• Wyndham to broaden brands stable

Wyndham Worldwide is to shift its focus away from economy brands, to create a broad stable which can take advantage of the improvements in the economy as well as provide resilience in the downturn.

The group is planning to do this organically, through the growth of the Wyndham flag, as well as through acquisition, as indicated by its deal to buy Sol Meliá's Tryp brand.

The company has also launched a series of four initiatives in its hotel group, under the umbrella ‘Apollo', to improve the group's retention rate.

Commenting on Apollo in a conference call, chairman and CEO Steve Holmes said: "Keeping somebody on is easier than having to go on and find a new hotel."

The scheme, which will run over the next 18 months, begins with: "improving the overall content of our hotel brands across all channels". The other phases will see improvements to brand websites, the reservation system and providing rate information to owners.

Holmes said: "Hopefully it'll increase the franchise community, because our value proposition will even be stronger to prospective franchisees as well as existing franchisees."

The group's second-quarter results highlighted the need to boost its hotels business, which reported a drop of 1.2% in revpar, pulled down by unfavourable currency exchanges, without which, the group said revpar would have been flat.

Holmes said that the decline in revpar was "moderating", with leisure travellers described as "active". Wyndham's domestic revpar rose in June and saw "meaningful improvement" during the first three weeks of July, he said.

Wyndham's hotel business is the smallest of its three divisions, making up around a fifth of its revenue, against timeshare, which accounts for half, the remainder under vacation exchange and rentals.

The group's eponymous brand is seen as key to its recovery, with Holmes commenting: "We're seeing substantial momentum in the Wyndham brand, gaining great traction, especially in critical major urban and key destination markets. Overall, we've increased the number of rooms by over 16%, adding 12 properties over the past year."

The company reported seeing a 4% increase in the new construction pipeline since the end of 2009, with over 60% of the increase coming from the Wyndham brand. Tom Conforti, CFO, said: "While we believe it's too early to call it a trend, these signs are nonetheless encouraging."

Wyndham operates primarily in the economy in mid-scale without F&B segments, which are slow to react in a recovery. However, the more upscale Wyndham brand will allow it to take advantage of the burgeoning rate growth being seen in the wider hotel sector, driven by the corporate market.

The company is in the process of addressing its exposure to the domestic market and is building its international estate. Currently 24% of the group's 7,160 hotels are overseas, however, the development pipeline sees this number increase to 49%.

As part of this, the group acquired the Tryp hotel brand from Sol Meliá Hotels & Resorts, adding 92 hotels in cities such as Madrid, Barcelona and Paris. The mid-market Tryp also broadens Wyndham's holding across the market segments.

The group raised its full-year revpar guidance, from between a drop of 3% to flat, up to between a 0% and 3% increase. The group was more cautious in making forecasts outside revpar, with Conforti adding: "Travel patterns during spring break were encouraging, and if this trend carries over to the summer months when we derive 30% of our annual royalties, we are optimistic that we could see an improvement in our full year revpar performance. However, for now we are leaving hotel guidance unchanged."

After an extended period of suffering for timeshare during the downturn, Wyndham Worldwide attributed much of its 34% increase in net income to $95m to growth in its vacation ownership business, which has been undergoing a restructuring since the third quarter of 2008. Exchange rate gains, lower tax and the exchange business were also credited.

Revenues were up 2% on the year to $178m for the hotel group and up by 5% to $963m for the wider business. Second quarter 2010 adjusted Ebitda was flat at $50m at the lodging business.

For the whole group full-year revenue is expected to reach between $3.7bn to $4bn, up from a previous forecast of $3.6bn to $3.9bn, with adjusted Ebitda increased to $825m to $860m from $805m to $840m.

Free cash flow increased 32% to $486m in the first half, compared with $368m during the same period in 2009.

Recent signs of recovery have cut the need to hold cash and Wyndham's board tripled its dividend and authorised a $300m increase in its $200m share buyback programme, which had $91m left to run. The group confirmed it was also looking at acquisitions.

 

HA Perspective: Wyndham has real competitive advantage in the economy and budget sector in the US. It is very much an also ran in the upscale and luxury market.

There are some advantages to having a portfolio of brands that spans the segments from budget to luxury but it is doubtful that having a subscale operation at the upper end of the quality spectrum brings that many benefits to the economy and budget properties Wyndham franchises.

It seems that the difficulties of the US economy and budget segments are blinding it to the potential of these segments outside of the US. One look at the success of Wyndham's Super 8 chain in China should convince it that there is a potentially bigger prize here in the segments lower down the quality pecking order than there is in pursuing upscale expansion.

 

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