Hyatt Earnings: Continued Leisure Demand Augmented by International, Business, and Group Trips

We see little reason to materially alter our narrow-moat Hyatt H $123 fair value estimate and view the high-single-digit percentage pullback in shares (which we suspect is tied to overzealous concerns of a slowdown in travel) as an opportunity to revisit this slightly undervalued name.

Hyatt revenue per available room, or revPAR, grew 15%, reaching 108% of 2019′s level versus 106% last quarter. The improvement was driven by improving international, corporate, and group demand, which is augmenting enduring leisure travel. In this vein, Greater China revPAR surpassed prepandemic marks for the first time, with Europe up 23% from last year, reaching 130% of 2019′s level. Meanwhile, U.S. revPAR increased 4% and remained above prepandemic amounts. We expect U.S. demand to remain resilient and for international trips to pace higher as flight capacity is added. Leisure, business, and group revenue grew 7%, 36%, and 14%, respectively, in the quarter. Specifically, business sales reached 86% of 2019′s level, accelerating in May and June to 90%, with the outlook for further improvement. Group demand is also showing signs of lift, with 2024 pacing up 10% and customers booking events beyond next year. As a result, Hyatt tightened its 2023 revPAR growth guidance to 14%-16% from 12%-16%. We don’t plan much change to our 2023 revPAR growth forecast of 14%.

Hyatt’s brand continues to resonate, witnessed by 6.9% unit growth in the quarter, along with 5% year-over-year lift in its room pipeline to 119,000 rooms. The hotelier’s pipeline represents an industry-leading 40% of its existing base and supports our forecast for more than 6% unit growth annually during the next five years. We plan to maintain this forecast, despite financing concerns fueled by the simmering banking system in the United States, as we expect strong conversion activity.

Finally, owned operating margins remained 300 basis points above 2019′s level at 26.2%, tracking ahead of our full-year estimate of 25%.