LAS VEGAS — Choice Hotels International's $675 million acquisition of Radisson Hotel Group Americas last June is the big topic of discussion at the company's 67th annual convention, which kicked off Tuesday. The event is being held at Mandalay Bay Resort & Casino with more than 6,000 hotel owners, general managers, vendors and associates in attendance.
“We saw something in the Radisson family that others didn’t,” Choice Hotels President and CEO Patrick Pacious said to the Radisson attendees during the session. “From the very beginning, we saw a lot of Choice attributes in you: hard work, resiliency and the way you never give up. And we knew that by joining together we could create more value for all our franchise owners and your guests.” Radisson, he added, brings both younger travelers and more business travelers to the table, adding nearly 100 new corporate accounts to the company’s roster and boosting its managed corporate sales revenue by $180 million, a nearly 20 percent increase. “And when combined with the power of the Choice engine, it's a win-win for all of us.”
Revenues
Choice, Pacious said, reported “enormous growth” over the past year. Revenue per available room in the company’s economy brands improved 5 percent from the year before. Extended-stay RevPAR was up 10 percent, midscale was up 12 percent and upscale was up 24 percent. Radisson brands reported 21 percent RevPAR growth, Pacious added. “And since joining Choice last August, we've already improved your brand awareness, direct contribution and groups business. We can't wait for you to become fully integrated into our platform later this year.”
The new hotels the company has added over the past two years are, on average, performing at twice the revenue of the hotels that have exited the system, Pacious said. “We are now the challenger in upscale, we own extended-stay and we keep stealing share in midscale and upper-midscale,” he said, adding that economy hotels “led Choice and an entire industry out of a pretty tough time.”
Forewarned, Forearmed
While much of the general session focused on positives, Pacious and Isaac Collazo, VP of analytics at STR, cautioned the crowd about economic headwinds that could affect franchisees and the industry at large—but also balanced vigilence with optimism. “There's talk of an economic slowdown and interest rates have been rising,” Pacious acknowledged. “But our longtime owners will tell you we've been here before. We know how to navigate this kind of environment.” The last time interest rates were at current levels was back in 2006 and 2007, he noted. “And even then, we saw amazing levels of new hotel growth and prosperity for our owners.”
The time to build, Pacious said, is “when others are fearful.” The company ended 2022 with nearly 800 new hotels or new-construction hotels in its pipeline. “And right now almost 100 hotels are actually under construction and expected to open this year.” A further 53 are expected to begin construction this year, he added.
Room demand for the 12 months ending in March reached 1.2 billion, nearly equal to the levels seen at its peak in February 2019, Collazo said. “On average, we are selling 3.5 million rooms every day.” In the upper-midscale and midscale segments—the categories where most of Choice’s hotels fit—room demand is higher today than before the pandemic. Supply is higher today than before the pandemic, he added, but supply growth is slowing: “With high demand and low supply growth, there's still room for more performance gains.”
Collazo agreed that the U.S. economy was slowing, with growth over the next two years “well below” what is considered normal. “In fact, Oxford Economics is predicting that the economy will enter a mild recession later this year and into the first part of next year,” he said. While a one-point decline in gross domestic product would normally mean a four-point decrease in room demand, Collazo said the STR team is “not as worried” about this particular slowdown due to actions taken by the Federal Reserve to tame inflation and due to solid employment numbers. “Total employment is expected to be flat to up,” he said. Ultimately, he said, all key performance indicators—occupancy, average daily rate and RevPAR—are expected to grow despite an economic slowdown.
5 Rs
Most of the economic changes the country and the industry are going through are “actually a net positive,” Pacious said—“positive for our brands, and positive for the kinds of guests that we serve.” The company, he added, has been preparing to meet these trends for years.
Pacious emphasized Choice properties are particularly well-positioned to capitalize on what he called the “5 R’s” that he credits for driving an increase in travel demand:
Rising wages: The average American salary was 8 percent higher in February 2023 than it was a year earlier, Pacious said, and people on Social Security got an 8.7 percent cost-of-living adjustment. “Forbes tells us 87 percent of Americans said they plan to travel at least as much as they did last year and half said they plan to travel more, including two thirds of those between the ages of 18 and 26,” Pacious said.
Retirements: As of last October, more than half of all U.S. adults aged 55 and older were retiring, and more than 3 million more people are reaching retirement age every year. “Those retirees are going to be traveling and they'll stay at your hotels because you appeal to their desire to get great value for their money,” Pacious said.
Remote work: The ability to work from anywhere means that more travelers can mix business with pleasure. “We're seeing more and more guests extend their weekend leisure trips to include shoulder days,” Pacious said. “From October through December last year, Choice Hotels saw occupancy rates on Thursday and Sunday nights grow four percentage points over 2019 levels.”
Road trips: Two thirds of Americans are planning to take a road trip in 2023, and most of them are heading out of state, Pacious told the attendees. “You are in all the places that they're headed to and you're all along the way.” About 90 percent of all Choice properties are in suburban, interstate and small town locations, he added.
Rebuilding America: Beyond the growth in manufacturing jobs (nearly 350,000 jobs returned to the U.S. in 2022, up 25 percent from 2021, according to Deloitte), the Infrastructure Investment and Jobs Act allocates $550 billion in new federal spending over five years for roads, bridges, railways and airports. “Those projects will require thousands of blue collar workers to travel as they rebuild our nation's infrastructure,” Pacious said. “Experts estimate that these investments will generate between 50 and 100 million roomnights over the next decade. And that's more good news for us.”