Hotel brand CEOs said they are still signing deals with developers at a seemingly normal pace despite a devastating drop in guest demand.
REPORT FROM THE U.S.—Roomnight demand has collapsed to historic lows, but CEOs of major hotel brands say interest in the development community is resilient.
Speaking during a press question-and-answer session organized by the NYU Jonathan M. Tisch Center for Hospitality, Hyatt Hotels Corporation President and CEO Mark Hoplamazian said the flow of deals for his company “is about the same” as the last few years.
Hoplamazian said there have been “delays in construction and active decisions to push new openings to allow owners to gauge demand once things start to open up” which he believes will have a measurable impact on openings between May and August.
Hilton President and CEO Chris Nassetta* had a similar outlook, noting the pandemic crisis has not had a “huge impact” on his company’s pipeline.
“Signings are somewhat off on a global basis, but ironically starts are going to be reasonably similar, year over year,” he said. “When we get to the end of the year, mathematically the pipeline will actually show growth because we’re continuing to see a decent amount of deal activity.”
Nassetta agreed delayed openings will depress net unit growth for the company, but noted he has not seen “any material amount of deals blowing out of the pipeline.”
Hoplamazian and Nassetta said there’s a strong interest in conversions. That demand is particularly strong among independent hotels, Nassetta added.
“There is pressure on owners with weaker brands or, for the large part in an independent setup, to get into a structure to deliver better results,” Nassetta said, noting his company has “an array of brands that lend themselves to conversion” including three soft brand collections.
Hoplamazian said conversions have “historically not been a material piece” of Hyatt overall growth, but demand is growing as a result of more options, which include various lifestyle brands picked up in the acquisition of Two Roads Hospitality.
He added his company isn’t undergoing a strategic shift to focus more on conversions.
David Kong, president and CEO of Best Western Hotels & Resorts, said the appetite for conversions is tied to a desire among hotel owners to affiliate with strong loyalty programs. He said Best Western Rewards delivers 50% of his company’s demand.
“If you’re a struggling independent hotel, and we can say ‘Join us, and that 50% automatically comes from our loyalty program,’ that’s very powerful,” he said.
He also noted brands offer other support systems, such as technology platforms. Overall, he said he expects conversions to assume a larger share of development over the next few years as construction becomes more challenged.
The development of drive-to demand
The CEOs also fleshed out their outlooks on drive-to demand, after Hoplamazian noted the distance guests are willing to travel is growing.
“The road trip is becoming part of the overall experience, which is really neat,” he said, citing his own plans to take a road trip from Chicago to Wisconsin as an example.
Nassetta similarly said he’s contemplating a road trip from the Washington, D.C., area to his father’s ranch in Montana at the suggestion of his family.
“I’ve been resisting it, but it sounds more and more fun as every day in lockup goes by,” he said.
He said his company is poised to benefit from drive-to demand with a “huge limited-service portfolio, a lot of which is drive-to business.”
Reliance on drive-to demand is expected to be the norm as an adjustment back to air travel takes some time.
Hoplamazian said travelers still “require more comfort with air travel that’s yet to come.”
“Maybe by the fall people will have enough experience with this new version of air travel,” he said.
Nassetta said he’s “reasonably optimistic” there will be a “sea change in terms of the willingness to fly” by the fall.
That will all depend on factors outside the control of the travel industry, including a vaccine or treatments for COVID-19 along with better containment of its spread, he said.
He said he believes a significant population of would-be travelers are waiting to get back out into the world once it seems safe again, and that’s not all leisure demand.
“The reality is business travel—not for all of us but a bunch of us—is a huge component of our businesses,” he said. “The vast majority of industries has been impacted, and they have to get back on their feet.”
He expects business travel recovery to have a long timetable, but return to previous levels “over the next couple of years.”
Hoplamazian said his company is already seeing some meetings demand for the second half of 2020, and Hyatt is working on options with associations that are heavily reliant on events.
“We’re helping them devise and design hybrid meeting models that really accommodate their needs and maintain social distancing,” he said.
*Editor’s note: Hotel News Now is a division of STR, a CoStar Group company. Chris Nassetta serves on CoStar Group’s Board of Directors.