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Travel: ‘Leisure demand pie is big enough’ for hotels and Airbnb, analyst says

Baird Analyst Michael Bellisario joins Yahoo Finance Live to discuss what to expect from the hotel industry in 2022 as COVID-19 eases, Airbnb, and the latest travel trends.

Video Transcript

JULIE HYMAN: We had a lot of the hoteliers reporting their earnings this week. And of course, they've talked a lot about the effect of the Omicron variant and for most of them, the fact that that is now waning. I guess the question is, what happens next?

Michael Bellisario is Baird equity research analyst. He covers these companies. So Michael, I just want to just start sort of generally, right, with these hotel companies and where they stand in terms of the COVID cycle. It does seem like that they are coming out of it, to some extent. But they still have a long way to go.

MICHAEL BELLISARIO: Yeah, great. Thanks for having me today. I think the short story is everything is getting better. The US has recovered the quickest. And every time we've seen a step back with Delta and now Omicron, the impact has been a little bit less, and the recovery thereafter in terms of the pent-up demand, demand coming back, rates coming back, has been quicker. So they're on a pretty good trajectory. RevPAR which is revenue per available room, the industry kind of top line metric that everyone looks at, continues to improve. It's still negative versus 2019 levels, but the trend is your friend here. And things are getting better.

BRIAN SOZZI: Michael, are you surprised, just given where occupancy levels are, for major-- a lot of the major hotels, I mean, there's under 60%, depending on the chain. Are you surprised that a lot of these big players continue to move aggressively to open up new rooms around the world?

MICHAEL BELLISARIO: No, not surprised. Developers that are putting shovels in the ground, they're looking out five years, 10 years. These are real estate investors that are making long-term bets. And actually, some, people are trying to lean in today. It's difficult.

Costs are going up, interest rates are going up. Projects are taking longer to get done, but a lot of people want to put a shovel on the ground today because they want to open the hotel in three years or four years, when no one else is opening a hotel. So not surprised on that end. And I think the brands are going to continue to grow. And as they look around the world, the white spaces internationally, they're growing in the US, but it's really ex-US.

JULIE HYMAN: I want to ask about the competitive landscape between the hotels as a class and things like Airbnb, because we've seen this shift in stays at the likes of an Airbnb, where people are staying longer. What does that sort of do to the hotel room share dynamic, if you will? If people are staying longer in Airbnbs, does that actually give hotels an opportunity to grab back some of the short-term stays?

MICHAEL BELLISARIO: Yeah, I think right now, the leisure demand pie is big enough for everyone to play in the same sandbox. Airbnb, that was probably the number one risk that investors asked us about 2014, 2015, 2016. That doesn't really come up that much anymore. I think what you're seeing is the weekend is probably now Thursday, Friday, Saturday, Sunday, into Monday. And the business travel week is shorter today versus what it was two plus years ago.

But I think the answer is people are staying in different markets on different days of the week for different reasons. And both Airbnb, Vrbo, and the hotel brands are getting their fair share of a much bigger leisure demand pie today.

BRIAN SOZZI: If we're having this conversation, let's say, in August, Michael, how do you think the hotel chains will have done during that peak travel season?

MICHAEL BELLISARIO: Wow. I mean, I think that's a simple answer. You know, everyone continues to be surprised at how quickly demand continues to bounce back every time we have one of these short-term pullbacks here because of a different variant. And then the other thing that has surprised everyone in the industry is the rates, the high level of rates that people are willing to pay. And that has also helped bottom line profitability for the brands and also owners. So I think the short answer is the next three to six months, the outlook and the trajectory of the recovery, it looks pretty strong.

JULIE HYMAN: I mean, people are paying rates because they can't wait to get the hell out of the house, I guess, is part of the situation. I wanted to ask about your ratings amongst the different ones. It looks like, judging from where you have outperforms, that Hilton and Wyndham are your preferences. What is it that makes them in a stronger competitive position?

MICHAEL BELLISARIO: Yes, Wyndham's our top pick. It's been our top pick for a while. It's a relatively new name. It became a standalone public company in 2018. And there's been a lot of noise since then. They did a huge acquisition of La Quinta around the time of the spin-off, and then the pandemic happened. So it's a little bit of a self-help story. We don't think there's enough eyeballs on it in terms of people looking at it, understanding how good of a business it is. And there's still a bit of a rerating story there.

And then also the lower end chain scales, they're US focused. Those segments, those markets have been performing and recovering the best. And then Hilton, it's sort of a same story. It's an easy to sleep at night business. They're growing that units, or at least, they think they're going to grow this year 5%. RevPAR is recovering, and they're in the chain scales and in the markets that are performing better.

JULIE HYMAN: Well, happy traveling to you, Michael, and thanks for your perspective on all of this. Michael Bellisario is an equity research analyst at Baird. Thanks.