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Hyatt Hotels (H) Rides on Expansion Strategy Amid Pandemic

·4 min read

Hyatt Hotels H is likely to benefit from expansion efforts, reopening of economy and gradual increase in occupancy rate.

Shares of Hyatt have gained 19.6% compared with the Hotels and Motels industry’s 22.4% growth. Notably, the company is witnessing a sequential improvement in RevPAR and also anticipates this movement to continue in the second half of 2021.

However, dismissal traffic, travel restrictions and uncertainties relating to the pandemic have negatively impacted the company.

Factors Driving Growth

Hyatt intends to diverge its brand portfolio by providing distinct travel experiences to its customers. The company is consistently trying to expand presence worldwide. Apart from its primary expansion plans in India and China, Hyatt continues to expand in diverse international markets like Australia, Brazil, Germany, the U.K., Indonesia, Japan, Mexico, Saudi Arabia, Singapore, Thailand, Netherlands South Korea, Canada and the Caribbean.

During the first quarter of 2021, the company opened 23 new hotels (or 3,919 rooms), contributing to strong net rooms growth of 6.5%. This marked the opening of the 1,000th hotel in the quarter. During the last three quarters, the pace of new openings has been high.

With the gradual opening of the economy and easing of government restrictions, Hyatt is observing an increase in demand trends in the market but at a slower pace. Notably, in first-quarter 2021, occupancy level in Greater China was nearly 70%. The company is optimistic about the continued growth in demand and expects RevPAR improvement in the second half of 2021.

Hyatt strongly believes that the opportunity for properties that offer selected services at a lower price than full-service hotels is particularly compelling in certain markets, including India, China and the Middle East. Also, the company intends to grow its select service presence via third-party construction of new franchised properties, conversion and renovation of existing non-Hyatt properties, and in certain cases, participation in the development of new managed properties.

Furthermore, acquisition and divestitures have been key factors for Hyatt’s growth. During the first quarter of 2021, the company maintained strength in its brand with the addition of JdV by Hyatt and Alila to its portfolio. The company is actively evaluating potential asset acquisitions for strategic purposes. It is also positive about reaching the sell-down commitment of $1.5 billion by March 2022. In 2018, the company acquired lifestyle hotel management company Two Roads Hospitality. These buyouts are part of Hyatt’s ongoing asset recycling program.

Moreover, to survive a tough economic environment, Hyatt is continuously devising newer strategies to enhance guest experience and raise occupancy. Recently, the company has taken several initiatives to provide a clean and safe environment to its guests. It is mainly focusing on comprehensive processes for cleaning, disinfection and infectious disease prevention. With these operational enhancements, the company expects to improve productivity and drive stabilized margins.

Concerns

During first-quarter fiscal 2021, COVID-related travel restrictions and other containment efforts continued to impact the company significantly. Due to the uncertainty of the crisis, the company has discontinued all share repurchase activity and suspended dividend payments during first-quarter 2021. Also, during this period, the company’s owned and leased hotels revenues and management, franchise, and other fees decreased considerably, primarily driven by the impact of the pandemic.

Moreover, with travel restrictions and quarantines in place, the company has been witnessing dismal Revpar worldwide. Although the company is witnessing a sequential improvement in RevPAR, it is still below the pre-pandemic levels.

Zacks Rank

Hyatt — which shares space with Marriott International, Inc. MAR, Choice Hotels International, Inc. CHH and Extended Stay America, Inc. STAY in the Zacks Hotels and Motels industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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