The first major hotel company to report first-quarter earnings, Wyndham Hotels & Resorts announced that for the quarter ending March 31, global revenue per available room decreased 23 percent year over year, due to travel restrictions related to the coronavirus pandemic. Wyndham's first-quarter U.S. RevPAR declined 18 percent. Outside the U.S., RevPAR declined 33 percent on a constant-currency basis, primarily due to a 69 percent decline in Greater China, where the outbreak was first reported. In the rest of Asia/Pacific, the decline was 27 percent.
About 94 percent of the company's U.S. hotels remain open, with occupancies running in the low 30 percent range. Results, though, do not show the full effects that Covid-19 has had on the company, as many state travel restrictions weren't instituted until March or early April. In China, about 200 of Wyndham's 1,600 hotels still are closed, but occupancies recently have ticked up to the 20 percent range compared with single digits and low teens a few weeks ago.
The Tuesday call, led by Wyndham CEO Geoffrey Ballotti, focused on the effects of the pandemic and the company's response to it, which included identifying about $255 million in cash savings through such measures as eliminating approximately 440 positions, reducing capital spend to focus only on priority projects, eliminating all non-essential spend, consolidating certain facilities and indefinitely suspending Ballotti's salary and cash compensation for the company's board of directors.
The company's first-quarter net income increased 5 percent year over year to $22 million, partially due to the decline in overall expenses as part of the cost-reduction initiatives.
"With over 90 percent of the hotels in our system in the select-service space, which is less labor-intensive and typically operates at higher margins than full-scale hotels, we believe the majority of our hotels can support debt service at occupancy levels of 30 percent before receiving any governmental assistance, which lowers the 30 percent break-even considerably," Ballotti said, adding that a majority of Wyndham's franchise owners have applied for the U.S. federal Paycheck Protection Program and/or Economic Injury Disaster loans, and about 80 percent of those have been approved for one or both.
He further added that nearly 90 percent of Wyndham's properties are positioned along highways, in suburbs and in small metropolitan locations, "which have fared better than those in downtown metro markets … and our customer profile is 70 percent leisure and almost 90 percent drive-to, so we're less reliant on business stays and air travel." Further, 96 percent of the company's guests originate domestically. Leisure is "what we're looking to pivot to in the U.S. as restrictions are lifted," based on patterns seen in other countries, Ballotti noted.
Still, the company's initial occupants during the crisis were emergency care workers, armed forces members and government buyouts, he continued. Wyndham also is seeing business from those who have project-based lodging needs, such as those in the construction, transport, utility infrastructure and petrochemical industries.
Wyndham's systemwide rooms grew 2 percent globally year over year for the quarter, including 40 basis points in the U.S. and 5 percent growth elsewhere. New opens included 58 properties with 6,200 rooms, a 47 percent decline from 2019's first quarter, with new construction delays in China and lower March U.S. conversion volumes. As of March, the company's total system consisted of about 9,300 properties totaling 828,000 rooms.
The company's development pipeline included about 1,500 hotels and 189,000 rooms, representing 4 percent year-over-year growth for the quarter. About 58 percent is international and 72 percent is new construction, of which nearly 40 percent have broken ground. New construction grew 3 percent during the quarter and conversions grew by 8 percent, and "we believe conversions will be even more important after the crisis," Ballotti noted.
Wyndham did not provide much 2020 guidance as the "ability to assess the effects of Covid-19 on full-year financial results continues to be limited due to the rapidly evolving circumstances and uncertainty in travel demand." But Ballotti said that it would be possible to see positive net room growth in 2020 as the company pivots to more conversions, which it was able to do during the 2007-08 Great Recession. The company grew its system by 3 percent from 2007 to 2009, with conversions accounting for 86 percent of room openings during those years, compared with 67 percent from 2016 to 2019.
About 85 percent of new opens during the first quarter were conversions, and the development team will be focused on conversions in the independent space going forward, Ballotti said. "We hope to continue to maintain 2 percent to 4 percent guidance [for net room growth] with a look to move that up over time to 3 percent to 5 percent."
[Correction, May 8]: An earlier version of this report incorrectly characterized Economic Injury Disaster loans as international development association loans.
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