Choice Hotels' Q3 illuminates technology, franchising innovations

A new Cambria opened in Chicago last quarter, the second from the brand in the city.

Choice Hotels International’s ambitions lie beyond hospitality. That was the clear takeaway from the company’s Q3 2017 earnings call, where newly minted president and CEO Pat Pacious described Choice’s place in the hospitality ecosystem. In Pacious’ first earnings call since taking the helm at Choice, he described the company as being located at the intersection of hospitality, franchising and technology, and expressed an interest to grow each of those pillars independently and aggressively.

First, some numbers. Dominic Dragisich, CFO at Choice Hotels, said the company’s domestic systemwide revenue per available room was up 2.1 percent year-over-year, while average daily rate was up 1.2 percent. For Q4 2017, Choice is forecasting an ADR increase of between 1 percent and 3 percent vs. the same period year-over-year, with a full-year increase of 2 percent to 3 percent over 2016. The company also secured a 2.3-percent increase in international rooms growth year-over-year through Sept. 30, 2017, and for the year to date the company opened 6,000 rooms internationally with a further 6,300 in its international pipeline.

Pacious began his portion of the call talking about Choice’s expanding pipeline, which has more than 100 Cambria hotels open or under development in the U.S. The Cambria brand opened two properties last quarter with a new hotel in New Orleans and a second property in Chicago, but the real development machine at Choice is the Quality Inn brand. This midscale machine recently opened its 1,500th hotel worldwide, and the brand’s portfolio grew 7 percent domestically since September of last year. The Sleep Inn  brand has 120 hotels in its pipeline, and experienced a 22-percent increase in new domestic franchise agreements year-to-date.

Choice’s loyalty program, Choice Privileges, added 4 million new users so far this year. In total there are 33 million Choice Privileges members worldwide today, up from 25 million before the relaunch of the program. Choice is also taking part in the industry’s effort to drive direct bookings through its “Badda Book. Badda Boom.” ad campaign, which Pacious said helped the company drive roughly twice as many direct bookings than its chain scale competitors. 

Other Pillars

That covers hospitality, now onto the company's second pillar: Franchising. Choice signed 133 new domestic franchising agreements during Q3, and the company’s SmartBriefs revenue-management tool is currently being used by 4,000 hotels. Pacious said the company’s direct-booking push is helping Choice deliver more than 60 percent of overall revenue to franchisees through primary channels, focusing mainly on Choicehotels.com.

For the first nine months of 2017, Dragisich said Choice signed 415 new franchise agreements, 10 percent more than in 2016.

“Franchise profitability is a cornerstone of our business,” Dragisich said during the call. “We expect full-year franchise agreements growth will exceed those posted in 2016.”

Choice’s final pillar, technology, is the company’s largest long-term investment. Currently, Choice is investing in a new global reservations system for its operators, which is due out in 2018. The cloud-based system will be designed to adapt to future innovations in artificial intelligence and voice, and is Choice’s way of future-proofing itself against future technology curveballs.

“Choice is a platform that handles more than $7 billion in transactions, and so we have made advancements in cloud computing, data analytics and mobile,” Pacious said. “Our future depends on it.”

On the topic of the new reservation system being developed for Choice franchisees, Pacious compared it to updating the crumbling infrastructure found throughout the U.S. He said it is easier to build new bridges than repair existing ones in some situations, which is exactly what Choice is doing. 

“We wanted to move to the cloud to reduce costs, as well as the time it takes for us to reach our customers,” Pacious said. “We have a lot of access to customer and franchisee data, and we are moving into a world where [artificial intelligence] and voice-based searches will have to ingest a lot of data organically. It’s an issue that will affect our franchisees and guests over the next 10 years.”

The Ascend Collection is the hospitality industry's oldest and largest soft-brand collection. Pictured: The Dove Creek Lodge in Key Largo, Fla.

Onward and Upward

When asked about the effect the recent hurricanes may have had on Choice’s performance, Pacious said the company has a lower penetration in Texas when compared to its competitors, which is where the majority of the recovery efforts are expected to take place. Because of this, Choice dodged a bullet when it came to damage from the hurricanes, but also won’t enjoy some of the benefits that come from rebuilding affected areas.

“We had about 350 hotels between Harvey and Irma’s impact areas, and we’re down to about a dozen hotels still closed,” Pacious said. “The impact to us is net positive as first responders and rebuilding efforts move into the areas. Hurricanes have a tail on them for hotel [activity], and Harvey will have a longer tail.”

Also, while the industry continues to fawn over unique independent hotels, and soft brands’ standing grows among investors and travelers, Choice’s Ascend Collection continues to remain strong. In all, 40 Ascend hotels are opening this year, with more to come in 2018.

“Choice was the first to launch a soft brand, and we are still the largest,” Pacious said. “We haven’t seen much of an impact from [competitors launching soft-brand] collections. Ascend continues to remain a great value proposition for developers, and its growth trajectory domestically and internationally remains positive.”