Since the beginning of 2012, the hotel & lodging industry has entered into recovery mode. According to the preliminary data for 2012, the average daily rate (ADR) and occupancy saw an improvement of 4.3% and 2.3% respectively. This recovery was mainly due to rising volumes of international travel and tourism. In 2013, I anticipate further growth in travel volumes because of rapidly booming BRIC economies. The hotel companies with a focus on international operations will surely perform well, supported by diversification. Below, I have discussed three such companies from this industry which are set to grow due to their their expansion strategies. Moreover, these companies have well-placed business strategies, which will lead to higher returns for their shareholders.
Targeting future growth via International expansion and new brands
Talking about international expansions, Marriott International Inc (NYSE:MAR) is well-placed with its total projections of about 4000 hotels in 90 countries by 2014. This includes about 40 markets in China, marking the importance of Asia in the travel market. As of now, the company has already signed deals for over 9000 rooms, of which the majority (90%) is in Asia. The main reason behind the importance of the international, specifically Asian expansion, is that these new contracts are organized in such a way, that will generate more incentive management fees (IMF) for the company as compared to what it gets in the US. Currently, only 13% of the North American properties are generating IMF. Therefore, the Asian expansion presents a huge opportunity for the company to pull-back its IMF to the level of 2007 (60%).
Among Marriott International Inc (NYSE:MAR)’s future plans, my favorites are its two proposed luxury hotels in phase 2 of Galaxy Macau. With its remarkable growth rate, the Macau industry has become a prominent spot for world tourism. In 2012, Marriott announced two hotels, the Ritz Carlton and the JW Marriott Hotel Macau, in partnership with Galaxy Entertainment. With this launch scheduled in 2015, the company will make its first step in the booming region of Macau. Looking at these attractive expansion strategies, I expect the worldwide RevPAR (revenue per available room) growth of 6%-8% for the company by 2014-15; which, in turn, can push the IMF to reach its peak levels in 2015-16.
On the other side, one of its strong competitors Intercontinental Hotels Group PLC (ADR) (NYSE:IHG), is focusing on its newly launched brands to grab a higher market share. Last year, IHG launched two brands- HUALUXE and EVEN, to further enhance its portfolio. Each of these brands is targeting at a specific set of customers. HUALUXE is specially designed for the Chinese customers and to tap the growth opportunities in the Chinese hotel market. Similarly, EVEN is designed for the health conscious travelers focusing on wellness and fitness. Under these brands, IHG is expected to open its first hotels in late 2013 and in 2014. The company is targeting at around 21% of its revenue from these brands in the long-run.