Wyndham Hotels Emphasizes Boosting Rates Instead of Occupancy

If you tried to build a hotel company best suited for 2022, you would probably build something like Wyndham Hotels & Resorts. The company has a tilt toward U.S. leisure travelers in “drive to” destinations. It also has more select-service hotels, which have lower labor needs, than its five largest rivals. These traits have proven well matched to today’s market, where business and international travel hasn’t recovered and labor issues are plentiful.

Yet Wyndham also has another ingredient in its recipe that has been less appreciated. It has abandoned the classic hotelier’s mindset of trying to fill up as many rooms as possible, even if discounting is required. The Parsippany, NJ-based company has instead adopted a modern hotelier’s strategy of charging the highest rates the market can bear — even if that means leaving some rooms vacant.

Pushing rates hard helped drive Wyndham’s strong second-quarter earnings results, reported on Wednesday. The company generated $92 million of net income, a measure of profit, on $386 million in revenue for the three months ending June 30.

In the quarter, Wyndham’s average daily rate worldwide was 17 percent higher than pre-pandemic levels, but its occupancy was still 12 percent less than 2019’s level.

In other words, it pushed higher rates rather than trying to maximize occupancy. That’s a different approach than most hoteliers took after the 2008 and 2000 recessions.

The strategy appeared to pay off. Wyndham’s U.S. revenue per available room, a key industry metric, surpassed pre-pandemic levels by 9 percent, to $56, for the first time since the crisis began.

“July month-to-date domestic RevPAR [revenue per available room] is running 6 percent ahead of where it was back in 2019,” said president and CEO Geoffrey Ballotti in an earnings call.

Globally, its revenue per available room was up 3 percent, to $44, versus 2019 levels.

Net Room Growth Appears Steady

Wyndham reported that its net room growth remained on track for meeting its forecast of between 2 and 4 percent this year.

“The biggest driver has been retention, a.k.a. keeping rooms in the system,” wrote Patrick Scholes and his team at Truist investment research in a report.

Scholes credited Wyndham’s revenue management tools, or software to help hoteliers set rates in response to supply and demand trends, as being “particularly valuable.”

Wyndham has removed more than 80,000 rooms in the U.S. for “substandard quality” since 2017, the company said. Essentially kicking franchisees out for not meeting brand standards had hurt the company’s net room growth several years ago. But the move has since helped support the retention of franchisees who do maintain high quality, Scholes said.

More Direct Bookings

Also helping Wyndham sign and keep more franchisees are recent enhancements and marketing of its loyalty program — which helps its franchises drive more direct bookings at higher profits than third-party bookings.

“Domestically, nearly one out of every two check-ins are asking for their Wyndham reward points at check-ins, with brands like La Quinta now approaching a 55 percent Wyndham Rewards share of occupancy,” Ballotti said. “Revenue generated from direct bookings on our brand.com sites grew nearly 30 percent in the quarter compared to 2021, outpacing the rate of growth across all third-party channels, driven in large part by the Wyndham Rewards loyalty program.”

Betting on Economy Extended Stay

Earlier this year, Wyndham signed contracts for 50 construction projects under its new economy extended-stay hotel brand, called Project Economy Hotel Opportunity, or Project ECHO.

On Wednesday, it announced it now had signed 72 projects, with a goal of 300 hotels over the next decade.

No Regrets on Not Buying Radisson

Some industry analysts were surprised that Maryland-based hospitality franchisor Choice Hotels International acquired Radisson Hotel Group Americas this year. Why did Wyndham not buy the assets?

“We’ve looked at Radisson multiple times over the years,” Ballotti said. “It’s just never been, over those years, a strategic fit.”

Radisson’s Country Inn & Suites brand competes directly with La Quinta, and the company also has full-service Radisson and the premium Radisson Blu brand, which compete with Wyndham and Wyndham Grand brands.

“Those are not brands that we’ve ever felt we could grow more quickly than our brands, which compete with Radisson in those segments,” Ballotti said.

“Finally, we’ve been successful in exiting our own real estate and our management guarantees, which would have come back with an acquisition of Radisson,” Ballotti said.

Twinsies Is Better?

Wyndham debuted its first dual-branded hotel in June. The La Quinta Inn & Suites and Hawthorn Suites by Wyndham, based in Pflugerville, Texas, is the company’s first new-build property that has two brands baked in on either side.

Several hotel companies have been rolling out the dual-branded approach to try to maximize appeal in local markets.

Dual branded hotels can “reduce costs to franchisees” by having some of the same furniture in both brands, Scholes at Truist noted.

The opening was also typical of many hotel openings these days. It was supposed to open on May 16 but opened on June 2 instead because of trouble installing Wi-Fi given today’s labor and supply-chain problems.

Truly Asset-Light

This year Wyndham finally became a true asset-light hotel company, having sold the last two properties it owned.

It has proven a good time to sell assets. For example, its Wyndham Grand Rio Mar Resort in Puerto Rico fetched gross proceeds of about $62 million.

“Over the past few years, our teams around the world have made tremendous progress in simplifying our operating model,” Ballotti said. “We negotiated an exit for our select service management business and sold our 2 owned hotels. And importantly, we were able to lock in long-term franchise agreements at full fees on all of these hotels.”

The company’s ending cash balance of $400 million could be used for mergers and acquisitions, Ballotti said. It’s particularly looking for hotel portfolios that could provide growth in existing and adjacent franchise markets. Some analysts said the company may look overseas given the strong U.S. dollar.