Burned early in 2016 by slower-than-expected RevPAR growth, publicly listed hotel companies seem to plan to set guidance low so they’re in a position to exceed expectations.
The hotel industry in 2017 clearly seems to be buying into the old adage of underpromising and overdelivering.
After a rough start to 2016, publicly listed hotel companies struggled to keep up with revenue growth projections through the rest of the year, which they didn’t fully overcome until the post-election market surge proved to be the rising tide that lifted all boats.
But because they clearly won’t have that get-out-of-jail-free card to play in 2017, most of the major publicly listed hotel companies, which have jumped headfirst into earnings season this week, seem to have developed a clear modus operandi: Set low guidance with the expectation of exceeding that low target.
Let me be clear right off the bat: I don’t think there’s anything wrong with this approach. Wall Street investors are a notoriously fickle bunch who have a fixation on growth rates over all else. If this is what it takes to get them back on your side, then go for it.
But I’m wondering how long a tactic like this can last.
Despite incredibly impressive absolute numbers for key performance metrics, the hotel industry seems to be stuck in neutral, given that a lot of people think we’re at or near the end of a cycle, but nothing is happening to officially pronounce we’re at the end. Everything exists in a strange quantum state of simultaneously being absolutely phenomenal and also kind of bad or at least underwhelming.
Hotel companies are basically presented with the choice of whether they want to be Pollyannas or doomsday preppers. And it’s better to be sitting in your bunker while the sun is shining than skipping down the street in the middle of the apocalypse.
Or better yet—and this seems more in tune with the approach hoteliers are actually taking—it’s better to tell the world you’re ready for Armageddon when all that actually happens is a rainy, cloudy Sunday afternoon.
Looking at the early guidance from branding companies, this seems to be the preferred method of doing business.
Hilton expects RevPAR to grow between 1% and 3% in 2017. For that same period, Marriott International and Hyatt Hotels Corporation expect RevPAR to move up 0% to 2%, and Choice is projecting between 3% and 4% growth.
Hotel News Now’s parent company STR is projecting 2.5% RevPAR growth for U.S. hotels, which would be at or exceeding the top end of guidance for those companies, except for the relatively bullish Choice.
But in the end, these companies are obligated to do what it takes (within the boundaries of reason and ethics) to increase their stock prices. If investors want the warm and fuzzy feeling that comes with beating expectations, even if they’re artificially low expectations, then I guess that’s what you give them.
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