Wyndham Hotels & Resorts is banking on an asset-light mix, distribution that favors drive-to markets and belt-tightening measures to survive the COVID-19 pandemic, company executives said during a May 5 first-quarter earnings call.
With 94% of its 6,300 U.S. hotels open, nearly 90% of them located outside of major cities in leisure-friendly drive-to destinations, CEO Geoffrey Ballotti said Wyndham brands are poised for a quick recovery when travel demand returns. Overall, they are less dependent on air travel and large group events, which are likely to take longer to recover.
Wyndham’s sweet spot — select service, which describes about 90% of its hotels — also gives it an edge in a severe market downturn. With lower labor costs and higher margins, “we believe the majority of our hotels can support debt service at occupancy levels of approximately 30% before receiving any governmental assistance, which lowers the 30% break-even considerably,” Ballotti noted.
Occupancy within the company’s economy brands is hovering in the low-30s, he added.
In China, where only about 25% of Wyndham’s 1,600 properties stayed open at the peak of the COVID-19 outbreak, nearly 1,400 hotels are now operating and registering occupancy gains. In the past two weeks, numbers in the single digits and teens have climbed to around 20%, Ballotti said.
With franchises comprising 96% of its hotels, Wyndham has limited asset exposure, said Chief Financial Officer Michele Allen. That enables it to pivot quickly as the market fluctuates.
Recent evidence of that is cost-cutting actions that preserved some US$255 million in cash. The savings came from eliminating 440 positions, cutting capital expenditures, curtailing all non-essential spending and indefinitely suspending Ballotti’s salary and the board of directors’ cash compensation.
Mixed results
The quarter ended March 31 was a mixed bag for Wyndham. Net income was up US$22 million for the period, 5% over the prior year. Adjusted net income dropped 8%, to US$47 million.
Revenues declined 12% to US$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. US 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.
Neither Allen nor Ballotti would speculate on how RevPAR will trend for the balance of the year.
Despite world events, Wyndham’s pipeline continues to expand. As of May 4, it stands at approximately 128,000 rooms, a 2% gain from last year. Some 189,000 rooms are in the development pipeline — up 4% YOY, Ballotti said. About 58% of that development is outside the US, 72% of it new construction. Nearly 40% of that has broken ground.
Going forward, Ballotti said development efforts would focus heavily on conversion candidates. That 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.
He suspects independents will be motivated by two factors: travelers seeking some reassurance of safe, clean lodging, and OTA commissions that have cut too deeply into the margins of many independent owners.
“Independents are not receiving the support that many of their branded competitors are,” Ballotti observed.