Alex Brignall

Alex Brignall posed two questions: first, about the marketing expense overspend, its specifics, recovery timeline, benefits, and sharing between Wyndham and franchisees; second, regarding the structural dynamics of RevPAR and demand in the U.S., particularly the gap between luxury and economy segments, and concerns about potential price deterioration in higher segments or a bounce back in economy pricing in 2026.

Answer

CFO Michele Allen clarified that the $5 million marketing fund overspend is a modest 1% of total annual spend, a conscious investment in in-flight initiatives like Wyndham Rewards Insider and AI, which will benefit the franchise system beyond 2025. She stated that Wyndham has a strong track record of recovering such funds, potentially as early as 2026-2027. CEO Geoff Ballotti addressed the RevPAR dynamics, noting that while economy rates are up 10% pre-COVID versus luxury up 30%, this creates a strong pricing power opportunity for economy and mid-scale segments. He expressed belief that domestic RevPAR will return to a 2-3% CAGR when consumer confidence stabilizes, supported by macro factors like infrastructure spending, low supply, and upcoming leisure events like America 250 and the FIFA World Cup in key Wyndham markets.

Alex Brignall asked about the marketing expense overspend, its specific nature, recovery timeline, and benefits for franchisees. He also questioned the structural dynamics of RevPAR, particularly the closing gap between luxury and economy, and if it implies price deterioration for higher segments or a bounce back for economy in 2026.

Answer

CFO Michele Allen explained the $5 million marketing fund overspend is immaterial (1% of total spend) and a conscious investment in initiatives like Wyndham Rewards Insider, AI, and digital platform updates, with recovery expected in 2026-2027. CEO Geoff Ballotti addressed the RevPAR gap, viewing the current situation as positive for economy/mid-scale pricing power long-term. He anticipates domestic RevPAR returning to a 2-3% CAGR, driven by macro factors, low supply, and upcoming events like America 250 and the FIFA World Cup in key Wyndham markets.

Alex Brignall of Redburn Atlantic inquired about franchisee retention rates, whether there were any dropouts from the development pipeline, and the company's expectations for the Q4 RevPAR comparison.

Answer

CEO Geoffrey Ballotti stated that they are not seeing pipeline fallouts and that the franchisee retention rate is strong at 95.8%, a significant improvement from 93% at the time of the spin. CFO Michele Allen addressed the Q4 outlook, acknowledging it is a 'tougher comp' due to lapping about 150 basis points of benefit from hurricane-related demand in the prior year, a factor already reflected in the full-year guidance.

Alex Brignall of Redburn Limited requested more details on the German development deal, including the terms, the nature of the 3,000 rooms, and whether similar large-scale deals are in the pipeline.

Answer

CFO Michele Allen declined to disclose specific competitive terms but described the deal as a financing structure provided to a partner that was well above Wyndham's cost of capital and included strong structural provisions and personal guarantees. She stated that while they hope for similar future opportunities, the company evaluates them on a case-by-case basis, deploying capital where it creates the most long-term value. The deal adds 3,000 high-quality, FeePAR-accretive rooms in a key strategic market.

Alex Brignall asked about potential M&A opportunities outside of organic growth, given the strong pipeline evolution, and how owner relationships are developing as recent external uncertainties have faded.

Answer

CEO Geoffrey Ballotti responded that the removal of external uncertainty has 'supercharged' their organic pipeline growth to a record 250,000 rooms. He emphasized that the growth is being fueled by the compelling ROI for owners who plug into the Wyndham Rewards system, particularly in underpenetrated upscale markets where they can gain significant direct booking share without intra-brand competition.

Alex Brignall of Rothschild & Co Redburn inquired about the potential bottlenecks for competitors wanting to build river ships, specifically asking about shipyard capacity and other restrictions. He also asked if Viking continually assesses evolving consumer preferences and might evolve its product, or if the current offering is considered fixed.

Answer

Torstein Hagen, Founder, Chairman & CEO, stated that while other yards can build river ships, Viking's cost-consciousness and operational experience provide an advantage. On product evolution, Hagen expressed a strong aversion to the word "evolve," stating he believes in "revolutions, not evolutions." He emphasized that they have been very strict about maintaining the consistency of their successful product and brand promise, believing they have the model right.

Alex Brignall from Rothschild & Co Redburn sought further clarification on the components of the central cost line improvement and asked about the competitive dynamics of growing through conversions, including the role of key money and fee structures.

Answer

CFO Michael Glover detailed the central profit drivers: a $25M step-up in point sales, doubling credit card revenue to ~$80M, technology fees, and cost savings. CEO Elie Maalouf addressed conversions, stating the addressable market is much larger than just independents and includes conversions from other brands. He emphasized that IHG's growing portfolio of conversion-friendly brands like Voco and Garner provides more tools to grow both conversions and new builds, which is not a zero-sum game but a way to improve existing supply.

Alex Brignall of Rothschild & Co Redburn requested a detailed breakdown of the central line's profit improvement and discussed the competitive dynamics of hotel conversions, including key money and fee structures. He also followed up on the gap between loyalty enrollment growth and reward night growth.

Answer

CFO Michael Glover broke down the central line's improvement, citing incremental revenue from point sales and credit cards, technology fees, and cost savings. CEO Elie Maalouf addressed conversions by highlighting IHG's expanded brand portfolio and the large addressable market beyond just independent hotels. On loyalty, he explained that a lag exists between rapid member enrollment and subsequent point redemption, while Mr. Glover noted that overall member penetration rose to 65%, indicating high engagement.

Alex Brignall of Rothschild & Co Redburn sought to reconcile the components of the central profit improvement and asked about the competitive dynamics of conversions, including the role of key money and fee structures, given that peers also see it as a key growth driver.

Answer

CFO Michael Glover detailed the central profit drivers: a $25M step-up in point sales, a doubling of credit card revenue from $40M in 2023, technology fees, and cost savings. CEO Elie Maalouf addressed conversions, stating the addressable market is much larger than just independents and includes re-branding from competitors. He emphasized that IHG's growing portfolio of conversion-friendly brands gives it a strong arsenal to grow both conversions and new builds, viewing it as improving industry supply rather than a zero-sum game.

Alex Brignall requested details on the U.S. net unit decline, particularly regarding Radisson, and asked if international growth in revenue-intense segments could dilute the overall royalty rate.

Answer

CFO Scott Oaksmith explained the Radisson decline was skewed by a planned 3,000-room distribution agreement expiration and strategic terminations. He clarified that most international growth comes from direct franchise markets with higher royalty rates, not lower-rate master franchise agreements, thus it is not dilutive. CEO Patrick Pacious reinforced this, stating nearly 100% of the international pipeline is in revenue-intense segments.

Alex Brignall from Redburn Atlantic asked for a reconciliation of the growth drivers, including the new Westgate deal, with the mid-point EBITDA guidance, which seemed lower than the sum of its parts. He also inquired about the 2024 franchisee retention rate and its future trend.

Answer

CEO Patrick Pacious stated the voluntary franchisee retention rate has been consistently high at 97-98%, and he expects it could increase further as the mix shifts toward upscale and extended-stay segments where retention is even higher. CFO Scott Oaksmith provided a specific EBITDA growth build-up for 2025: domestic levers (~2.5%), owned/international (~1%), platform/ancillary (~2%), offset by SG&A growth (~-1%), which reconciles to the midpoint of the guidance.

Alex Brignall questioned why the full-year margin target is not benefiting from the recent favorable shift in foreign exchange rates, which should theoretically provide a tailwind to the company's U.S. dollar-denominated cost base.

Answer

CFO Ellie Mertz explained that the situation is nuanced. The positive FX impact from the dollar's weakening against the euro is not universal across their portfolio, as headwinds persist in regions like Latin America. Furthermore, the company's revenue hedging program mutes some of the tailwind. Finally, she noted there are various puts and takes in managing to the overall guidance, including volume and underlying ADR trends.

Alex Brignall followed up on the Venetian deal's impact on underlying room growth and fee dilution, and asked for clarity on the drivers of accelerating organic growth in future years.

Answer

CFO Joan Bottarini explained that while the Venetian deal is slightly dilutive to the average fee per room, other deals like Bahia Principe are accretive, creating a balance. President and CEO Mark Hoplamazian added that underlying growth is accelerating due to strong signings momentum from new brands and a rebound in pipeline openings after a slow 2024, with future growth expected to be increasingly organic.