The bifurcation in hotel performance is a well-documented trend at this point and Choice, which indexes heavily in the economy segment in the U.S., reported a -3.2%
U.S. RevPAR loss year-over-year in Q3. But Pacious, speaking during the company’s third-quarter earnings call on Monday, pointed to signs of recovery.
“As we look for signs as to when the cycle in the U.S. may turn positive for our business, two indicators are moving in the right direction,” he said. “First, our economy transient segment occupancy performance has begun to improve year-to-date and has shown year-over-year growth in each of the last two quarters, excluding the impact of the third quarter 2024 hurricane. This segment was also the first to recover after the last period of demand softening, followed by the midscale segment.”
Pacious also pointed to more positive occupancy numbers for the year with index across their entire U.S. portfolio up slightly year-to-date, a constructive early indicator that, in prior cycles, has preceded broader U.S. RevPAR growth. “As we look ahead, we’re optimistic about the next phase of the U.S. lodging cycle and its impact on new construction openings in the U.S.,” he said.
Green shoots for economy
Pacious said the occupancy trends can be an early indicator and are often something franchisees notice first.
“This is a cyclical business... The green shoots you look for are when occupancy stops dropping. That then gives owners confidence when they set prices,” he said. “That’s an early indicator that we’ve seen where the cycle starts to turn, and that’s, in fact, what we’re starting to see in our chain scales, in our segments and our brands. We’re pretty excited with what we’re actually seeing in the economy segment, which is the segment that usually leads you out of one of these typical downturns.”
Another positive Pacious pointed to was the overall trend for small and medium-sized business travel.
“There’s this question around this K-shaped recovery, but it’s missing the fact that you have a ton (75%) of people in this country who work for a small- or medium-sized business,” he said. “We’re seeing that surge in the SMB business in our hotels. It’s because of the types of travelers that… stay in our hotels: construction, utilities, medical staffing, which is traveling nurses and the like. There’s a pretty significant tailwind that we see from a business traveler’s perspective.”
That trend, coupled with the company's overall business travel mix trends, is good news for future Choice business, Pacious said.
“When you look at our business travel or mix, we used to be a 70-30 leisure business. We’re now 60-40, and that small business traveler is a much more resilient traveler because they have to travel for their jobs,” he said. “What we’re seeing, particularly with what AI is doing to the workforce, is more people who are in that sort of blue and gray travel segment. When you look at the job gains and you look at the small business formation that’s occurring, they’re in the segments that travel in our hotels.
“When we look at that overall total available market for small and medium businesses, it’s about $13 billion of travel on an annual basis. Our ability to capture more and more of that share is another positive that we’re looking forward to.”
Another demographic that gives Pacious room for optimism is the
Golden Traveler segment, 60 years and older travelers who have the time and income to travel.
“About 30% of our business today is those folks who are 60 years old and older,” he said. “They’re sitting on tremendous wealth in their homes. They’re sitting on very attractive stock portfolios, and they’ve got discretionary income and the time to travel. We are seeing travelers on the road, and we expect to see more of them.
“We know that those are the folks who spend more in our hotels. They stay more often, and they book direct, which is all a real positive [for] the hotels themselves. So, we feel pretty good about how the setup is coming for 2026.”
Higher-revenue brands
Another theme that Pacious has been discussing in the last few years' worth of quarterly earnings calls is that most of the company’s pipeline, both internationally and in the U.S., is in higher-revenue brands.
“Ninety-eight percent of the rooms in our global pipeline are in higher revenue brands… and these hotels are expected to be 1.7 times more accretive than our current portfolio, driven by their RevPAR premium, higher effective royalty rates and larger average room counts,” he said. “This pipeline strength underscores our ability to continue to elevate our earnings per unit by adding accretive hotels to our platform.”
Pacious also discussed how quickly Choice can add conversion hotels to its system, meaning they are often never in the pipeline because they become an open hotel for the company in a short period. That ability can be even more crucial in the current environment, where there is little new supply growth.
“Our pipeline is important, not only for its size, but also for the quality of the hotels within it, and the velocity at which we can convert signings into openings,” he said. “In fact, the number of hotels that opened over the past year without ever appearing in our global pipeline accounted for approximately 1% of the systemwide unit growth.
“As we look into next year, just given the limited supply growth that’s been going on in the U.S., from a new construction perspective, I would expect that trend to continue well into 2026. That’s probably how we would think about the setup for the conversions coming out of the pipeline, and the net room growth in the U.S.”
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