Hyatt CEO on Delta surge: China bookings see 'acute' impact

Mark Hoplamazian, Hyatt CEO & President, joins Yahoo Finance Live to discuss why the company is buying Apple Leisure Group and break down the outlook for the travel and leisure industry.

Video Transcript

- Yesterday, we had a big deal in the travel space. Hyatt announcing a deal to acquire Apple Leisure Group for some $2.7 billion, bringing Hyatt into the luxury travel space as well as bringing it into the all-inclusive resort space. Joining us now to discuss the deal and the reshaping of the Hyatt portfolio, President and CEO at Hyatt, Mark Hoplamazian. Mark, thanks so much for jumping on this morning. Let's just start with kind of how you guys thought about this deal in the context of, one, a Hyatt that continues to change its portfolio structures you guys discussed on the call yesterday. But also with travel recovery, particularly leisure travel, and looking out to what the future of travel might be post-pandemic.

MARK HOPLAMAZIAN: Thanks, Miles. Good to be here. Thanks for having me. First, I would say that leisure travel has been the most resilient and durable segment of the travel industry for a long time. It's not just a COVID and post-COVID phenomenon where we've seen tremendous recovery in travel and leisure travel. It's also been the case after downturns in the past. That the power of human connectivity and human connection where people want to reunite with family and friends and loved ones and actually take a break has never been more important for obvious reasons.

And so this is really something that we think is going to continue to be a segment with tremendous growth. Within the leisure segment, resorts in particular, and all-inclusive resorts are very fast-growing segments in both the Americas and in Europe. We're going to be doubling our global resort presence upon closing this deal. We're adding over 100 resorts. And we're growing our footprint in Europe by 60%. So it's a really transformative deal in terms of the markets that we can cover.

- Mark, it's Julie here. You guys have been transitioning to a more asset-light model. So how does then this deal kind of fit into that?

MARK HOPLAMAZIAN: Yeah. It really unlocks the next chapter of accelerated transformation to being an asset-light company. We started off life as a public company almost 12 years ago. And we were at a 2/3, 1/3 split of earnings. 2/3 of our earnings came from owned and leased hotels. And 1/3 came from our fee business. By the time we closed the deal and finish a additional $2 billion selldown of assets that we announced yesterday, we will be at a 20/80 split. 20% from owned and leased and 80% from fees. And that's by 2024. So it really is quite a significant unlock. And aside from reducing the earnings from owned and leased hotels, this is really an asset-light business that we're buying. So it's all fee-based income. So it really is transformative from a mix of earnings perspective.

- And then, Mark, I venture you don't make an acquisition of this size if you don't have some form of visibility into your business over the next 12 to 18 months. What are you seeing for 2022 booking trends?

MARK HOPLAMAZIAN: Well, what I would tell you is the best visibility that we have is in group business. That's the longest lead time booking curve. And the 2022 progression was tracking at about 15% below 2019 levels. And we have an expectation-- excuse me-- that we'll see more bookings come through on the group side. So we see that happening. And that group business is not strictly corporate and association. There are leisure groups. There are sports groups and other specialty groups. That's the best visibility we have into bookings for next year.

But I'll tell you that the momentum that we've seen through July has been remarkable in leisure. The luxury leisure segment in particular is particularly durable because a lot of our core customer base have the means to be able to travel. And it is the first thing that they've turned to. So I would say that we do expect leisure and business to be vibrant into next year. For the next few months, a little harder to say because of course people are still contending with the variability of the Delta variant and coping with that. But we see this really as a longer term trend and something that we're looking forward to for the next 5 to 10 years.

- Have you seen any cancelations of late that you can tie to the COVID variant?

MARK HOPLAMAZIAN: The most acute downturn that we've seen due to Delta is in China. The playbook that the Chinese government has used when they've had outbreaks of this type is to be very aggressive about limiting travel and limiting activity actually. So there are very, very strict restrictions on movements. So in China, we've seen a very precipitous drop in bookings. Our experience in history with that is that subsequent to those extensive restrictions demand recovers quickly because you end up with sort of a compressed pent up demand that springs into the future.

And then in terms of bookings into August-- so sort of more real time-- we have seen some declines. And I think part of that was in the Caribbean, at least, due to the tropical storm that was threatening to be a hurricane. Fred, I think they named it. And then apart from that, I surmise that there are some Delta variant impacts at this point. Again, we do expect, especially given our training from the last 18 months, that this is not a smooth road. And we're going to be managing through and having to continually adapt and pivot.

- Like all of us. For sure, Mark. Finally, I want to circle back to the deal and ask you one more question about that, which is that you guys are taking on $1 billion in debt to buy Apple Leisure. S&P said that you might be subject to a debt downgrade as a result. What effect would that have if your bonds were downgraded to junk in terms of your borrowing ability going forward?

MARK HOPLAMAZIAN: Well S&P is one of the rating agencies that rates Hyatt. We have two other ratings. And I think that the other rating agencies have been more optimistic and supportive, I guess. I think the thing that I would say is that we've got $2 billion of assets that we've committed to sell. The market for hotel assets, especially of the quality that we have, that's been very robust. So we have many, many alternatives as to how we can ultimately raise capital and pay down debt over time. We have cherished our investment grade profile since the time-- actually, well before the time we were public as a company. And so my view is that we we've always run a conservative balance sheet. And while we are taking on additional debt, in the short term, we expect to be able to pay it down and then some over the next three years as we sell them assets.

- And then, Mark, just finally on the asset sales, I'm just curious who's coming you guys and wants to buy it. We hear so much about dry powder out there. What's the buyer profile, I guess, of the folks that you're talking to. And again, as you guys mentioned, $2 billion more of asset sales expected by 2024.

MARK HOPLAMAZIAN: Yeah. So first of all, REITs are active. Public REITs and private REITs are active. There are several large private REITs that focus on hotel acquisitions. And then both private equity, private investment groups as well as foreign sovereign funds that support principles in the marketplace. So it really is from a variety of different sources, which is another reason why we're confident that we're going to be able to execute really well. Since 2017 when we announced that we would start selling down assets, by the end of this year we expect to have sold over $3 billion of assets at a 17.4 times EBITDA multiple, which is well above what we predicted. So we have a track record. And this is an incremental $2 billion. And we think we're very confident that we're going to be able to execute against that.

- All right. We'll leave it there. Appreciate the time this morning. Mark Hoplamazian, CEO and President at Hyatt. Talk to you soon, Mark. Thanks.