Checking Into Hotel Operators' Economic Moats

We see brand intangible asset and switching cost advantages as the main drivers of economic moats for hotel operators. We believe Marriott (MAR), Hilton (HLT), Hyatt (H), InterContinental (IHG), Accor (AC), Wyndham (WH), and Choice Hotels (CHH) have amassed these competitive barriers and are able to properly monetize them, driving their narrow economic moats.

Hotel brand intangible asset advantages take time and money to develop. A hotel operator in its infancy needs to self-fund development to support unit growth of its brand and prove that the concepts can perform before third-party owners gain enough confidence to commit their own capital and join the company’s portfolio as franchisees. This asset-heavy portfolio in the early days of a hotel operator’s growth cycle typically leads to lower margins and returns than those of an asset-light model of third-party franchisees and managed hotels.