continue to drive revenue per available room (RevPAR).
Given the positive economic outlook for the remainder of the year, which could result in the ninth successive year of occupancy growth for the U.S. lodging industry, PricewaterhouseCoopers (PwC) projects demand (+2.4%) to outpace supply (+2.0%) in 2018. Further, in 2019, it anticipates demand and supply growth of 1.9% each. Occupancy in 2018 is likely to increase 0.3% to 66.3%.
International Expansion to Drive Growth
Most of the hotel companies are exploring international expansion, especially in relatively untapped emerging markets and the outlying areas surrounding major cities. Unsaturated markets in the Asia Pacific, the Middle East, Brazil, Russia and Africa are being targeted by hospitality companies.
China, which is the largest source market for outbound travel, is the most significant market for the hotel industry. In less than two decades China has become the world’s most powerful outbound market for hotels and leisure.
Interestingly, the country is a major revenue contributor for Marriott International, Inc. which entered into a joint venture with Alibaba with an aim to improve market share, expand membership of its loyalty programs and reduce distribution costs. India is also becoming a hot spot for U.S.-based hotel businesses as it gains precedence 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.
In fact, Hyatt Hotels Corp.’s major target markets include India and China. Apart from these, the company also has expansion plans for diverse international markets including Australia, Brazil, Germany, United Kingdom, Indonesia, Japan, Mexico, Saudi Arabia, Singapore, Thailand and the Netherlands, among others.
Meanwhile, Europe remains an attractive market despite repeated terror attacks and Brexit-induced uncertainties. Major players like Marriott, Hilton Worldwide, Choice Hotels and WyndhamWorldwide have a strong foothold in this region.
Several players in the space are also looking to leverage from rise in accommodation demand in Latin America. In this respect, WyndhamHotel Group acquired Latin America's leading Fen Hotels. 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.
Loyalty Programs Attract Customers
Loyalty programs are one of the major driving factors in the hotel industry. In order to survive in a tough economic environment, the companies continuously devise ways to enhance guest experience and raise occupancy. Given the fact that reward members stay longer than non-members and generate more revenues for their franchisees, hotel chains have been increasingly focusing on loyalty programs.
Hilton has created one of the largest loyalty programs, Hilton Honors. With about 74 million members, this network has created an extremely valuable asset for the company. In 2017, the company added over 11 million members to the program. Also, in the first quarter of 2018, more than 3 million members were added to Hilton Honors. Innovations such as the Hilton Honors app continue to drive growth in the program.
With about 52 million members, Wyndham Rewards offers one of the most generous reward program payouts in the industry. In fact, per a recent study conducted by Ideaworks Company, Wyndham Rewards is touted as the most-rewarding loyalty program in the U.S. hotel industry.
Recently, Marriott International announced its plans to unify its loyalty program benefits across Marriott Rewards, The Ritz-Carlton Rewards and Starwood Preferred Guest (SPG) in August. The combined loyalty program is expected to provide richer perks to the company’s loyalty members by enabling them to earn roughly 20% points for every dollar spent.
The new loyalty program will provide members more than what was offered under the prior programs. Under this global loyalty program, members can book stays, and earn or redeem points across 29 brands covering 6,500 hotels in 127 countries and territories.
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