Choice Hotels CEO Sees Signs of Stabilization

With more consumers ditching extravagant vacations and taking to the road on good, old-fashioned road trips, Choice Hotels International is finding itself in a good spot.

Car on road
Car on road

"It seems like it has stabilized," CEO Steve Joyce says. "We are sort of in the position now where we are waiting to see if things will improve."

Choice franchises value hotels brands such as Comfort Inn, Quality Inn, and Comfort Suites, and tends to benefit when leisure travelers take to the road.

"Our typical customer is a drive customer," Joyce says. "Our drive locations are holding up better and we think those trends will continue."

Choice saw its business weaken last year after Memorial Day as consumers cut back on travel in response to high gasoline prices. The slow down accelerated in October as consumers dug-in deeper and cut spending as the recession wore on.

Choice will release its second quarter results on July 29, and in April said it expects its revenue per available room to be down about 16 percent for the second quarter, and about 11 percent for the year.

According to Joyce, it is difficult to predict exactly how consumers will behave for the rest of the summer because their hotels typically don't see many long-range reservations. Instead, there is about a two-week lead time.

However, some recent surveys are indicating that trends are in Choice's favor. The latest is a survey from Mintel that reveals more than six in 10 people drove their own car to their last vacation destination. And they didn't go anywhere glamorous: 62 percent visited family and friends, 30 percent went to the beach, and 30 percent visited cities.

In 2007, when the economy was stronger, fewer people — some 56 percent — vacationed with family and friends, and 42 percent went to cities.

Although two in five — some 42 percent — bunked with friends or relatives, during these trips, more than half did stay in hotels, Mintel says. Still, that's down sharply from last year when 80 percent say they stayed in a hotel.

Mintel also found people were vacationing closer to home (57%), taking shorter trips (56%) and using cheaper forms of transportation (64%) because of the economy.

"The recession is undoubtedly making more Americans shop aggressively for travel deals and cut corners," states Chris Haack, senior analyst at Mintel. "As people try to save money, we see a rising trend towards simpler, more 'homespun' vacations. We've even seen an increase in zoo and local theme park attendance. People can justify shorter trips with fewer excesses, as long as they still have the opportunity to relax and have fun."

Comfort Suites
Source: Choice Hotels
Comfort Suites

Choice has been trying to woo business by offering guests the opportunity to earn a free $50 prepaid cash card after three separate stays between May 21 and Aug. 13.

The company opted to go with the cash promotion because it was the most appealing offer according to the consumers it surveyed. The cash deal topping other options such as gasoline cards and free nights at the hotel.

Several stock analysts also like Choice Hotels. Earlier today, Wachovia upgraded the rating on the company's shares to outperform from market perform.

It's also a favorite pick of UBS analyst Will Truelove.

"The nice thing about Choice, isn't so much that it is a budget brand," Truelove says. "It's good right now that there's no luxury focus, which is getting crushed, but the reason we like Choice is because it is a pure franchiser so it is one of the most defensive lodging names out there."

(To hear stock picks in the hotel sector from Truelove, and Rod Petrik, an analyst at Stifel Nicolaus, watch this video.)

Choice's Joyce says the company is looking to see if it can use its relatively strong position to its advantage. Joyce says he’s looking to see if the company can make selective acquisitions from rivals who get into trouble.

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