Wyndham's CEO confirms what we already know: scaling up matters

From left: Moderator Scott Berman, principal at PwC; Geoff Ballotti, CEO of Wyndham Hotel Group; Monty Bennett, chairman and CEO of Ashford; Mark Hoplamazian, CEO of Hyatt Hotels Corp.; and Greg Mount, CEO of RLH Corporation. Photo credit: ALIS

Assailed from every conceivable direction by the likes of Expedia, Airbnb and other intermediaries and disruptors that may pop up before this story is posted, legacy hotel companies have taken a tack to get bigger to ward these forces off. It's partly, we know, why Marriott acquired Starwood and why other hotel companies are being preyed on by some of the larger players in the game.

One of those is Wyndham Hotel Group, part of Wyndham Worldwide, which has made two recent acquisitions that have helped to increase its footprint, therefore its buying and distribution power.

In July, Wyndham acquired AmericInn, a midscale brand with the bulk of its supply in the upper midwest, for $170 million, which, in today's overheated valuations, could be considered small potatoes. Then, in January, Wyndham ponied up a considerable amount more, $1.9 billion, to acquire La Quinta, adding some 900 hotels. 

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There was no secret that La Quinta had been on the market for nearly one year, and, from the get-go, as Geoff Ballotti, CEO of Wyndham Hotel Group, said, Wyndham's interest was piqued. "When they announced they were for sale, we were interested in a brand of that size and scope and quality in the midscale space," Ballotti said during a session at the Americas Lodging Investment Summit, in Los Angeles, last month. "Scale and system size has never mattered more."

With the acquisition, Wyndham grew its total hotel inventory to more than 9,000 hotels and, as Ballotti further pointed out, a move from fifth to third in total rooms in the hotel space. At last count, Wyndham had around 600,000 rooms globally, less than Marriott, the leader, by almost 500,000 rooms, but one thing is clear: hotel companies are jockeying for position and administering their riding crops harder than ever.

Wyndham's deal for La Quinta is as much about bricks and mortar as it is, too, about people; to wit, loyalty members. The deal adds around 13 million La Quinta Returns members to Wyndham's loyalty roll. (By contrast, there are more than 50 million Wyndham Rewards members worldwide.) Loyalty member scale allows hotel companies to market directly to customers and, at the heart of that, is cajoling them to book directly bypassing the bevy of online travel agencies, whose oftentimes exorbitant commissions cut into hotel owner margins. In fact, of the deal, Ballotti said the addition of those "passionate" members was "what was most attractive" about it. 

On the other hand, Hyatt Hotels Corporation is not the biggest hotel company out there, and that's just fine, according to CEO Mark Hoplamazian. And though he notes his company's strong pipeline and record pace of hotel openings, he also isn't concerned with competing on size. "We are not focused on being the biggest; it's a deliberate approach," he said. 

Hyatt's strategy has been to add hotels in underpenetrated markets, investing in tangential businesses, like home-rental site Oasis Collections, and a past investment in upscale home-sharing platform onefinestay. 

Instead of having a brand for every type of traveler, Hyatt made a conscious decision a year-and-a-half ago to focus on the upscale traveler, Hoplamazian said. One of the traits Hyatt identified with that traveler was their commitment to health and wellness. "It's clear that wellness is a great focus," he said. Last January, Hyatt acquired Miraval Group, whose business is wellness resort destinations and spas. The acquisition by Hyatt involved the brand, the management team and the real estate: the flagship Miraval Arizona Resort & Spa in Tucson, the Travaasa Austin Resort, which is currently being redeveloped and will transition to the Miraval Austin by 2019, and the Miraval Life in Balance Spa at Monarch Beach Resort in California. Hyatt at the time was also pursuing an agreement to acquire and redevelop the 380-acre Cranwell Spa & Golf Resort in Lenox, Mass.

At ALIS, Hoplamazian said he wanted to expand the brand globally, and specifically alluded to Asia, which he called "still healthy and good" from an operating perspective.

Industry Pulse

Others have mixed feelings on the continued health of the hospitality industry. Monty Bennett, the chairman and CEO of Ashford, said optimism still abounds, the recovery continues, but "we are waiting for the other shoe to drop." According to Bennett, it's the Federal Reserve that is holding it. "They could end the cycle and create recession by taking interest rates up," he said. 

While the concern in December was that the Fed could raise rates more than three times in 2018, this week's market tumble could put a halt to that schedule, some think. "Debt service is still low," Bennett said, but if "rates go up, all of us with debt can't hire people. If the new [Fed] chair [Jerome Powell] continues to be dovish, we have great times ahead of us." Consider this article, published just prior to the stock market's precipitous drop. 

Bennett is also charting any uptick in inflation, which continues to track historically low. Inflation, however, is not a bad thing for hotels, which can reprice its rooms daily. "It's not bad if inflation ticks up; it helps with room rates," Bennett said.

Greg Mount, the CEO of RLH Corporation said the current elongated hotel cycle is now in its 114th month, and cited "strong group bookings" as help giving this cycle lift. 

"We are operating at high occupancy levels with high demand," Hoplamazian said. "The high-end leisure customer has maintained great demand. If you look forward at booking curves, it's highly robust. China is a solid base of demand growth and Europe has surprise upside."

On the transactions front, according to Bennett, it's a sellers' market out there. "There is lots of capital and competition for deals," he said. "Sellers have buyers to choose from and the refinancing markets, which are still great. Sellers don't have a motivation to sell right now. There is some talk that the appraisal market hasn't caught up with the real market, where a 70-percent appraisal LTV is really 90 percent."

From a brand perspective, Bennett still believes in the value of brands. "The marketplace speaks: They offer value over not having them," he said. 

As a brand itself, Red Lion's Mount said it is incumbent on brands to stay ahead of the curve because "things change," he said. He noted that the company is now looking at the implementation of nascent technology like blockchain.  

Technology was also a talking point for Hoplamazian, who thinks it's time for legacy systems to get an overhaul. "I think our core operating systems we have been using have been static and have not evolved," Hoplamazian said. "It's been dominated by ERP providers that are inflexible and costly to modify and change."