Bargain hotel rates unlikely this summer at typically affordable Choice Hotels brands

Choice Hotels may not have the sexiest brand lineup, but the company's owners might have some of the biggest bragging rights in the hotel industry.

The company behind largely affordable brands like Comfort Hotels, Quality Inn and Clarion was relatively quick to snap back to pre-pandemic performance levels. This is especially true when compared with its competitors, such as Marriott and Hilton, which are more exposed to business and convention travel. Choice garnered a $67.4 million profit for the first quarter of this year.

Choice Hotels leaders reported this week that the company's performance in the U.S. — where a vast majority of its hotels are located — was more than 10% above 2019 levels for the first three months of this year. That performance figure surged to 16% above pre-pandemic levels last month.

Choice's pre- and post-pandemic performance

There was some industry speculation that companies like Choice and Wyndham Hotels & Resorts would be more vulnerable to negative impact from inflation, as customers who tend to book economy and midpriced hotels might be more financially vulnerable to rising hotel rates and gas prices. Executives at Choice, just like their competitors at Wyndham, dismissed those concerns.

"It is worth noting that gas prices historically have had little to no impact on travel," Choice Hotels CEO Patrick Pacious said on an investor call this week. "Rather, consumers indicate that rising fuel costs could mean adjustments in how they spend their money, such as traveling shorter distances, choosing destinations closer to home or not dining out as often, but they are going to travel."

Short-distance travel benefitted Choice earlier in the pandemic. In June 2020, the company reported that a quarter of its revenue (at the time) came from people who traveled less than 25 miles for a hotel stay. The company's financial resilience during the pandemic was chalked up to its portfolio of brands focused on drive-to and leisure travel.

More than 4,000 of Choice's hotels are located within a mile of an interstate highway exit, and more than 2,000 of its U.S. hotels are near beaches and national parks. Americans are paying record prices for gas, which might lead some to think road trips could take a back seat this summer. However, Choice's focus group research indicates there is still pent-up demand for travel heading into the summer.

"All of these trends highlight the potential for Choice to further increase our share of consumer travel demand," Pacious said. "Even with rising inflation in gas prices, we continue to expect strong consumer demand especially as we enter the busy summer leisure travel season."

Affordable brands aren't immune to rate inflation

Travelers might be drawn to Choice's brand lineup because its hotels are more affordable than those of Hyatt or Marriott. Even a night at a Cambria, Choice's upscale brand, is going to generally cost less than one at a Hilton.

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But budget travelers should still expect to pay more this year when booking a stay at a Choice-affiliated hotel, especially heading into the summer.

Rates across the entire Choice network were 9% higher in the first three months of this year compared to the same time in 2019. Don't expect the rate increases to stop there.

Choice unveiled new revenue management software last summer that monitors what other hotels in a market are doing and offers guidance on where owners should set hotel rates. The real-time data enables an owner to change rates multiple times a day, Pacious said.

As for how much further it can go, the Choice Hotels CEO — like Hyatt's earlier this week — noted there is still room for growth when it comes to rates. Hotel companies didn't do much discounting during the pandemic, and occupancy rates are still building back to pre-pandemic levels. Higher occupancy means even higher rates.

"As far as additional runway, we look at our [average daily rate] index, meaning how much we are setting our rates relative to [our] competition. We see significant runway," Pacious said. "Just talking to owners about what they're seeing and what they're experiencing and their ability to set their rates multiple times a day using our new tools, we feel really confident about the strength of our rate-setting as we move into the second half of the year here."

You might be paying more for a night at some of these brands, but look at the bright side: At least the breakfast is still free at many Choice hotels.