Choice makes some noise 

Choice Hotels International CEO Pat Pacious told analysts this week that the group had made a “a significant leap forward” with the purchase of Radisson’s Americas business. 

Sadly, the deal wasn’t done in magic beans and the group’s stock dropped after its Q3 earnings announcement, which came with the news that money had changed hands. Hotel companies indulging in M&A really should deal with that. Although possibly it was phrases like “new growth vectors” which kept those frowns upside down.

Shares dropped by close to 10% and have fallen by 25% this year. It is well known that a day of bad weather or poor sporting results can make the markets grumpy, but why so narked? Choice has been one of the more favoured groups during the pandemic because it offers budget brands and doesn’t get too caught up in the daily sheet cleaning, being a franchise group. Could it be the Radisson deal moving it up the segments putting it in line for a beating for getting ideas above its station.

Sadly for all of us, the hotel sector is not Bridgerton, although one does hear rumours about goings on (tm my grandmother) at out-of-the-way country house hotels. No, this is a more sector-wide issue. 

The hotel company saw its third-quarter profit by 11% fall to $103.1m, although revenue rose by 28%. What can this mean? Costs. Operating costs rose 72%, to $282.6m.

CFO Dom Dragisich told the assembled that it had been a “noisy quarter, a lot of timing of certain expenses, some added cost obviously associated with the Radisson acquisition” but underlined that the plan was to look to the full year and to the long term and generally over there. 

He also told analysts something the group has mentioned before, but which bears repeating: that the economy segment is shrinking. The CFO said: “The highest growth brand in the economy segment is WoodSpring, which is an extended-stay brand. 

“What we’ve seen particularly in the post-pandemic environment, is a lot of economy hotels being repurposed for other forms of shelter, so you’re seeing hotels exit for non-hotel use. What we’ve done in the economy sector is.. to maintain the quality levels. And if owners are not going to do that, then they will churn out of our system and we have seen some of that as well.”

Factor in the rise of Airbnb – and eager readers will remember that the platform has been amending the way listings are shown to favour value – and you can see how the economy end of the market might be lacking in innovation over the next few years, recession or not. 

The highest-growth segments, Dragisich said, were upscale select service and upper midscale.  So back to Radisson and the group’s top fun comment: that every new unit entering its portfolio generated on average twice the revenue as a unit leaving it. The addition of approximately 60,000 Radisson Americas domestic rooms open or in the development pipeline made them quite cheery as a result. 

The good news for those of us with a soft spot for Choice, whatever its humble origins, is that it has a plan with a decent catchphrase to it. Pacious calls this ‘The Five Rs’ and they are: ‘remote work, retirements, road trips, rising wages and reassuring of American manufacturing’. 

Followers of UK politics will note that an entire country’s operations can be refined down to a catchphrase. To the extent you might not even need anything behind it. In this case, Choice has a plan, albeit noisy in transmission. Those global players who have dismissed it as a budget group may be wise to listen up. 

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