• Franchising proves resilient

Two big hotel franchisers in the US reported contrasting performances for the first quarter with Wyndham enjoying a profits growth and Choice suffering a fall.

While both companies suffered falls in revpar they outperformed industry averages and their businesses reflected the underlying strength of the franchise model.

Net income at Choice Hotels International was down 12% thanks mainly to revpar falling 10.3%. Its rate of signing new contracts also fell markedly, with just 60 new ones in the US against 130 in the first quarter of 2008.

Internationally, the rate of terminations has increased due mainly to the ending of the relationship with the Real Hotel Group (which has now gone into bankruptcy). This lost 20 hotels in one swoop.

CFO David White said the company was "figuring out ways to improve the amount of business we deliver [to franchisees]". One way was to roll out the loyalty programme.

CEO Stephen Joyce said he was about to deliver to the board the first phase of an evaluation of international operations and of where the focus should be internationally.

He added that by the end of the year the company would be able to talk about where it was "looking at attacking". India would be a major target, as would China, although the franchising model in this country was "a little more challenging".

For existing markets, such as Europe, there were incremental opportunities both for conversion and in some cases new build, argued Joyce.

In terms of picking up brands, Joyce thought the main gaps were in the upscale full service business. He stressed the company would not move into the luxury market but he was interested in brand in the 3.5 to 4 star range.

"This would offer a conversion opportunity because I think the full service new-build business is probably going to be pretty tough for a long time," he added.

The revpar decline was better than the expected 12% decline for the quarter and better than the 11% decline for comparable hotels in the US. Since the end of the quarter revpar has continued to decline, however, and it is expected to come in at minus 16% for the second quarter.

Thereafter, thanks to easier comparatives, the decline is expected to moderate. The full year revpar drop is expected to come in at 11%.

Franchise sales have fallen to levels last seen during the first two quarter of 2002. But the second half of that year and the next six years that followed were very strong development years for Choice, said Joyce. "The long-term development prospects for our brands, as a result, are very promising."

Wyndham was also bullish about development prospects and it expects conversion opportunities to increase in the current environment. Already, only about 20% of total gross openings for Wyndham were new build.

In the first quarter, almost 9,000 new rooms were opened of which 1,800 were new build. It was still possible to do new build for most Wyndham brands as the properties required a much smaller investment than for full-service projects.

The Wyndham pipeline currently stands at almost 109,000 of which 40% is international. The overall system size is 588,000 with 123,000 of these outside of the US.

CEO Steve Holmes said a larger proportion of conversion opportunities were coming from independents which, according to Smith Travel Research figures, were showing revpar falls of 20%.

CFO Gina Wilson said that the company was comfortable it could achieve 3% to 6% rooms growth this year. She affirmed the earnings and revpar guidance for 2009 given at the full-year results for 2008.

Although revenues were down 11% on a year ago, net income was up from $42m to $45m. Within the hotel group, EBITDA was down 17% thanks to lower franchise fees due to lower revpar.

Holmes said the company had increased its online advertising spend by 80% to drive more business to franchisees. This had seen a 4% increase in reservations coming from Wyndham's branded websites.

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