Friday, July 16, 2010

“A Little Eastern Hospitality” plus 1 more

“A Little Eastern Hospitality” plus 1 more

A Little Eastern Hospitality

Posted: 16 Jul 2010 02:41 PM PDT

Despite the economic slowdown, businesspeople from all over the world are flocking to China. Hotels are making sure those visitors have somewhere to stay.

In June, InterContinental Hotels (NYSE:IHG - News) Chief Executive Andrew Cosslett said his firm has 146 Chinese hotels in the pipeline , which will more than double the 131 it has now.

But InterContinental, which owns the Holiday Inn, Crowne Plaza, Staybridge and other brands along with its namesake, isn't the only Western hotelier pushing into the Middle Kingdom.

Starwood (NYSE:HOT - News), owner of the Westin, Sheraton and other upscale brands, is going so deep into China that in May it opened a new Sheraton in Inner Mongolia.

"I think most of those companies would say these are early days in terms of penetration," said Deutsche Bank analyst Chris Woronka. "They're OK with China slowing from 10% (annual GDP growth) to 8% or 7%. That's still higher growth than in most of the world."

These global players have to deal with some homegrown competition, however. The top-rated stock in IBD's Lodging group is Home Inns & Hotels (NMS:HMIN), based in Shanghai. It was recently joined on the U.S. bourses by China Lodging Group (NMS:HTHT) and Seven Days (NYSE:SVN - News).

Not all the action is in Asia. After one of the worst years in memory for the hotel business, indicators in the West have been picking up even faster than expected.

Still, lodging remains one of the most sensitive industries to economic cycles, and stocks have wobbled as mixed economic news came out. After hitting a 22-month high in late April, lodging stocks have fallen back to No. 55 among IBD's 197 Industry Groups.

1. Business

You could count on your fingers and toes the number of lodging stocks trading on major U.S. markets, because most of the top brands belong to only a few companies. As noted, InterContinental and Starwood own multiple brands, as does Wyndham Worldwide (NYSE:WYN - News), which operates under such names as Howard Johnson, Travelodge, Ramada, Days Inn and Super 8.

Marriott International (NYSE:MAR - News), the group leader by market cap, operates the Renaissance, Ritz-Carlton and Courtyard hotels, among others.

Among the few major brands staying solo is Hyatt (NYSE:H - News), which went public in November after its longtime family owners cashed out. One of the most famous hotel names, Hilton, is owned by private-equity giant Blackstone Group (NYSE:BX - News).

The brands are what distinguish the stocks in this group from other hotel and motel operators.

If you wander around a strange city looking for a place to sleep, you'll likely find many small outfits owned by families and REITs, which benefit mainly from being in the right place with the right price. If you're looking for a particular name, though — a Marriott, a Comfort Inn, even a Motel 6 — branding has done its job.

Hoteliers going into emerging markets like China and India have to sell the locals on their brands.

Often they start out mainly catering to foreign travelers who like familiar hotels. Then the locals start staying there. And when those locals get rich enough to travel abroad themselves, they start looking for familiar names.

RW Baird analyst David Loeb says this is one of the crucial attractions of the Chinese market.

"I would say China's the only market where we're seeing secular growth in travel," he said. "So all the international brands want to tap into those outbound travelers leaving China."

Name Of The Game: Establishing a trusted brand means offering reliable accommodations for the money, whatever the price point. Chains have to choose their new markets carefully and understand how to market to them. Often, it's easier to just buy an established brand, as many large chains do.

2. Market

Despite all the interest in the Far East, most U.S. lodging stocks are U.S.-based and do most of their business here.

According to Smith Travel Research, there are more than 50,000 hotels, motels and resorts in this country with nearly 5 million rooms. The occupancy rate stands at 54.7%, the same as in 2009 and down from 63% in 2007.

Occupancy, however, can be buoyed by slashing prices, which fills rooms without actually making a hotel much money.

So the really crucial metric for the industry is revenue per available room, or revPAR. RevPAR fell almost 17% last year to $53.50, the lowest point since 2004, says STR. But in the last few months, things have turned around. In May, revPAR rose 7.1% over May 2009, to $57.47.

The strength of the bounce-back surprised many industry watchers. Previously STR and other researchers had forecast occupancy growth of 1.2% this year, but recently revised that to 5.6%.

Joseph McInerney, president of the American Hotel & Lodging Association, says the current uptick is following a typical pattern.

"It's led by short vacations, and then in year two, all of a sudden the pent-up demand for a longer summer vacation and the business travelers start to come back," he said.

Different price points behave a bit differently. Expensive hotels get hit first and hardest by economic downturns. But they also tend to come out the earliest and hottest.

Drew Williams, executive vice president of Cornerstone Real Estate Advisors, says revPAR growth for full-service hotels may be double the overall market this year.

"We invest in what you'd call upper-upscale hotels and luxury hotels," Williams said. "What we're seeing right now is those two segments are benefiting the most from the uptick. There's a flight to quality in terms of demand."

STR has been tracking the Chinese market only since early 2009, but the country's robustness is already clear. Despite its size, China has only a fifth as many rooms as the U.S. RevPAR for the year through May rose 31.1% to $63.44.

3. Climate

The severity of the global downturn prompted hotels to cut costs by trimming service. Some of those toned-down amenities may be restored as customers spend more. Other changes might be permanent.

"(The hotels are) much better in terms of systems for revenue management, and yield management, like the airlines," said Williams. "They're better at sales and marketing, in terms of consolidating efforts, instead of doing a one-off at every hotel."

Government has been sending mixed messages.

On the one hand, anti-Wall Street rhetoric threatened to curtail the luxurious business conferences and retreats that feed the hotel business, industry experts say.

On the other hand, President Obama in March signed the Travel Promotion Act, which aims to boost foreign travel by touting America as a tourist destination. McInerney says the goal is to bring 1.6 million annual visitors to the U.S., who could spend $4 billion.

Outside the U.S., the big story is the rising middle class in emerging economies enabling people to travel more and afford nicer places to stay. China is the biggest example, but India and parts of Latin America are also attracting more attention, Woronka says.

4. Technology

While technology isn't normally a big part of the hotel experience, it has become crucial to the booking experience. Online travel agencies have become the norm in the West, and are an increasingly important part of the business in emerging countries.

Analyst Loeb says that he used to think that would make life harder for the branded hotels. Travelers using discount sites like Priceline.com (NMS:PCLN) could comparison-shop more ruthlessly than ever, making brands a less important signifier. But things are changing.

"In the last five years, the brands have really taken control of their inventory, and they've taken control of their Internet message," he said. "They don't open those discount channels unless they're really looking for incremental business that they can't get elsewhere. The days of getting a better deal on Priceline than you can get on the hotel's Web site are over."

5. Outlook

Williams expects revPAR growth to accelerate over the next two years, climbing to 7% next year and possibly in the double digits in 2012. That would finally bring it back to pre-recession levels, he says.

Woronka is more cautious, pointing out that the strong numbers this year are comparing to an unusually horrendous 2009. He predicts "steady, modest growth" for both the U.S. and Europe, with faster growth in emerging markets.

One unresolved factor is how many new hotel rooms will open up. McInerney notes that the hotel supply should increase about 2% this year, but rise only 0.6% next year.

"People couldn't get financing even before the Lehman Bros. meltdown," he said. "The next two to three years we'll see supply growth below or at 1%, with demand up anywhere from 3% to 6%."

Loeb isn't so sure.

"Very few hotels are being closed to do something else with the property," he said. "There's an old industry maxim that hotels aren't overbuilt, they're under-demolished."

Upside: If supply does stay constrained, that will help drive up margins for existing operators. Even with more supply, demand is expected to grow as global travel increases.

Risks: Like other industries these days, hoteliers live in fear of the "double dip." Hospitality firms are also vulnerable to natural and unnatural disasters. Many hotels on the Gulf Coast are just now reopening from their Hurricane Katrina shutdowns — just in time for the oil spill.

Five Filters featured article: Headshot - Propaganda, State Religion and the Attack On the Gaza Peace Flotilla. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.

A Little Eastern Hospitality

Posted: 16 Jul 2010 02:41 PM PDT

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Despite the economic slowdown, businesspeople from all over the world are flocking to China. Hotels are making sure those visitors have somewhere to stay.

In June, InterContinental Hotels (NYSE:IHG - News) Chief Executive Andrew Cosslett said his firm has 146 Chinese hotels in the pipeline , which will more than double the 131 it has now.

But InterContinental, which owns the Holiday Inn, Crowne Plaza, Staybridge and other brands along with its namesake, isn't the only Western hotelier pushing into the Middle Kingdom.

Starwood (NYSE:HOT - News), owner of the Westin, Sheraton and other upscale brands, is going so deep into China that in May it opened a new Sheraton in Inner Mongolia.

"I think most of those companies would say these are early days in terms of penetration," said Deutsche Bank analyst Chris Woronka. "They're OK with China slowing from 10% (annual GDP growth) to 8% or 7%. That's still higher growth than in most of the world."

These global players have to deal with some homegrown competition, however. The top-rated stock in IBD's Lodging group is Home Inns & Hotels (NMS:HMIN), based in Shanghai. It was recently joined on the U.S. bourses by China Lodging Group (NMS:HTHT) and Seven Days (NYSE:SVN - News).

Not all the action is in Asia. After one of the worst years in memory for the hotel business, indicators in the West have been picking up even faster than expected.

Still, lodging remains one of the most sensitive industries to economic cycles, and stocks have wobbled as mixed economic news came out. After hitting a 22-month high in late April, lodging stocks have fallen back to No. 55 among IBD's 197 Industry Groups.

1. Business

You could count on your fingers and toes the number of lodging stocks trading on major U.S. markets, because most of the top brands belong to only a few companies. As noted, InterContinental and Starwood own multiple brands, as does Wyndham Worldwide (NYSE:WYN - News), which operates under such names as Howard Johnson, Travelodge, Ramada, Days Inn and Super 8.

Marriott International (NYSE:MAR - News), the group leader by market cap, operates the Renaissance, Ritz-Carlton and Courtyard hotels, among others.

Among the few major brands staying solo is Hyatt (NYSE:H - News), which went public in November after its longtime family owners cashed out. One of the most famous hotel names, Hilton, is owned by private-equity giant Blackstone Group (NYSE:BX - News).

The brands are what distinguish the stocks in this group from other hotel and motel operators.

If you wander around a strange city looking for a place to sleep, you'll likely find many small outfits owned by families and REITs, which benefit mainly from being in the right place with the right price. If you're looking for a particular name, though — a Marriott, a Comfort Inn, even a Motel 6 — branding has done its job.

Hoteliers going into emerging markets like China and India have to sell the locals on their brands.

Often they start out mainly catering to foreign travelers who like familiar hotels. Then the locals start staying there. And when those locals get rich enough to travel abroad themselves, they start looking for familiar names.

RW Baird analyst David Loeb says this is one of the crucial attractions of the Chinese market.

"I would say China's the only market where we're seeing secular growth in travel," he said. "So all the international brands want to tap into those outbound travelers leaving China."

Name Of The Game: Establishing a trusted brand means offering reliable accommodations for the money, whatever the price point. Chains have to choose their new markets carefully and understand how to market to them. Often, it's easier to just buy an established brand, as many large chains do.

2. Market

Despite all the interest in the Far East, most U.S. lodging stocks are U.S.-based and do most of their business here.

According to Smith Travel Research, there are more than 50,000 hotels, motels and resorts in this country with nearly 5 million rooms. The occupancy rate stands at 54.7%, the same as in 2009 and down from 63% in 2007.

Occupancy, however, can be buoyed by slashing prices, which fills rooms without actually making a hotel much money.

So the really crucial metric for the industry is revenue per available room, or revPAR. RevPAR fell almost 17% last year to $53.50, the lowest point since 2004, says STR. But in the last few months, things have turned around. In May, revPAR rose 7.1% over May 2009, to $57.47.

The strength of the bounce-back surprised many industry watchers. Previously STR and other researchers had forecast occupancy growth of 1.2% this year, but recently revised that to 5.6%.

Joseph McInerney, president of the American Hotel & Lodging Association, says the current uptick is following a typical pattern.

"It's led by short vacations, and then in year two, all of a sudden the pent-up demand for a longer summer vacation and the business travelers start to come back," he said.

Different price points behave a bit differently. Expensive hotels get hit first and hardest by economic downturns. But they also tend to come out the earliest and hottest.

Drew Williams, executive vice president of Cornerstone Real Estate Advisors, says revPAR growth for full-service hotels may be double the overall market this year.

"We invest in what you'd call upper-upscale hotels and luxury hotels," Williams said. "What we're seeing right now is those two segments are benefiting the most from the uptick. There's a flight to quality in terms of demand."

STR has been tracking the Chinese market only since early 2009, but the country's robustness is already clear. Despite its size, China has only a fifth as many rooms as the U.S. RevPAR for the year through May rose 31.1% to $63.44.

3. Climate

The severity of the global downturn prompted hotels to cut costs by trimming service. Some of those toned-down amenities may be restored as customers spend more. Other changes might be permanent.

"(The hotels are) much better in terms of systems for revenue management, and yield management, like the airlines," said Williams. "They're better at sales and marketing, in terms of consolidating efforts, instead of doing a one-off at every hotel."

Government has been sending mixed messages.

On the one hand, anti-Wall Street rhetoric threatened to curtail the luxurious business conferences and retreats that feed the hotel business, industry experts say.

On the other hand, President Obama in March signed the Travel Promotion Act, which aims to boost foreign travel by touting America as a tourist destination. McInerney says the goal is to bring 1.6 million annual visitors to the U.S., who could spend $4 billion.

Outside the U.S., the big story is the rising middle class in emerging economies enabling people to travel more and afford nicer places to stay. China is the biggest example, but India and parts of Latin America are also attracting more attention, Woronka says.

4. Technology

While technology isn't normally a big part of the hotel experience, it has become crucial to the booking experience. Online travel agencies have become the norm in the West, and are an increasingly important part of the business in emerging countries.

Analyst Loeb says that he used to think that would make life harder for the branded hotels. Travelers using discount sites like Priceline.com (NMS:PCLN) could comparison-shop more ruthlessly than ever, making brands a less important signifier. But things are changing.

"In the last five years, the brands have really taken control of their inventory, and they've taken control of their Internet message," he said. "They don't open those discount channels unless they're really looking for incremental business that they can't get elsewhere. The days of getting a better deal on Priceline than you can get on the hotel's Web site are over."

5. Outlook

Williams expects revPAR growth to accelerate over the next two years, climbing to 7% next year and possibly in the double digits in 2012. That would finally bring it back to pre-recession levels, he says.

Woronka is more cautious, pointing out that the strong numbers this year are comparing to an unusually horrendous 2009. He predicts "steady, modest growth" for both the U.S. and Europe, with faster growth in emerging markets.

One unresolved factor is how many new hotel rooms will open up. McInerney notes that the hotel supply should increase about 2% this year, but rise only 0.6% next year.

"People couldn't get financing even before the Lehman Bros. meltdown," he said. "The next two to three years we'll see supply growth below or at 1%, with demand up anywhere from 3% to 6%."

Loeb isn't so sure.

"Very few hotels are being closed to do something else with the property," he said. "There's an old industry maxim that hotels aren't overbuilt, they're under-demolished."

Upside: If supply does stay constrained, that will help drive up margins for existing operators. Even with more supply, demand is expected to grow as global travel increases.

Risks: Like other industries these days, hoteliers live in fear of the "double dip." Hospitality firms are also vulnerable to natural and unnatural disasters. Many hotels on the Gulf Coast are just now reopening from their Hurricane Katrina shutdowns — just in time for the oil spill.

Five Filters featured article: Headshot - Propaganda, State Religion and the Attack On the Gaza Peace Flotilla. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.
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