Industry & Co. Overview Hyatt Hotels Corporation “HHC” (NYSE: H) Meghan Shevlin January 15, 2014 Industry Overview • Lodging industry is highly competitive with growth mainly in international sectors • Franchise in order to expand operations without need for substantial capital • Start up costs are immense • Subject to government regulation regarding marketing, manufacturing and sale of certain products • Shift to use of the internet and bargain websites (highly vulnerable to economic downturns) Industry con’t • Chains are sometimes involved in the management of, but not ownership of the hotel and will receive management fees • Ownership varies from publicly held companies to individuals • Ownership through a REIT is becoming highly popular in order to avoid double taxation • REIT’s enable investors to invest in large diversified portfolios of income producing property • Use industry unique performance metrics: • Average Room Rate • Average Food Check Porter’s Five Forces Model Forces Lodging Industry’s Susceptibility Industry Competition Strong (Price wars, internet expands potential market, differentiated services) Bargaining power of Customers Low-Moderate (rates only change with special scenarios i.e. convention package/group discount. But, customers are able to use bargain websites) Bargaining power of Supplier Weak (labor shortage with aging population, employees in great demand, only 24% unionized) Threat of Substitution Strong (Many lodging options i.e. B&B, motel, hostel, all ranging in price and services) Threat of Entry Moderate (high costs to start up, difficult to differentiate, need expertise. But, internet makes finding suppliers/marketing easier. Hyatt Hotels Corporation • Hyatt Brands: • Grand Hyatt, Hyatt Regency, Park Hyatt etc. • Mostly Luxury and upscale hotels but also provide extended stay and residential options • Worldwide portfolio of 500 properties (135,144 rooms) in 46 countries • Year ended Dec 31, 2012 revenue of $3.9 billion and $1.4B borrowing capacity • 79.5% revenue attributable to operations in the United States • Hyatt Gold Passport: guest loyalty program to attract new customers and to demonstrate loyalty to best guests accounted for 33.5% of total room nights in 2012 HHC con’t • Increase market presence by entering new management and franchising agreements • Increase franchising in order to gain access to capital from developers and property owners that target franchise business opportunities • HHC collects management fees, franchise fees related to these agreements • Has never declared or paid cash dividends in order to further develop and expand business HHC con’t • Business life-cycle stage • With operating cash flows being positive and both investing and financing cash flows being negative, HHC is in a Mature business cycle • Operates in 20 of the 25 most populous urban centers and continues to search for new opportunities SWOT Analysis Internal Factors External Factors Strengths Opportunities • • • • • World Class Brands Experienced management teams Strong capital base Move into markets not yet involved in Expand alternative lodging options (offer more extended stay and lower scale hotels) Weaknesses Threats • • • • High operating costs Aging labor force, need for new experienced workers Inability to compete effectively Third parties can’t access capital to fund current operations or plans for growth Conclusion • Hyatt Hotels is a global company with highly regarded and recognized brands that have been serving loyal customers for over fifty years • Taking innovative measures to deal with environmental concerns, technology improvements and updating facilities • Actively seeking expansion and alternative franchising opportunities Sources • Hyatt Hotel Corporation Annual Report 2012 • Hyatt Hotel Corporation Investor Fact Book 2012 • http://www.irs.gov/Businesses/Hotel-Industry-Overview--Complete-Version#3