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Hyatt emphasizes flexibility amid risky expansion into franchising

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Hyatt emphasizes flexibility amid risky expansion into franchising
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Gary Leff Chief Financial Officer | View from the Wing

Marriott has increasingly prioritized hotel owners over guests, a trend that began under Arne Sorenson and has continued under CEO Jim Capuano. Capuano stated, “When I die, they’ll put the net-rooms growth number on my tombstone.” Marriott's approach of accepting fees from hotels regardless of quality has led to brand dilution.

For hotel chains that do not own their properties, the brand is their most valuable asset. Diluting this brand by associating with inconsistent or subpar hotels can lead to short-term revenue gains but long-term losses in customer trust and loyalty. Major hotel chains are thus trading long-term value for immediate profits, a strategy Hyatt now aims to pursue more aggressively.

Paul Daly, Hyatt’s global head of franchise and owner relations, discussed the company's strategy in an interview at the 2024 NYU International Hospitality Industry Investment Conference. Daly emphasized flexibility towards owners' needs while maintaining consistency for guests. He noted that lifestyle hotels offer more opportunities for flexibility compared to standardized brands like Hyatt Place and Hyatt House.

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Hyatt has expanded its franchising efforts over the past three years, focusing on leisure markets through acquisitions such as Apple Leisure Group. The company plans to open 250 extended-stay Hyatt Studios properties, half of which will be in new markets. Last year alone, World of Hyatt added 8 million members.

Despite these expansions, traditional full-service brands like Grand Hyatt and Hyatt Regency have not been a recent focus. Instead, growth is driven by franchised limited-service properties and resorts. This shift towards luxury comes with significant risks; maintaining high standards is crucial in this segment where customer experience directly impacts brand reputation.

Historically, Starwood was known for holding hotels accountable by addressing customer complaints effectively. However, there have been instances where Hyatts have faced criticism for practices such as adding unauthorized fees or failing to honor loyalty benefits.

Hyatt remains more focused on high-end segments compared to Marriott, Hilton, and IHG. Seventy percent of its rooms are in luxury or upper upscale categories with higher average daily rates than its competitors. These higher rates support greater investment in customer loyalty programs.

The challenge lies in offering more than basic amenities; premium properties must provide enriching experiences that justify higher prices and distinguish them from short-term rentals.

Organizations Included in this History
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