Narrow-moat Hyatt H delivered strong revenue per available room, or revPAR, growth, up 8.9% in its fiscal 2023 third quarter, propelled by resilient demand for leisure (revenue up 2%) and the continued recovery in the group (10%) and business segments (19%), reaching 122%, 105%, and 90% of 2019 levels, respectively. As such, management narrowed its 2023 revPAR guidance to 15%-16% (14%-16% prior), and we plan to nudge our 14% estimate to within that range. That said, while we’ve been sanguine on travel demand since the summer of 2020, we see Hyatt’s revPAR decelerating to around 2% in fiscal 2024 as travelers grapple with mounting economic headwinds related to inflation and diminishing savings. Further, higher expenses recorded in Hyatt’s owned portfolio and Unlimited Vacation Club fueled a 2% decrease in adjusted EBITDA in the quarter, compelling the firm to lower its fiscal 2023 expectations to $1.005 billion-$1.025 billion (from $1.02 billion-$1.07 billion). As a result, we anticipate moving our $1.08 billion estimate closer to the guided range. Overall, we don’t plan on any material change to our $125 fair value estimate and view shares as slightly undervalued.

International travel volume continued to recover in the third quarter, which is still a mid- to high-teens percentage below 2019 levels (from down 60% in the first quarter, according to Hyatt), contributing to revPAR growth in all of Hyatt’s geographies. Leading the lift, greater China revPAR rose 56%, which should persist as international capacity improves. We also surmise softer Cancun travel demand, which held Hyatt’s Apple Leisure Group to a 2% adjusted revenue decline, is attributable to the segment lapping robust 2022 demand as the booking pace is already up 12% for first-quarter fiscal 2024.

Further, we believe Hyatt’s brand continues to resonate, evidenced by strong unit growth of 6.2%, reaching 123,000, while the World of Hyatt program topped 42 million members (from 36 million at the end of 2022).