US hotels: hail the staycationers
Coronavirus curtailed travel but extended stay chains are still showing signs of life
Hotels are in the business of providing a good night’s sleep — something the industry’s own executives may lack. Last year, the US hotel industry took a record $168bn in sales, according to data firm STR. After the pandemic brought global travel to a standstill it will be lucky to get half that in 2020.
However, one segment is seeing signs of life: extended stay hotels. Larger rooms with fully equipped kitchens and self-service laundry have proved popular with a wave of US staycationers looking for a holiday break without any flights. The rooms, priced for budget-conscious travellers, are more popular than those at high-end hotels.
Marriott International, the world’s biggest hotel company by rooms, illustrates the trend. The company’s extended stay chain Residence Inn had the highest occupancy rate in the group during the second quarter, at about 40 per cent. This topped its high-end brands Ritz-Carlton and W Hotels, where occupancy languished at 8 and 6 per cent respectively.
Investors have rewarded smaller hotel groups that focus on budget and leisure travellers. Shares of Wyndham Hotels and Resorts, the company behind the La Quinta and Howard Johnson chains, have surged more than 140 per cent in price from their March lows to trade near pre-pandemic levels. Yet operating profits will probably not return to last year’s level until 2022. The stock prices of other budget specialists, Choice Hotels and Extended Stay America, have doubled or nearly doubled over the past five months.
In a market long dominated by business travellers and conferences, there is no sugarcoating the fact that 2020 will be a painful one for hoteliers. Two industry measures, occupancy rate and revenue per available room (Revpar), are on track for the biggest annual drop ever recorded. Big players such as Marriott and Hilton have the finances to ride out the storm. But the wipeout will also make smaller groups such as Wyndham and Choice Hotels an attractive takeover target. At 19 times forward earnings, Wyndham’s valuation still trades cheaply compared with Marriott’s 32 times.
Forget the fancy hotel spas and swimming pools. Indoor kitchens are in.