Executives from Choice Hotels International said the franchising company is outpacing revenue performance achieved in 2019, often viewed as the peak year before the onset of the COVID-19 pandemic in March 2020.
With its focus on leisure demand in the upscale, midscale and economy segments, Choice and its franchisees are recovering much faster than competitors in the industry who still rely on group demand as a significant part of their business.
In the third quarter, the Rockville, Maryland-based hotel company reported revenue per available room in its domestic portfolio was $61.37, an increase of 11.4% over the same quarter in 2019. Domestic systemwide average daily rate was $94.59 in the quarter — an 8.8% increase over the third quarter of 2019 — and occupancy was 64.9%, which outpaced the third quarter of 2019 by 2.4%.
Choice CEO Patrick Pacious said during a conference call Thursday that company-wide RevPAR has exceeded 2019 levels for the past five months, and he expects that lift to continue into the fourth quarter, based on positive forward booking data for the Thanksgiving and winter holidays.
"The interesting thing about rate, and RevPAR in general, has not only been the sort of outperformance that we've seen, but we've really seen a one-two punch here with both rate and occupancy gains above what the average chain scale is doing and what the overall industry is doing," Pacious said.
The projection for strong end-of-year holiday demand is based on how the company has fared during leisure-driven periods throughout the year.
"I think we've continually outperformed every holiday going back to Memorial Day," he said. "So that expectation that we have on sort of outperformance of the holidays, we've really been surprised each time that what's really driving a lot of it is the rate aspect."
Overall, rates have been much higher than Choice executives and franchisees anticipated, Pacious said. More demand is on the horizon as the U.S. reopens to international travel on Nov. 8 and bookings from Canadian travelers to the U.S. return. Even domestically, Choice anticipates more "snowbird" travel from consumers in northern states who take trips to the southern U.S. over the winter months.
Pacious is also optimistic a federal infrastructure bill will be passed by Congress, which will boost manufacturing and construction jobs and likely business travel stays in Choice's portfolio, especially in its extended-stay brands.
"We were with a number of our key vendors about a week and a half ago, and a lot of them in order to get supply are thinking about onshoring and building manufacturing here in the United States," Pacious said. "So those are all going to be key drivers for our business travel segments. When I look at sort of the momentum that we're seeing and some of these key trends that are impacting the travel environment in general, they tend to favor our brands, they tend to favor our locations and they tend to favor our guests."
For full-year 2021, Choice projects domestic RevPAR to exceed 2019 levels and increase 1% when compared to that year. Choice also expects higher adjusted earnings before interest, taxes, depreciation and amortization in 2021 than 2019, between a range of $382 million and $387 million. During the quarter, adjusted EBITDA was $133.2 million, up 18% from the third quarter of 2019.
- More Coverage of Choice Hotels International
Revenue Management
Pacious spoke at length during Thursday's call about the high adoption rates among Choice's franchisees of a new revenue-management tool founded on dynamic pricing methodology. He added Choice's hotel owners have captured higher rates, and it's shortening the path to recovery for many franchisees.
"I think in the past, some of our hotels were leaving money on the table with regard to rate," Pacious said. "This tool is providing them with an ability to change their pricing, and it runs dynamic pricing multiple times a day. In the environment like we're in right now, you've got inflation going on and you've got a lot of surprises, 'Hey, this state is lifting a restriction or this event is now going to happen.' ... There's a lot more volatility in a forecast for our owners, and this tool is really helping them adjust to those market trends in real time."
There's room to grow adoption of dynamic pricing in Choice's extended-stay brands, Pacious said, but the technology hasn't yet trickled down to lower-priced segments.
"What we are working on for the future are extended-stay brands for our revenue management capability," he said. "There really isn't anything out there today for those brands that looks like what we use or what we're using today for transient brands, so that 10% of our portfolio is not on this platform yet. That is coming in in a future phase."
Another boost to owners' bottom line has been the use of Choice's proprietary distribution channels — such as its website, mobile app and sales teams — to capture more bookings instead of relying on third-party channels like online travel agencies.
"What's really key when you look back at prior recoveries where the third-party providers took share, that didn't happen this time, and I think a lot of that is not only Choice hotels but the industry as a whole has gotten smarter about not putting distressed inventory out trying to chase occupancy that wasn't there," Pacious said. "So we haven't seen any change other than the continued trajectory of our proprietary channels getting stronger. That's business through our loyalty program and business through our website and our mobile apps."
Development Milestones
In the third quarter, Choice's domestic franchisee agreements for new-construction hotels increased by 52% when compared to the third quarter of 2020, according to the company's earnings release. Year to date through Sept. 30, the company has awarded 289 domestic franchisee agreements, which is a 25% gain over the same period of 2020. Conversions also increased 25% year to date.
Choice's total domestic pipeline of hotels awaiting conversion, under construction or approved for development numbered 860 hotels and 71,000 rooms through the end of third quarter. The company's extended-stay portfolio grew to 467 domestic hotels as of Sept. 30, which is an 11% increase over the first three quarters of 2020. Choice also grew extended-stay domestic franchise agreements by 85% in the third quarter of 2020 and by 20% over the same period of 2019.
As of press time, Choice's stock was trading at $144.50 a share, up 38.3% year to date. The New York Stock Exchange Composite Index was up 19.6% for the same period.