Hyatt opens up and bets on luxury expansion

A super-luxury Park Hyatt will open this August in the flashy One57 hotel-cum-residential development on Manhattan's so-called Billionaires' Row.

The project on 57th Street is part of Hyatt Hotels Corporation's expansion across the world's gateway cities under chief executive Mark Hoplamazian, who is facing intense competition from larger public rivals and independent operators.

Known for its high-end rooms and corporate jet-setter clientele, the hospitality group, which he took public in 2009, has invested heavily in destinations from New York and Guadalajara to Vienna and Chennai.

"We're punching above our weight," said Mr Hoplamazian. Hyatt has 525 hotels compared with rivals Marriott International and Hilton Worldwide that have around 4,000 owned, operated or franchised properties. Starwood Hotels & Resorts meanwhile has nearly 1,200.

"Having a smaller footprint does not impact our ability to perform. We just have to be thoughtful, deliberate and have a presence in key markets," the 50-year-old executive told the Financial Times.

Mr Hoplamazian came to the helm of the company in 2006. The Chicago-based Pritzker family that controls the hotel group appointed him to the role after he rose through the ranks of its industrial conglomerate over almost two decades. The former Wall Street banker navigated fractious family politics and fused the hotel business's multiple strands.

Since then the Pritzkers have sought to shake off their famously secretive image. Last week, almost 60 years after the company launched, Hyatt hosted its first investor day. Although its hotels are performing well, amid an economic recovery that has seen a rebound in business and leisure travel, Hyatt shares trade at a discount to its peers.

The company's management structure - the Pritzkers own almost 60 per cent of the Hyatt's common stock and have 75 per cent of the voting power - and poor communication with Wall Street have been partly to blame.

"Up until now there has been little transparency on earnings guidance," said Rachael Rothman, analyst at Susquehanna Financial Group. "[By opening up] they are moving in the right direction."

Mr Hoplamazian spoke to investors about growth strategies and how the group expects to use its strong balance sheet to its advantage. "We've been incredibly active. We had to paint a picture for investors of where we're at," said Mr Hoplamazian.

Like other US-based hotel companies, Hyatt - whose brands also include the trendy Andaz boutique hotels and the more casual Hyatt House and Hyatt Place chains - has been pursuing an aggressive overseas expansion, with an emphasis on the luxury segment. Room growth rose by 21 per cent between 2009 and 2013, with Asia leading the charge.

In the fourth quarter, earnings doubled to $32m from a year earlier, on revenues of $1.09bn, even as a crackdown on conspicuous consumption by China's government and slower economic activity in the rest of Asia weighed on results.

"This crackdown has changed the tone of the market. We've seen real declines in entertainment and business dinners," Mr Hoplamazian said. "But things are stabilising."

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The next multi-decade push in India, China and neighbouring regions, he said, would be in the lower price brackets to take advantage of the rising number of middle class travellers.

"Growing from a smaller base means that Hyatt's expansion prospects look more attractive than its peers," said Nikhil Bhalla, analyst at FBR Capital Markets. Globally it opened 51 new hotels last year and has another 240 in the pipeline totalling about 54,000 rooms - the highest in the company's history.

Hyatt expects earnings before interest, taxes, depreciation, and amortisation to rise by a compound annual growth rate of 14 per cent over the next three years. With revenue per available room estimated to increase by just over 5 per cent, the company would have a cumulative $1.9bn to spend on operations, new investments or return to investors over the next three years.

The group is using Andaz - which competes aggressively with Starwood's W brand, Marriott's Edition and others - to attract younger affluent travellers, who are the hotel sector's next generation of core customers. It also plans to boost its all-inclusive resort and convention hotel offerings, particularly through franchising.

Mr Hoplamazian said that being smaller helped the company weather the financial downturn better than its rivals. But Michelle Grant, analyst at Euromonitor, said the drawback was that "Hyatt may face an uphill struggle when it comes to persuading hotel owners to take up their brand".

Larger competitors have bigger loyalty programmes, larger marketing divisions and lower costs to ensure access to a broader base of guests than Hyatt, she added.

As competition escalates, Hyatt will need to try harder to differentiate itself, said Mr Bhalla at FBR Capital Markets. "They are on the right path and this will happen with time, but they still need to define their identity."

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