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Hyatt (H) Relies on Unit Expansion to Counter Competition

Zacks Equity Research

Hyatt Hotels Corporation H continues to rely on strong expansion strategies and acquisitions to drive growth. However, intense competition and weakness in China operations are likely to continue to put the company under pressure.

Notably, Hyatt reported better-than-expected second-quarter 2019 results. With this, the company’s bottom line surpassed the Zacks Consensus Estimate for 14 straight quarters, while the top line outpaced the same for the second consecutive quarter. Given its strong brand recognition, efforts to enhance guest experience and increased focus on operational excellence, Hyatt is likely to perform well in the quarters ahead.

Factors Likely to Drive Growth

The company is strongly invested in strategies related to various acquisitions and divestitures that can drive growth. In 2017, it acquired Miraval Group, which extended the Hyatt brand beyond traditional hotel stays into a wellness category that resonates well with the high-end travelers. Moreover, the company is also increasing its focus on private accommodations, another fast-growing travel segment, which has the potential to extend the Hyatt brand beyond traditional hotel space, and is a fantastic fit to the Hyatt portfolio and its brand positioning.

Meanwhile, the company aims to differentiate its brands from one another by providing distinct travel experiences. Hyatt is also consistently trying to expand its presence worldwide and has expansion plans in the Asia Pacific, Europe, Africa, the Middle East and Latin America. Expansion in these markets should help the company gain market share in the hospitality industry, thus boosting business.

Resultantly,  Hyatt’s new signings across its brands globally have consistently outpaced openings and this trend is expected to continue in 2019. In 2018, it registered net room growth of 13.6% on a year-over-year basis. For 2019, it expects unit growth of roughly 7.25-7.75%, reflecting 80 new hotel openings.

In order to survive in a tough economic environment, Hyatt is continuously devising newer ways to enhance guest experience and raise occupancy. The company also has a creative approach to food and beverage at its hotels worldwide, and has created profitable and popular venues that build and enhance demand for its hotel properties. Meanwhile, in 2017, the company launched a new loyalty program, World of Hyatt, which replaced its Gold Passport loyalty program. Notably, World of Hyatt is a platform for guest engagement. The company is witnessing a higher level of guest satisfaction, owing to the enhancements.

Concerns

Hyatt is witnessing some significant top-line pressure in areas like select business in the United States and lower demand in overall China. Resultantly, the company expects RevPAR to slow down in the current year. Hyatt expects RevPAR growth to be 1-2% for the year. With respect to adjusted EBITDA, the company reduced 2019 guidance to $755-$775 million.

Hyatt has significant exposure in Chicago, which makes it vulnerable to the ongoing slowdown in the market. The current year is proving to be difficult for its operations in Chicago. In the first half of 2019, the company’s group room revenues in Chicago moved down 15% whereas overall RevPAR for luxury and upper upscale hotels declined 3.6% through the second quarter. In the same period, Central Business District was down 5.5%.

Meanwhile, the hotel industry is highly competitive, as major hospitality chains, with well-established and recognized brands, are continuously expanding global presence. Hyatt is continuously facing intense competition from large hotel chains like Marriott MAR and Hilton HLT as well as smaller independent local hospitality providers like Extended Stay America STAY.

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