Like so many other hotel companies, Choice Hotels is having a great year, with several initiatives driving the company’s ongoing transformation. In last week’s earnings call Choice Choice reported a system-wide RevPAR increase of 8.8 percent for the third quarter and earnings of $39.4 million. At the Lodging Conference last week, we sat down with Chief Operating Officer Pat Pacious to better understand how Choice intends to grow overall business for each of its brands, stay competitive in the mobile space, strengthen its loyalty program, and more.
What’s the latest on the Cambria brand? We have 20 now, and we’ll have 20 under construction by the end of the year. We just opened White Plains, New York, Downtown D.C., Miami Airport. So we’re actually getting the brand into those key markets where upscale travelers want to travel. Chelsea is getting ready to open this year and then next year Times Square. So that brand is really getting launched in those marquee urban markets that are really going to help from a consumer perspective. As a system, we have a lot of unmet demand in those markets where guests are coming to our site looking for that upscale product, and we didn’t have product there. So it’s great. We’re going to have both Cambrias and Ascends in those markets.
Where’s critical mass for Cambria? I would say probably for a brand like that, it’s probably 150 properties. But it helps to be in the right ones. In that last session, they were talking about the W Hotel and how there are only 20 of them, though you’d think they had 200. But these 20 are in the right places, right, where from a guest impact perspective and where the guests are staying, those are the markets you wanted to be in. So from a development perspective, if you’d asked me that question five years ago, I probably would have said a number much higher, but given the markets we’re putting it into, you’re going to hit critical mass sooner.
How’s the Comfort Inn refresh coming along? We’re almost finished with the program we launched last year to put 40 million of our own money next to our franchisees’ money to get the property improvements done. We’ve terminated about 20 percent of the brand over the last three years that wasn’t able to get up to those standards. What that has allowed for is our new construct pipeline for Comfort to really take off this year. We’ve got them in urban locations in Philadelphia, Pittsburgh, Denver. So we’re really starting to see the Comfort Inn brand come back from a new development perspective in downtown urban markets.
What is working for Choice when it comes to growing these brands’ overall business? For us, our real focus in this point in the cycle is on midweek travel. So business travelers are coming back in our segments. When we look at the employment growth over the next 10 years, the real segments that are growing are our sweet spot. We call them gray collar workers, but they’re the folks who are your IT professionals, your skilled nursing, your utilities and railroad, transportation workers. All those segments are really expected to grow significantly between now and 2022. Our product is really the sweet spot for where those folks are traveling and where their companies want them to stay. That’s the first thing is to really go after that business traveler and bring them back to our hotel in a big way.
Secondly is to get more return guests. So the second trend we’ve seen is the light leisure traveler is back. We define that as people who don’t travel but maybe once every 18 months. They’re not in loyalty programs. They’re very price sensitive. Those are folks who we want to get into our programs, get them rewards so they start to build some loyalty with us. I think where we’re going, at least with our loyalty program, is to look at how we can give them more instant rewards as opposed to, you’ve got to stay with us 20, 30 nights a year before you actually gain any status and get any rewards returned back to you.
Is it like how other hotel companies have their loyalty programs to include more instant rewards? What’s the formula that would work for Choice? For us, we’re looking at specifically on our Cambria brand giving folks who are at the hotel the opportunity to go over and gain points at the bar. Go get yourself a glass of wine or a craft brew. You don’t have to stay with us 20 nights a year to earn that extra. It’s something we can do instantly, and we’re beginning to start to use digital gift cards on our mobile devices as a way of allowing you to actually redeem points on property for additional benefits.
So the Choice Rewards program will work more closely with the app? Yes, and I think that’s the other trend you’re seeing is the hotel companies are all looking at, how do we get more downloads of our app? So when folks are on property, you can use the new technologies that are coming down the pipe. Things like Ibeacon and Waze are actually allowing me to know when a guest is in the parking lot or at the front desk or at the bar. Now, I can upsell to guests when they’re in close proximity because I know physically where he is, right at the point where he’s able to make a purchase.
Is there thought to using the Choice Hotels app for operational things like ordering room service or making special requests? The next phase of that is to have the guests actually be able to request things on property. For us, what we’ve done is actually taken our cloud-based solution we have with Choice Advantage and allowed the housekeepers and the general manager and everybody to be able to access the property management system remotely on their tablet, mobile device, wherever they may be. We have owners who manage their hotels from their couch at home. That home may be outside of the country, but that technology today allows them to do that, and they can see every night’s business in real time.
I think where the cloud-based technology and the mobile technology is converging is allowing the people at the hotel to actually be making up the room in a particular way or if a guest needs a certain type of pillow, those types of things. You’re able to actually, in real time, direct your workforce to provide what that guest is looking for.