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Hyatt Reports Third-Quarter 2019 Results

Strong Net Rooms Growth Fuels Nearly 11% Increase in Management and Franchise Fees

CHICAGO (October 30, 2019) – Hyatt Hotels Corporation (“Hyatt” or the “Company”) (NYSE: H) today reported third-quarter 2019 financial results. Net income attributable to Hyatt was $296 million, or $2.80 per diluted share, in the third quarter of 2019, compared to $237 million, or $2.09 per diluted share, in the third quarter of 2018. Adjusted net income attributable to Hyatt was $39 million, or $0.37 per diluted share, in the third quarter of 2019, compared to $37 million, or $0.33 per diluted share, in the third quarter of 2018. Refer to the table on page 14 of the schedules for a summary of special items impacting Adjusted net income and Adjusted earnings per share in the three months ended September 30, 2019.

Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, “The strength of our brands and the consistent approach we have to operating with excellence and efficiency are serving us very well in this period of volatile economic conditions. In particular, our management and franchise fee growth of nearly 11% this quarter is driven by roughly 13% year-over-year net rooms growth. Further, we have successfully increased productivity and operating efficiency for 23 straight quarters which has allowed us to maintain strong hotel operating margins even in the face of flat RevPAR growth this quarter.”

Third quarter of 2019 financial highlights as compared to the third quarter of 2018 are as follows:

  • Net income increased 25.4% to $296 million.
  • Adjusted EBITDA decreased 7.3% to $163 million, a decrease of 6.5% in constant currency.
  • Comparable system-wide RevPAR was flat, including a decrease of 0.1% at comparable owned and leased hotels. Comparable system-wide RevPAR growth was favorably impacted by approximately 50 basis points from the timing of the Jewish holidays, but was offset by a similar reduction resulting from political unrest in Hong Kong.
  • Comparable U.S. hotel RevPAR decreased 0.6%; full service hotel RevPAR increased 0.2% and select service hotel RevPAR decreased 2.3%.
  • Net rooms growth was 13.2%, or 7.9% excluding the acquisition of Two Roads Hospitality LLC (“Two Roads”) in the fourth quarter of 2018.
  • Comparable owned and leased hotels operating margin decreased 20 basis points to 21.0%.
  • Adjusted EBITDA margin of 26.9% decreased 280 basis points in constant currency.Mr. Hoplamazian continued, “We continue to execute on our capital strategy and shift our earnings profile while maintaining our focus on global growth. We expect to end the year with approximately 57% of our earnings coming from our hotel management and franchise business, an increase of roughly 400 basis points from 2018. Our pipeline remains robust while continuing to deliver solid organic net rooms growth of almost 8% this quarter, net of the acquisition of Two Roads in the fourth quarter of 2018. While theNote: All RevPAR and ADR percentage changes are in constant dollars. This release includes references to non-GAAP financial measures. Refer to the non-GAAP reconciliations included in the schedules and the definitions of the non-GAAP measures presented beginning on page 12.

current global operating environment is challenging, we feel confident in our ability to manage through volatility and identify opportunities to strengthen our brands and performance.”

Third quarter of 2019 financial results as compared to the third quarter of 2018 are as follows:

Management, Franchise and Other Fees

Total management, franchise and other fees increased 11.9% (12.5% increase in constant currency) to $148 million. Base management fees increased 17.8% to $64 million, primarily in the Americas management and franchising segment due to the acquisition of Two Roads. Incentive management fees decreased 1.3% to $33 million. Franchise fees increased 11.8% to $37 million. Other fees increased 22.0% to $14 million. Excluding other fees, management and franchise fees increased 10.9% (11.6% increase in constant currency) to $134 million.

Americas Management and Franchising Segment

Americas management and franchising segment Adjusted EBITDA increased 11.2% (11.4% increase in constant currency), driven by higher management, franchise, and other fees from the Two Roads acquisition and recently opened hotels. RevPAR for comparable Americas full service hotels increased 1.5%, occupancy increased 70 basis points, and ADR increased 0.7%. RevPAR growth was driven by strength in certain resort locations outside of the United States and benefited from the timing of the Jewish holidays which had an approximate 110 basis point favorable impact. RevPAR for comparable Americas select service hotels decreased 2.4%, occupancy decreased 40 basis points, and ADR decreased 1.8%. Total Americas management and franchising adjusted revenues increased 29.6% (29.9% increase in constant currency) including revenue from the residential management operations acquired as part of Two Roads.

Transient rooms revenue at comparable U.S. full service hotels increased 1.0%, room nights increased 2.3%, and ADR decreased 1.3%. Group rooms revenue at comparable U.S. full service hotels decreased 0.2%, room nights decreased 2.3%, and ADR increased 2.2%.

Americas net rooms increased 11.5% compared to the third quarter of 2018, or 5.2% excluding Two Roads.

Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) Management and Franchising Segment

ASPAC management and franchising segment Adjusted EBITDA increased 0.9% (2.5% increase in constant currency). RevPAR for comparable ASPAC full service hotels decreased 2.0%, reflecting weakness in Hong Kong. Excluding Hong Kong, RevPAR for comparable ASPAC full service hotels would have increased 0.8%. Occupancy decreased 50 basis points and ADR decreased 1.3% for ASPAC full service hotels. Revenue from management, franchise, and other fees increased 4.2% (5.4% increase in constant currency).

ASPAC net rooms increased 17.7% compared to the third quarter of 2018, or 13.7% excluding Two Roads.

Note: All RevPAR and ADR percentage changes are in constant dollars. This release includes references to non-GAAP financial measures. Refer to the non-GAAP reconciliations included in the schedules and the definitions of the non-GAAP measures presented beginning on page 12.

Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management and Franchising Segment

EAME/SW Asia management and franchising segment Adjusted EBITDA increased 4.8% (7.8% increase in constant currency). RevPAR for comparable EAME/SW Asia full service hotels increased 1.6%, driven by strong growth in certain European markets, including France and the United Kingdom, and Southwest Asia, offset partially by weaker performance in Russia which lapped the FIFA World Cup in 2018.

Occupancy increased 290 basis points and ADR decreased 2.6% for EAME/SWA full service hotels. Revenue from management, franchise, and other fees increased 2.2% (4.3% increase in constant currency).

EAME/SW Asia net rooms increased 15.6% compared to the third quarter of 2018, or 14.4% excluding Two Roads.

Owned and Leased Hotels Segment

Total owned and leased hotels segment Adjusted EBITDA decreased 17.6% (16.9% decrease in constant currency), including a decrease of 12.0% (11.4% decrease in constant currency) in pro rata share of unconsolidated hospitality ventures Adjusted EBITDA. Refer to the table on page 11 of the schedules for a detailed list of portfolio changes and the year-over-year net impact to total owned and leased hotels segment Adjusted EBITDA.

Owned and leased hotels segment revenues decreased 3.9% (3.0% decrease in constant currency), and was negatively impacted by non-comparable hotels. RevPAR for comparable owned and leased hotels decreased 0.1%. Occupancy and ADR were both flat.

Corporate and Other

Corporate and other Adjusted EBITDA decreased 22.4% (22.5% decrease in constant currency), inclusive of $6 million of expenses from the Two Roads acquisition.

Corporate and other adjusted revenues increased 19.1% (consistent in constant currency).

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased 1.0%, inclusive of rabbi trust impact and stock- based compensation. Adjusted selling, general, and administrative expenses increased 13.8%, or $10 million, including $8 million of integration costs related to the acquisition of Two Roads. Refer to the table on page 17 of the schedules for a reconciliation of selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses.

OPENINGS AND FUTURE EXPANSION

Twenty hotels (or 4,422 rooms) opened in the third quarter of 2019, contributing to a 13.2% increase in net rooms compared to the third quarter of 2018. Excluding the impact of the Two Roads acquisition, net rooms increased 7.9% compared to the third quarter of 2018.

As of September 30, 2019, the Company had executed management or franchise contracts for approximately 460 hotels, or approximately 92,000 rooms. The Company is expected to open approximately 85 hotels in the 2019 fiscal year.

Note: All RevPAR and ADR percentage changes are in constant dollars. This release includes references to non-GAAP financial measures. Refer to the non-GAAP reconciliations included in the schedules and the definitions of the non-GAAP measures presented beginning on page 12.

SHARE REPURCHASE/DIVIDEND

During the third quarter of 2019, the Company repurchased a total of 1,776,891 (1,099,507 Class A shares and 677,384 Class B shares) for approximately $133 million. The Company ended the third quarter with 36,811,374 Class A and 66,438,444 Class B shares issued and outstanding. From October 1 through October 25, 2019, the Company repurchased 523,499 shares of Class A common stock for an aggregate purchase price of approximately $37 million. As of October 25, 2019, the Company had approximately $351 million remaining under its share repurchase authorization.

The Company’s board of directors has declared a cash dividend of $0.19 per share for the fourth quarter of 2019. The dividend is payable on December 9, 2019 to Class A and Class B stockholders of record as of November 26, 2019.

CAPITAL STRATEGY UPDATE

In a Form 8-K filed on September 16, 2019, the Company announced the sale of the 1,260-room Hyatt Regency Atlanta for approximately $355 million to an unrelated third party and the entry into a long-term management agreement for the property upon sale.

The Company is in the process of pursuing the sale of one of its wholly-owned hotels and will provide further details as appropriate.

BALANCE SHEET / OTHER ITEMS
As of September 30, 2019, the Company reported the following:

  • Total debt of $1,623 million.
  • Pro rata share of unconsolidated hospitality venture debt of approximately $564 million, substantially all of which is non-recourse to Hyatt and a portion of which Hyatt guarantees pursuant to separate agreements.
  • Cash and cash equivalents, including investments in highly-rated money market funds and similar investments, of $660 million, restricted cash of $140 million, and short-term investments of $63 million.
  • Undrawn borrowing availability of $1.5 billion under Hyatt’s revolving credit facility.2019 OUTLOOK
    The Company is revising the following expectations for the 2019 fiscal year:
  • Comparable system-wide RevPAR is expected to increase approximately 0.5%, as compared to fiscal year 2018.
  • Net income is expected to be approximately $431 million to $470 million. Please refer to the table on page 13 of the schedules for revised ranges impacting net income.
  • Other income (loss), net is expected to be approximately $98 million to $103 million, reflecting increased interest income and unrealized gains on marketable securities. The estimated $40 million negative impact related to performance guarantee expense for the four managed hotels in France is unchanged.
  • Adjusted EBITDA is expected to be approximately $730 million to $745 million, primarily reflecting a one point reduction in expected comparable system-wide RevPAR and the sale ofNote: All RevPAR and ADR percentage changes are in constant dollars. This release includes references to non-GAAP financial measures. Refer to the non-GAAP reconciliations included in the schedules and the definitions of the non-GAAP measures presented beginning on page 12.

Hyatt Regency Atlanta (as previously reported in a Form 8-K filed on September 16, 2019). Refer to the table on page 13 of the schedules for a reconciliation of Net Income to Adjusted EBITDA.

  • Depreciation and amortization expense is expected to be approximately $329 million to $334 million.
  • Interest expense is expected to be approximately $77 million.
  • Adjusted selling, general, and administrative expenses are expected to be approximately $335 million. This is inclusive of approximately $25 million of expenses related to non-recurring integration costs for Two Roads. Adjusted selling, general, and administrative expenses exclude approximately $33 million of stock-based compensation expense and any potential impact related to benefit programs funded through rabbi trusts.The Company is reaffirming the following information for the 2019 fiscal year:
  • The Company expects to grow units, on a net rooms basis, by approximately 7.25% to 7.75%, reflecting approximately 85 new hotel openings.
  • Capital expenditures are expected to be approximately $375 million.
  • As previously reported in an 8-K filed on September 16, 2019, the Company expects to return approximately $500 million to shareholders through a combination of cash dividends on its common stock and share repurchases.
  • The effective tax rate is expected to be approximately 25% to 27%.

No additional disposition or acquisition activity beyond what has been completed as of the date of this release has been included in the outlook. The Company’s outlook is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company’s expectations may change. There can be no assurance that Hyatt will achieve these results.

Boeing, China Airlines Finalize Order for Six 777 Freighters

Carrier to modernize its freighter fleet with six of the world’s largest, most capable twin-engine freighters

SEATTLE, Sept. 4, 2019 /PRNewswire/ — China Airlines finalized its agreement with Boeing [NYSE: BA] to order six 777 Freighters to modernize its cargo fleet. The carrier, which currently operates one of the world’s largest 747 Freighter fleets, plans to transition to the largest and longest range twin-engine freighters in the industry as it launches operations from Taipei to North America, a key market that provides higher yields for the carrier.

Valued at $2.1 billion according to list prices, China Airlines had previously announced its intent to order up to six 777 Freighters at the Paris Air Show in June. Three of the six 777 Freighter orders were confirmed in July and posted to Boeing’s Orders and Deliveries website as an unidentified customer. The remaining three will post during the next update.

The versatile 777 Freighter can fly long-range trans-Pacific missions in excess of 6,000 nautical miles with 20 percent more payload than other large freighters like the 747-400F. The airplane, which is capable of carrying a maximum payload of 102 tons, will allow China Airlines to make fewer stops and reduce associated landing fees on these long-haul routes. As a result, it will provide China Airlines and other operators with the lowest trip cost of any large freighter and deliver superior ton-per-mile economics. In addition, the 777 Freighter features market-leading capacity for a twin-engine freighter, accommodating 27 standard pallets, measuring 96 inches by 125 inches (2.5 m x 3 m) on the main deck. This allows for lower cargo handling costs and shorter cargo delivery times.

“Air cargo is an important part of our overall business and the introduction of these new 777 Freighters will play an integral role in our long-term growth strategy,” said China Airlines Chairman Hsieh Su-Chien. “As we transition our freighter fleet to the 777Fs, this will enable us to deliver world-class services to our customers more efficiently and reliably.”

China Airlines, which marks its 60th anniversary this year, currently operates 51 Boeing airplanes, including 10 777-300ERs (Extended Range), 19 Next-Generation 737s, four 747-400s and 18 747 Freighters.

“As China Airlines celebrates more than half a century of success, Boeing is honored to continue playing an integral role in its growth and expansion. With this order China Airlines will join an elite group of global air cargo operators operating new 777 Freighters,” said Ihssane Mounir, senior vice president of Commercial Sales and Marketing for The Boeing Company. “With the global air freight market forecasted to double over the next 20 years, the 777 Freighter’s market-leading capabilities and economics will help China Airlines extend their network and grow their future cargo business.”

The addition of 777 Freighters will enable the carrier to streamline maintenance and parts for its 777 fleet. The carrier uses a number of Boeing Global Services solutions to support its Boeing fleet operations, including Airplane Health Maintenance and Maintenance Performance Toolbox. These data-driven platforms track real-time airplane information, providing maintenance data and decision support tools that allow technicians to quickly and correctly resolve issues. On the ground and in the air, China Airline’s entire fleet uses Jeppesen FliteDeck Pro and access to digital navigation charts to optimize performance and enhance situational awareness.

Avianca Brazil Gives Up 18 Planes, Cancels 1,045 Flights

RIO DE JANEIRO (AP) — Avianca Brasil canceled more than 1,045 domestic flights this week because it has to return 18 aircraft to leasing agencies.

Brazil’s National Aviation Agency said the planes needed to be returned Monday to avoid affecting Holy Week holiday passengers. Customers can either get refunds for canceled flights or rebook through partner airlines.

Avianca Brasil declined to say how many planes it has left. But the G1 news portal reports that the airline has just seven planes still in its fleet.

On April 1, the airline canceled several international routes from Sao Paulo to New York, Miami and Santiago, Chile.

Avianca Brasil filed for bankruptcy in December after failing to pay leases on its aircraft. The airline, formerly known as Ocean Air, has licensed the name Avianca since 2010 from Colombian carrier Avianca Holdings SA. They are separate companies with the same owners: brothers German and Jose Efromovich. The latter is being investigated for allegedly failing to pay airport fees in Salvador airport in northeastern Brazil.

A company representative from Avianca’s headquarters in Colombia stressed that the Brazilian company is independent from Avianca Holdings group, both operationally and financially. The company said in a statement that flights operated by Avianca Holdings SA from hubs in Bogota and Lima, Peru, to destinations in Brazil will not be affected by the Avianca Brasil cancellations.

Airbus A320 Neo of Avianca at GRU Airport – Guarulhos International Airport, Sao Paulo, Brazil – 2017

Airlines Win, Passengers Lose As Congress Drops Reasonable Fee Rule

WASHINGTON, Sept 22 (Reuters) – The U.S. airline industry scored a win on Saturday as bipartisan congressional legislation dropped plans to mandate “reasonable and proportional” baggage and change fees, but included other new passenger protections.

After weeks of negotiations, a 1,200-page bill to reauthorize the Federal Aviation Administration (FAA) was unveiled early Saturday that would require the FAA to set minimum dimensions for passenger seats — including legroom and width — and prohibits airlines from involuntarily removing passengers from flights after they’ve cleared the boarding gate.

In April 2017, video went viral on social media of 69-year-old passenger David Dao being dragged from a United Airlines flight at Chicago’s O’Hare International Airport after he refused to give up his seat to make room for crew members. United apologized and promised not to remove seated passengers to make room for other passengers.

But airlines had heavily lobbied against new rules limiting fees. U.S. airlines revenue from baggage and reservation change fees increased from $5.7 billion in 2010 to $7.5 billion in 2017. Other fees are not reported to regulators.

The compromise bill did not include language adopted by a Senate Committee in 2017 that would have required the reasonable fee rules. It was struck in a compromise unveiled by Senate Commerce Committee Republican chairman John Thune and House Transportation and Infrastructure Committee chairman Bill Shuster, a Republican, along with the top Democrats on the two committees Senator Bill Nelson and Representative Peter DeFazio.

Congress is set to vote on the measure next week ahead of a September 30 deadline.

American Airlines Group Inc became the latest major airline on Thursday to hike checked bag prices by $5 for the first bag to $30, joining Delta Air Lines Inc, United and JetBlue Airways Corp.

Airlines for America, an airline trade group, has said the fee provision would result in “government-mandated price controls” and should be rejected and the Trump administration also strongly opposed the provision.

The bill also requires the U.S. Transportation Department to set new rules authorizing commercial drone deliveries and gives the Justice Department and Homeland Security Department new authority to disable or destroy drones if they pose a threat to government facilities after the Trump administration warned it did not have the legal authority it needed to address threats.

Under the bill, airlines must refund passengers for services they paid for but did not receive and will enshrine in law a prohibition on passengers making mobile phone calls while in flight or using e-cigarettes.

The bill requires airlines to allow passengers to check strollers if they are traveling with a small child and require regulators to determine if it is unfair or deceptive for airlines to tell passengers “that a flight is delayed or canceled due to weather alone when other factors are involved.”

It also makes it unlawful for any person to place a live animal in an overhead storage compartment, prompted by outrage over the death a dog in March in an overhead compartment of a United flight. It also gives the Transportation Department authority to require airlines to allow pregnant passengers to board earlier.

The bill would also authorize a return of “supersonic” transport with reduced sonic booms, and provides for an additional $1.68 billion in immediate funding for disaster relief in the wake of Hurricane Florence.

It also directs the FAA to establish an Office of Spaceports to provide guidance, support licensing for spaceports, and promote infrastructure improvements for future space travel.

The bill also addresses sexual misconduct in aviation by creating a task force to review practices and increases civil penalties for interfering with cabin or flight crew members.

(Reporting by David Shepardson)

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