Wyndham's Major Hotel Portfolio Overhaul: Cutting Budget Rooms to Push Midscale
Wyndham Hotels & Resorts is moving forward with restructuring its U.S. hotel portfolio, reducing economy rooms by 3% to focus on the midscale and upscale segments that generate higher fee revenue, while maintaining its total room count at 501,100.
Stock photo for illustration only, not from the actual event
- Total U.S. room count remains steady at 501,100, but with a major internal portfolio restructuring.
- U.S. economy rooms decreased by 3% to 216,600, contrasting with midscale and higher segments which increased by 2% to 284,500.
- CEO Geoff Ballotti revealed a strategy focused on replacing lower-quality rooms with those offering higher FeePAR.
- Full-year global RevPAR guidance has been revised upward to flat to up 1%.
The hotel industry is witnessing a significant shift as Wyndham Hotels & Resorts—a long-standing player in the economy hotel market with familiar brands like Super 8, Days Inn, and Microtel—begins implementing an aggressive portfolio reshuffling plan. Even though its total U.S. room count appears completely flat at 501,100 compared to the same period last year, behind these numbers lies a major structural room swap designed to boost fee-based revenue.
Speaking at the second-quarter earnings call this past Thursday, Wyndham CEO Geoff Ballotti clearly outlined the company's new direction: the company is focusing on stripping out lower-quality rooms that generate lower fees per available room (FeePAR) and replacing them with higher-quality rooms that can generate more FeePAR.
As a result of these actions, U.S. economy room statistics dropped by 3% to 216,600, while midscale and higher tier rooms rose by 2% to reach 284,500. Furthermore, Wyndham's attrition rate for lower-fee hotels in the U.S. surged by 54% compared to the previous year.
“We are very focused on replacing those lower-quality, lower-FeePAR rooms with higher-quality, higher-FeePAR rooms.”
Geoff Ballotti
In addition, Wyndham achieved a new record with a development pipeline of 261,000 rooms, of which roughly 69% are in the midscale and higher tiers, delivering an approximately 30% higher FeePAR premium. The conversion share for upper midscale rooms doubled to about 25%, while the upscale tier climbed from 4% to 8%. Moreover, hotels attracted through upfront incentive payments generated an even higher FeePAR premium of around 40%.
Wyndham's portfolio pivot toward the midscale and upscale segments reflects major hotel chains' efforts to cope with rising costs and inflation. Economy hotels often face limitations in raising average daily rates (ADR) to match high inflation. Therefore, increasing the proportion of rooms that generate higher revenue per available room (FeePAR) is a crucial way to drive net revenue for the parent company, even if total room count does not grow significantly.
Although the main weight of the strategy leans toward the mid-tier market, Wyndham has not entirely abandoned budget hotels, still commanding a dominant 63% market share of U.S. economy hotel conversions. Nevertheless, average room rates for the budget segment are currently only about 11% higher than in 2019, which is minimal compared to the roughly 29% surge in inflation. This portfolio restructuring thus appears to favor Wyndham's business model more than its legacy economy franchisees, who are facing pricing pressures.
Driven by positive business momentum and high-end portfolio growth, the company decided to revise its full-year global revenue per available room (Global RevPAR) forecast to flat to up 1%.
Source: Skift
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