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WIKI ANALYSIS
Wyndham Worldwide Corporation (WYN.NYSE) is one of the leading providers of hospitality products and services in the world. Wyndham's is the world's largest hotel franchiser and largest vacation exchange network, and largest vacation ownership company. Ironically, despite its size, Wyndham has relatively little exposure to important emerging markets such as China and India; over 92% of its properties are located in Europe and North America.
Unlike its competitors in the lodging industry, approximately 50% of Wyndham's revenues come from franchise fees, property management fees, and membership and exchange fees, making Wyndham an extremely diversified hospitality company. These fees are typically fairly stable and insulate the company from the temporary downturns that often plague the hospitality industry. Wyndham has recently divested a number of under performing hotels. This along with its efforts to rebrand properties in its vacation exchange network under the Wyndham name should increase profitability in the near term.
History
Wyndham Worldwide was created on July 31, 2006 when Cendant Corporation spun off its Cendant Hospitality division. This move was part of an October 23, 2005 decision by Cendant Corporation to split itself into four companies along the lines of Real Estate, Travel Distribution, Hospitality, and Vehicle Rental Companies. Wyndham Worldwide consists or three core operating segments; the Hotel Group Division, Vacation Ownership Division, and the Vacation Exchange and Rental Division.
Business Drivers
Product Lines
| Region | Revenue (in millions) | % of Total |
|---|---|---|
| United States | $2,997 | 78% |
| United Kingdom | $223 | 6% |
| Australia | $104 | 4% |
| Netherlands | $167 | 3% |
| Other | $351 | 9% |
| Total | $3,842 | 100% |
Wyndham Hotel Group Division
Wyndham operates its hotels through a franchise model. Wyndham signs a 15 to 20 year contract in which Wyndham offers individual franchise owners use of its brand name, central reservation system, training infrastructure, operational support and information, quality assurance inspections, pre-opening assistance, prototype construction plans, and national conferences. In return, the individual owner pays Wyndham royalty fees that are a percentage (approximately 8%) of room sales. Wyndham typically applies half of this revenue towards marketing and reservation costs leaving the other half as profit.
| Year | Occupancy Rate | Change in Occupancy Rate | Average Daily Rate (ADR) | Change in ADR | RevPAR | Change in RevPAR | Revenues | Change in Revenues | New Rooms | Change in New Rooms |
|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 59.7% | 5.6% | $83.96 | (1.5%) | $50.16 | (7.0%) | 103.5 | (7.7%) | 90.5 | (24.8%) |
| 2002 | 59.0% | (1.2%) | $82.71 | (1.5%) | $48.81 | (2.7%) | 102.5 | (0.9%) | 68.4 | (24.4%) |
| 2003 | 59.2% | 0.3% | $82.82 | 0.1% | $49.02 | 0.4% | 105.1 | 2.5% | 76.6 | 12.0% |
| 2004 | 61.3% | 3.6% | $86.25 | 4.1% | $52.89 | 7.9% | 114.0 | 8.5% | 80.7 | 5.3% |
| 2005 | 63.1% | 2.9% | $90.89 | 5.4% | $57.35 | 8.5% | 123.9 | 8.7% | 83.6 | 3.6% |
| 2006 | 63.4% | 0.4% | $97.24 | 7.0% | $61.62 | 7.4% | 133.9 | 8.1% | 118.8 | 42.1% |
| 2007E | 63.3% | (0.1%) | $102.91 | 5.8% | $65.18 | 5.8% | 144.0 | 7.5% | 124.7 | 5.0% |
Currently, Wyndham is the largest lodging franchiser in terms of number of franchised hotels in the world with nearly 6,500 franchised hotels and over 539,000 rooms over six continents. With 92% of its hotel rooms in North America the company is enjoys major economies of scale within the US. It accounts for 10% of US hotel room inventory. Locations are well distributed among several franchisees, with no single franchisee controlling over 2% of the companies hotels. Wyndham operates its hotels under ten brands catering to various segments of consumers.
Wyndham predominantly caters to the economy sector, accounting for 19.5% of all hotel room nights sold in the country's economy and midscale segment. Currently, Wyndham is making a push into the luxury segment of the market.
Wyndham predominantly caters to the economy sector, accounting for 19.5% of all hotel room nights sold in the country's economy and midscale segment. Currently, Wyndham is making a push into the luxury segment of the market.
Additional metrics on Wyndam's performance by market segment/brand is also available
Vacation Ownership Division
The Vacation Ownership or Timeshare industry is a $12B industry that has experienced double digit growth over the past twenty years. Timeshares, entail the purchase of shared ownership of furnished vacation accommodations by customers. These rights to use a property are called Vacation Ownership Interests (VOIs). Sales were $7.87B in 2004 compared to $4.2B in 2000 and $1.9B in 1995.
The average profile of a timeshare owner that of a 53 year old with an annual income of $85,000. The growth of the timeshare industry is largely dependent on the baby boomers . Wyndham Vacation Ownership provides the following services: marketing and sales of VOIs, consumer financing for purchasers of VOIs, property management services, and the development and acquisition of vacation ownership resorts. Wyndham owns the largest vacation ownership business in terms of vacation ownership units, owners (750,000), and resorts. Wyndham operates through two brands; Wyndham Vacation Resorts and Trendwest.
Wyndham Vacation Resorts are located in or near attractions such as Disney World, Las Vegas, Hawaii, Myrtle Beach, and Colonial Williamsburg. Wyndham Vacation Resorts account for 72 resorts with 13,300 units, and approximately half a million owners at an average price of $16,000.
Trendwest operates under two names; WorldMark and WorldMark South Pacific consisting of 69 resorts with 4,000 units and 250,000 owners. These resorts are primarily drive to resorts located at close proximity to owners, in areas such as the west coast, Canada, Mexico, and the South Pacific.
Wyndham offers financing to purchasers through its consumer financing business. This reduces initial cash required to purchase a timeshare thereby significantly expanding the market for its Vacation Ownership properties. Wyndham also makes a profit by earning the interest spread that exists between the interest charged on loans to timeshare buyers (13%) and Wyndham's actual cost of money (4%).
Although the timeshare industry was traditionally considered lower value than lodging, timeshare has averaged a CAGR growth of 15.9% as compared to 5.7% for lodging.
Vacation Exchange and Vacation Rental Division
The Vacation exchange and rental industry is valued at $36B. Presently, Vacation Exchange accounts for 70% and Rental 30% of the divisions revenues.
Through vacation exchange, an owner or timeshare owner lists his vacation property on an exchange and indicates a time interval and destination that the owner would like to visit. The exchange company rates the owner's property and finds a similar property at the destination desired. Wyndham operates in this sector through ownership of Wyndham Resort Condominium International (RCI) Global Vacation Network. This network has access to 55,000 properties including hotel rooms and suites, villas, apartments, homes, luxury clubs and boats. The network operates exchanges through RCI Weeks and RCI points (which allow owners to exchange points for travel related services). Revenues for this business are derived from annual membership dues and exchange fees from members. RCI charges annual dues of $79 and exchange fees from $129 - $169.
Wyndham also operates in the Vacation Rental industry. The company markets properties of individual owners and inventory from its RCI business. Currently the business has relationships with 35,000 property owners, concentrated in North America and Europe. Wyndham makes over 1.4 million vacation rental bookings a year with fees ranging from 25% to 50% of the gross rent charged. In 2006, Wyndham sold 1.04 rental weeks at an average fee of $322 per rental week.
Customer Demand
Wyndham is strongly grounded in the economy sector of American hotels, commanding a quarter of the market share of room nights. This segment has been slow to rebound since 2003. Wyndham's customers are often individual travelers who are far more sensitive to price changes because of their lower purchasing power. Because of the existence of a strong individual traveler market, Wyndham is not at the whim of changes in corporate customer demand. Because of Wyndham's franchise based model, swings in customer demand do not have as adverse of an effect on Wyndham as they might on other competing lodging companies. Wyndham is trying to make a push into the higher end lodging segment. Geographically, the majority of Wyndham's customer demand is North America centered. Wyndham is trying to diversify into lucrative emerging markets with developments in China and India.
In the timeshare industry, Wyndham's customers are typically relatively affluent ($85,000 a year) middle aged couples living without children in the household. This segment has been growing rapidly (Wyndham's fastest) as more and more baby boomers are using timeshares as a vacation alternative. This industry is not prone to react to shocks to the travel industry, tending to register more uniform and stable growth. Even during the downturn earlier this decade, the timeshare industry registered strong growth. These trends extend into both Wyndham's Vacation Exchange and Rental, and Vacation Ownership businesses.
Trends and Forces
Strength of the Hospitality Industry
The travel industry ranks third amongst retail industries in America. The hospitality sector of the travel industry occupies an important position. The wellness of the hospitality industry is greatly affected by the performance of the US economy. The U.S. economy performed solidly in 2006 (3.2% growth) and is expected to continue this performance in 2007 and 2008 with real GDP growth expected to register at 2.6% and 3.2%, respectively.
Despite many unexpected challenges to the hospitality industry in the form of terrorism, natural disasters, and Severe Acute Respiratory Syndrome (SARS), the industry has continued to grow with only minor setbacks. In 2005, travel related expenditure increased by 8% within America. Total U.S. spending reached approximately $675 billion in 2006 and is expected to continue this high level of growth. Today, the industry has completely recovered from September 11, 2001, with current expected spending up 16% over industry highs pre-September 11th.
Emerging Markets
Wyndham has a weak international presence with over 92% of its properties located within the US. The growth of emerging markets, particularly, Asia (China and India) will play an important role in the company's future expansion. Wyndham has struggled to expand in Asia because of the lack of an established franchising industry in the region. Wyndham's competitors have expanded in the region through greater involvement in the running of hotels in the form of management contracts. These contracts allow competitors to specialize in every aspect of the management of the hotel (including the daily operations). Unfortunately, Wyndham does not follow this model of expansion, leaving the company handicapped in the emerging world because of its inexperience as a hotel micro-management company. Wyndham is currently pursuing a strong push into the Asian markets which will determine greatly the company’s outlook in the future.
Aging Baby Boomers
A recent study concluded that the average vacation ownership customer was 52 year old with a median income of $81,000. With rising life expectancies, aging Baby Boomers have more time and money to invest in leisure. In recent years, baby boomers have increasingly switched to a new form of vacationing centered around "sight-doing" as opposed to "sight-seeing." This entails spending a longer time in a particular vacation destination in order to truly experience the culture. This new trend will bolster growth for timeshares and related industries of extended stay.
Lodging and Timeshare Brand Integration
Recently the Timeshare industry has integrated more closely with the Lodging Industry. Combining trusted traditional brand names from the lodging industry with timeshares fosters more confidence in potential customers. Consumers have embraced Timeshares at new levels causing Timeshares to move into the mainstream travel industry. The ensuing economies of scale derived from bringing timeshares under one well known brand also help in driving down costs.
Seasonality
The seasonal nature of the lodging industry causes revenues in the second and third quarters to outweigh those of the first and fourth quarters. Weather conditions play a large role in determining traffic levels for tourists (the bulk of Wyndham's clients), thereby effecting quarterly revenues as a result of higher traffic volumes during Spring and Summer months. Any event that disrupts travel patterns during the spring or summer would an adverse effect on the annual performance of the franchised hotels and managed properties.
| Quarter | 2006 Revenue (in millions) | 2007 Revenue (in millions) |
|---|---|---|
| Q1 | $870 | $933 |
| Q2 | $955 | $1032 |
| Q3 | $1047 | $1159 |
| Q4 | $923 | $1021 |
Competition
Wyndham competes with global players, such as Marriott, Hilton, Intercontinental and Starwood. Unlike Starwood and Hilton, Wyndham has little exposure to hotel ownership because of its franchise model. In the major lodging decline of 1998, the franchise based Marriot experienced 7% losses while Starwood and Hilton experience losses of 61% and 36% respectively. Wyndham is less centered upon corporate customers than its competitors, making the company less affected by corporate volatility. Conversely, Wyndham has a smaller geographical footprint than these competitors, and its weak position in Asia has puts it at a significant disadvantage. Also although larger than in its competitiors in terms of number of rooms and properties, Wyndham's revenues are significantly lower.
| Company | Occupancy | RevPAR | Revenue (millions USD) | Pre-Tax Profit (millions USD) |
|---|---|---|---|---|
| Wyndham | 52.3% | $32.06 | $3,842 | $542 |
| Marriot | 74.4% | $114.61 | $12,160 | $997 |
| Starwood | 71.2% | $136.33 | $5,979 | $1,115 |
| Hilton | 72.5% | $82.46 | $8,162 | $838 |
Wyndham is strong in two key metrics of the lodging industry; RevPar growth and Weighted average room count growth. Wyndham's RevPar (revenue per available room) growth is stronger than the industry average standing at 9.6%. The forecasted weighted average room count is estimated to grow at 1% annually.
| Company | Number of Rooms | Approximate Number of Countries |
|---|---|---|
| Intercontinental | 537,533 | 100 |
| Wyndham | 532,384 | 50 |
| Marriot | 499,164 | 60 |
| Hilton | 485,356 | 80 |
In the vacation ownership or timeshare industry, Wyndham competes with Disney Vacation Club, Hilton Grand Vacations Company LLC, Marriott Ownership Resorts, Inc. and Starwood Vacation Ownership, Inc. This industry has developed rapidly in the recent past and has emerged as a mainstream industry from the fringes following entry of major players making the industry more flexible and reliable in the minds of customers. Timeshare is a relatively recession resistant industry, despite troubles in 2002 for travel sector timeshares grew at 9.3% internationally. Wyndham is moving into the high end industry as it rebrands 14 properties under the Wyndham name. The following metrics are key indicators in this industry; Tour growth and Revenue per Tour. Tour growth represents the growth in the number of guests that tour Wyndham's VOIs in Wyndham's efforts to sell properties. There were one million tours in 2006, and it is estimated that there will be 7.7% growth annually. Revenue Per Tour measures the growth in the value that Wyndham derives from each tour. While the figure stood at $190 in 2006, growth is expected to average 2.2% annually.
| Company | Number of Members |
|---|---|
| Wyndham | 767,000 |
| Marriott | 322,250 |
| Starwood | 185,000 |
| Bluegreen | 153,000 |
| Hilton | 115,000 |
The vacation exchange and rental industry is dominated by world leading Wyndham Resort Condominium International (RCI) and InterActive Corporation's Interval International (II) which together dominate 70% of the market. In Wyndham's vacation exchange segment, the growth of due paying members is expected to grow 4.5% and stands at 3.35 million members. The actual revenue per subscription is expected to grow at 0.5% and stands at $192. In the vacation rental segment, sales of vacation rental weeks are estimated to grow 2.4% annually, while the average rental revenue per unit sold stands at $322.
The private facilitation of vacation exchanges though the Internet could be detrimental to RCI. Websites like Ebay could pose a grave threat in the future.
| Company | Number of Members |
|---|---|
| RCI Global Vacation Exchange | 3.3 million |
| Interval International | 1.8 million |
References
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