Hyatt Banks On Expansion & Miraval Acquisition, Risks Remain

On Jun 22, we initiated coverage on leading global hospitality company Hyatt Hotels Corporation (NYSE:H) .

Key Growth Prospects

Hyatt’s widely recognized, industry-leading brands provide it with a competitive advantage in attracting and driving preference. As of Mar 31, 2017, the company's portfolio included 708 properties in 56 countries under 13 premier brands.

Notably, in addition to domestic lands, Hyatt is also consistently trying to expand its presence worldwide and has expansion plans for Asia-Pacific, Europe, Africa, Middle East and Latin America. Expansion in these lucrative markets should help the company gain market share in the hospitality industry, thus boosting its business. In fact, an essential aspect of the company’s riveting growth potential is its strong brand presence and continual expansion in higher growth markets and under-penetrated markets such as India and China.

Interestingly, the company has now experienced net rooms' growth of between 6% and 7% for eight consecutive quarters, and with roughly 60 new hotel additions to the Hyatt system expected, 2017 is set be another year of record openings.

The company, particularly, continues to rapidly expand the Hyatt Place and Hyatt House brands globally, reflecting its robust momentum in the fast-growing select service category.

Meanwhile, Hyatt is continuously devising newer ways to enhance guest experience and raise occupancy, in order to survive in the tough economic environment.

We note that successful innovation has been a trademark of Hyatt and it also has a creative approach to food and beverage at its hotels worldwide. Meanwhile, in first-quarter 2017, the company launched a new loyalty program, World of Hyatt, which replaced its Gold Passport loyalty program. World of Hyatt is a platform for guest engagement and given the enhancements, the company expects the program to build even higher levels of guest preference and aid in sustaining its market share gains.

Miraval Acquisition

In Jan 2017, Hyatt acquired Miraval Group, the renowned provider of wellness and mindfulness experiences. and included Miraval Life in Balance Spa brand. Though the Miraval operations are likely to contribute meaningfully to Hyatt's overall earnings 2019 onward, the initial response has been positive.

Notably, the Miraval acquisition extends the Hyatt brand beyond traditional hotel stays into a swiftly growing space, namely wellness, which resonates well with the high-end travelers the company serves. Miraval thus forms a distinct new wellness category within the Hyatt portfolio of brands. This creates an opportunity to expand the Miraval brand, while building a greater depth of proficiency in wellness and mindfulness that can be extended to the company’s hotel business.

Challenges

However, macroeconomic concerns in several international markets might spell trouble for the company. In the Middle East, political unrest, lower government spending, new hotel supply and a tough oil market continue to hurt tourism and remain a cause of concern. Additionally, the slowdown in the Chinese economy might continue to hurt discretionary spending as well as travel.

Meanwhile, in Europe, economic/political conditions are expected to be challenging after the U.K.’s exit from the 28-member economic bloc. Recent terror assaults in key European cities have also affected tourism. We note that this might limit Hyatt’s business growth, given its considerable presence in Europe.

Given its significant international presence, Hyatt also remains highly vulnerable to fluctuations in exchange rates, like other hotel companies including Marriott International, Inc. (NASDAQ:MAR) , Hilton Worldwide Holdings (NYSE:H) and Wyndham Worldwide Corporation (NYSE:WYN) . In fact, the company has been witnessing a decline in international inbound travel, given a stronger dollar.

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