Hyatt Hotels (H) Q2 2026 earnings call transcript

Thank you, and welcome to Hyatt's second-quarter 2026 earnings conference call. Joining me on today's call are Mark Hoppe-Mazian, Hyatt's Chairman, President, and Chief Executive Officer, and Joan Bodarini, Hyatt's Chief Financial Officer. Before we start, I'd like to remind everyone that our comments today include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, as described in our end report on Form 10K, Court of Reports on Form 10Q, and other SEC filings.

These risks could cause our actual results to be materially different from those expressed in or implied by our comments. Forward-looking statements in the earnings release have been issued today, along with the comments on this call are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAP financial measures referred to in today's remarks under the financial section of our investor relations website and the next morning's earnings release.

And our kind of this call will be available on our website for 90 days. Additionally, we post an investor presentation on our investor relations website this morning containing supplemental information. Please note that otherwise stated, references to occupancy, average daily rate, and rev-car reflect comparable system-wide hotels on a cost and currency basis. And close hotels in Jamaica are excluded from comparable metrics in 2026.

Percentage changes disclosed during the call are on a year-over-year basis, otherwise noted. With that, I'll turn the call over to Mark.

Thank you, Ryan, and good morning, everyone. We appreciate you joining us today. Before I begin, I'd like to once again thank everyone who joined us at our recent investor day, both in person and virtually. We appreciated the strong engagement throughout the event and the thoughtful conversations we've had with many of you since then. It's been encouraging to hear the positive feedback on our strategy and the long-term opportunities that we outlined.

As we showcase that investor day, Hyatt has evolved into a more asset-like company with a differentiated operating model built around premium brands, a growing commercial platform, and disciplined capital allocation.

Our objective is clear to sustain a business model capable of delivering durable fee growth, increasing cash flow, and attractive long-term returns over a wide range of operating environments.

Our second quarter results provide another example of that model in action. Despite meaningful regional headwinds and parts of our portfolio, we delivered strong REF part, fee, and adjusted EBITDA growth, expanded world of Hyatt membership, and increased our development pipeline to record levels.

These results demonstrate the growing strength of Hyatt's commercial platform, the increasing preference for our brands among guests, owners, and developers, and the benefits of the business model where quality growth translates into higher fee earnings and free cash flow.

Turning to our operating results, this morning we reported second-quarter system-wide REF part growth of 5.9% exceeding our expectations. Performance was driven by durable demand from high-end travelers and continued strength across our luxury portfolio, with some benefit from the FIFA World Cup.

REF part growth in the United States exceeded our expectations, and we also saw strong growth across most international markets.

REF part was up in all customer segments. Business and group travel was solid, with business transient REF part increasing approximately 2% during the quarter, and group REF part increasing more than 7% compared to last year. World Cup host cities delivered group REF part growth of more than 13% in June.

Leisure demand from premium travelers remained exceptionally strong during the quarter, with leisure transient REF part increasing approximately 7% compared to last year, once again led by our luxury brands.

As one example, World Cup host cities in the United States generated leisure transient REF part growth of more than 17% in June.

Our performance reflects much more than favorable industry trends. Our brand-led strategy continues to differentiate high-end, and we are gaining market share across our portfolio.

During the first half of the year, our luxury and lifestyle portfolios increased REF part index by nearly three points, with a large proportion of our hotel's gaining share. This reflects growing preference for our brands, the strength of our commercial platform, and the impact of our brand-focused approach.

A significant contributor to that growing preference is World of Hyatt, which ended the quarter with approximately 69 million members, and increases 17% from a year ago.

As World of Hyatt membership and engagement grows, we're continuing to enhance the value of the program. One recent example is our collaboration with Air Canada, which brings two highly engaged loyalty programs together, and gives members more ways to earn and redeem rewards while expanding the experiences available across both networks.

World of Hyatt sits at the center of our network effect, creating more value for guests, owners, and developers as our system grows.

Every new hotel we add expands opportunities for our members, while every new member strengthens the value of our commercial platform. The lasting benefits we create by driving quality growth fuels more direct channel demand, stronger owner returns, and durable fee growth.

Development activity remained very strong during the quarter. We ended the quarter with a record development pipeline of approximately 154,000 rooms, up 10% from a year ago. The breadth of our pipeline reflects growing owner preference for Hyatt. Our luxury, lifestyle, and inclusive collection brands continue to generate strong owner interest, while our essentials brands are building momentum and creating meaningful opportunities to expand Hyatt's brand footprint in markets where we have significant white space.

The Hyatt Select brand is a great example of that momentum. During the quarter, in addition to strong signings in the United States, we signed a master franchise agreement with Dosen Group to bring the Hyatt Select brand to the Chinese mainland. This collaboration combines Hyatt's global brand recognition with the local market expertise and development capabilities of Dosen Group. One of the region's leading hotel operators, providing a strong platform to thoughtfully scale the Hyatt Select brand in an important long-term growth market.

We delivered NetRunes Growth a 4.4% for the second quarter, excluding rooms from the Playa Hotels acquisition that were removed from Hyatt's room count in the second half of 2025.

Among our notable openings, this past quarter were Miravol the Red Sea, our first Miravol property outside of the United States, and the Burai Huahin, our first property in the Undummed collection by Hyatt in Thailand.

Both of these openings expand our brand presence in the luxury wellness segment while bringing two distinctive experiences to world of Hyatt members in sought-after destinations.

Miravol the Red Sea is the first of a number of important openings planned in Saudi Arabia over the next several years.

Our development pipeline remains very healthy, and we expect NetRunes Growth to accelerate significantly over the second half of the year, with a large number of our expected openings scheduled for the fourth quarter. We continue to see meaningful opportunities for both conversions and new build openings.

We've adjusted our full-year outlook range to reflect the large number of fourth quarter openings some of which could slip into 2027.

I want to be clear, our confidence in delivering on the strong organic growth we outlined in our investor date remains very high.

Now turning to transactions, we continue to make progress on the planned sale of the Hyatt Grand Central New York. However, based on our current expectations, we no longer expect the transaction to close in 2026. We will continue to provide updates on this transaction as we reach key milestones.

More broadly, we remain active in the market and are in discussions regarding the sale of certain assets to unlock additional value from our own portfolio.

Our disciplined approach remains consistent with our track record of pursuing transactions that achieve attractive values while ensuring our hotels remain in the Hyatt system under long-term management or franchise agreements, supporting continued fee growth and shareholder value.

Looking ahead, we remain confident in Hyatt's long-term positioning. As we highlighted during investor day, we've transformed Hyatt into a more durable asset-like business that generates increasing free cash flow as our system grows and cash conversion improves, allowing us to continue to invest in the areas of the business that matter most to our guests, owners, and shareholders.

Our strategy is producing tangible results. We've led the industry in net room growth for the past nine years, delivered industry-leading repar growth over the past five years, and today generate the highest fees per room among our largest peers.

Together, these drivers have created a powerful compounding effect on fee growth. Importantly, achieving net growth requires only modest incremental capital, allowing us to reinvest in our brands, commercial platform, and future growth, while continuing to generate increasing levels of free cash flow.

We also believe the opportunity ahead remains significant. We've built a differentiated portfolio of brands serving high-end travelers, developed one of the industry's most attractive and fastest growing loyalty programs, and continue to see substantial opportunities to expand our brands in markets where Hyatt has meaningful whitespace.

Together, we believe these advantages position Hyatt to deliver durable, long-term growth and consistently create value for shareholders. I'd like to close my comments by thanking our high colleagues around the world who bring our purpose of care to life every day. Their commitment to our guests, owners, and one another is what truly differentiates Hyatt and gives me great confidence in our future.

I'll now turn the call over to Joan to provide more details on the quarter. Joan, over to you.

Thanks, Mark, and good morning, everyone. During the second quarter, RevPar exceeded our expectations, increasing 5.9% compared to last year, driven by resilient travel demand from premium travelers and incremental demand from the FIFA World Cup. In the United States, RevPar increased a very strong 6.7% compared to last year, driven by robust leisure travel along with healthy growth demand.

The FIFA World Cup contributed approximately 70 basis points of RevPar growth. With host cities delivering double-digit growth during the second half of June, our select service hotels also performed well with RevPar increasing 3.5%, driven by improving business transient demand and easier comparisons to last year.

Outside the United States, RevPar increased nearly 5%, and 7.5%, excluding the Middle East. This strong growth reflects robust international travel demand and continues strength in higher-end travel. RevPar in the Americas excluding the United States increased 9.5%, benefiting from strong regional performance and international demand from the FIFA World Cup.

Greater China RevPar increased an impressive 7.2% compared to last year, supported by leisure transient demand and strong average rate growth across our largest markets.

Asia-Pacific excluding greater China delivered robust RevPar growth of more than 10%, reflecting strong inbound travel and demand and key markets where we have strong brand representation.

Europe-generated RevPar growth of 4.5% as healthy domestic leisure demand offset softer inbound travel from the Middle East. RevPar in the Middle East declined by 36% compared to last year due to the ongoing conflict in the region. Net package RevPar in our all-inclusive portfolio declined 1.2% compared to last year as the security incident in Mexico earlier this year and lower flight capacity had an impact on second quarter demand.

Net package RevPar for our hotels in the Dominican Republic was up over 8%, underscoring the strength of the high-end leisure guests in a stable operating environment. Our all-inclusive resorts expanded market share, reflecting the strength of our brands and power of our commercial platform. Overall, our second quarter results reflect continued strength and premium leisure travel globally and healthy corporate travel demand.

Turning to our financial results, our core fee business continued to perform well, supported by strong top line performance, healthy hotel level profitability, increasing scale, and the quality of our portfolio. Growth fees increased 8% to $324 million, driven by strong performance across our managed portfolio, fees from newly opened hotels, the new management agreements from the Playa portfolio, and growth and license fees. In the second quarter, owned and leased segment, adjusted EBITDA increased by 16%, adjusted for the impact of asset sales, reflecting the performance from the high-end positioning of our remaining owned and leased hotels. Distribution segment adjusted EBITDA declined compared to the prior year, in line with our expectations due to temporary factors including hotel closures in Jamaica following Hurricane Melissa and softer demand in Mexico.

Results were also impacted by lower demand for four star properties, and we continue to expect it will take time for demand to return to previous levels as slight capacity increases and travel spending improves among this consumer segment. Travel volumes into the Dominican Republic were up 7% for our distribution segment reflecting continued strength and demand for this destination. Overall, our second quarter adjusted EBITDA reflects the strength of our core fee business and was up approximately 9% year over year after adjusting for asset sales. As of June 30th, we had total liquidity of approximately $2.1 billion, including $1.5 billion of available capacity on our revolving credit facility.

Year to date, we've returned approximately $175 million to shareholders through share repurchases and dividends, and during the second quarter returned approximately $26 million. We ended the quarter with approximately $1.5 billion remaining under our share repurchase authorization. We remain committed to our investment grade profile and our balance sheet remains strong.

Looking ahead to the second half of 2026, while travel demand continues to vary across regions, we remain confident in our outlook for the year supported by the strength of our brands. As we shared last quarter, we continue to expect hotel revenues in the Middle East to remain significantly below last year, which we estimate will reduce full year fees by approximately $10 million. In Mexico, looking trends that are all-inclusive resorts are improving sequentially, but have not yet recovered to the extent we expected, resulting in an approximately $15 million impact to fees compared to our prior outlook. While we continue to expect positive full year net package rev-par growth in the Americas, we now expect third quarter net package rev-par to be moderately below last year.

Despite these temporary regional headwinds, we are increasingly encouraged by the strength of our core fee business. In the United States, the FIFA World Cup provided a meaningful benefit during the second quarter, and forward-looking trends remain strong for the balance of 2026. With group pace for our U. S. full-service hotels up in the mid-single digits for the remainder of the year, we're also seeing improving trends in our select service portfolio as we lack easier comparisons.

Outside of the United States, we expect performance in Asia Pacific to be strong through the balance of 2026. Reflecting these trends where we are increasing our full-year system-wide rev-par growth outlook to between 3.5% and 4.5%. We now expect full-year rev-par growth in the United States of between 3 and 4%. We expect rev-par growth in international markets, excluding the impact of the conflict in the Middle East to be slightly higher than the United States for the full year.

We expect net rooms growth of approximately 6% for the full year, with momentum in conversions, including in our new brands driving another year of strong organic growth. As Mark mentioned earlier, we expect the fourth quarter to account for over half of our openings for the year, and we remain confident in our ability to meet the long-term growth expectations that we laid out at our most recent investor day. We are maintaining our growth fees outlook for the full year and expect fees to grow between 9 to 11% in the range of 1.305 to 1.335 billion dollars.

Reflecting continued growth across our asset-light platform, despite temporary hotel closures in Jamaica and softer performance in Mexico and the Middle East. We are maintaining our full-year adjusted EBITDA outlook and continue to expect adjusted EBITDA to grow at a strong rate of 13 to 18% in the range of 1.155 to 1.205 billion dollars. This outlook reflects an approximately $25 million year-over-year decline in our distribution segment for the full year compared to 2025.

We are maintaining our adjusted free cash flow outlook for the full year in the range of 580 to $630 million, representing an increase of between 20 to 30%. This reflects the conversion of adjusted EBITDA to adjust to free cash flow of at least 50% for the full year.

Finally, we expect to return between 325 million and 375 million dollars of capital to shareholders to share repurchases and dividends during 2026. For the third quarter, we expect global rev-par growth towards the low end of our full year outlook range. We expect net package rev-par to be moderately below last year. Growth fees are expected to grow in the highest single-digit range compared to the prior year and compared to the third quarter of 2025. As a reminder, this growth is after adjusting for the 30 million dollars from owned assets sold in 2025 and the 13 million dollars of pro-rata JV EBITDA removed under our updated definition. These adjustments are outlined on page 8, 9 in this morning's earnings release.

In closing, our second quarter results reflect the continued strength of highest asset light earnings model. As we highlighted during investor day, our strategy is designed to generate high quality, durable fee growth, and increasing cash flow over time. In this quarter's results are another demonstration of the successful execution of our strategy. As our system expands and our brands continue to outperform, we believe we remain well positioned to generate durable fee growth strong free cash flow and long-term value for our shareholders. This concludes our prepared remarks, and we're now happy to answer your questions.

Thanks, Ben. Let me provide some context and then I'll answer the question very specifically. First of all, I think it's really in fact the first three quarters of this year relative to what were very, very significant growth periods a year ago. Secondly, we had some rooms that came out of the system about, I would say, between the Playa adjustments, which were hotels that we actually acquired, but the rooms did not become part of the height system, but we were reflected in the rooms that we owned, and some turnover in the Eurocode portfolio and losses, two losses in the Lindner portfolio.

Those three factors were drag in this particular quarter, but when you look at a two-year stack, which is a much healthier way to look at these things, because really what I think people can be focused on is what are the implications for fee growth? We've had very strong fee growth this year. We will continue to have very strong fee growth in the high single digits, as Joan mentioned, or low double digits, and that will continue to increase into next year because of ramp up and so forth and so on. But our two-year stack of net rooms growth in the first quarter and the second quarter of this year is 16%. So 16% growth in net rooms from the first quarter and the second quarter of 24 to the first quarter and second quarter of 26.

Secondly, as we said in our investor, they are organic growth compounded over the last eight years, has been seven, and that's organic. Total was over nine, and the pipeline in the first quarter was up over nine and 10% in the second quarter. So you put all these factors together, and we are set up for persistent, significant net rooms growth. With respect to this year, we have seen two things. One, in the year for the year conversions, especially in the context of two new brands that we launched, select and unscripted. In some cases, the pips were turned out to be heavier than we initially had modeled, and the timing for the PIP completion has extended. And so we've seen slippage from Q2 to Q3 and Q3 to Q4 already.

And secondly, about 50% of our pipeline openings are in the fourth quarter, and the majority of those over 60% are luxury, lifestyle, and full service hotels, which inherently are more complicated to forecast. There are many more permits and facilities that need to be prepped and certificated, certificated for opening, and therefore we're looking at a heavy concentration in the fourth quarter, and we are ourselves saying, okay, some of these may very well slip into the first quarter. So we're taking a, I would say, a proactively conservative estimate on how the year will actually shape out. The key from my perspective isn't, let's hyper-focus on one quarter to the next, because first of all, the net room's growth figure is not what I think is going to drive value.

It's net fee growth. And so the fee growth algorithm is what drives value. You can't take net room's growth to the bank. What we are set up for is significant, persistent, compounding fee growth in the upper single digits as we look forward in time. And our growth, how do I know that? Because the pipeline growth is actually in that same range. The final thing I'll say about our confidence about the algorithm that we put into place or that we shared during Investor Day is between the very high demand that we see in the marketplace with respect to new signings. In addition to that, we put into place a financing vehicle with a third party hall financial.

It's a half a billion dollar facility, and we have a dozen, sorry, about a dozen of our already signed high studios deals that are going through the approval processes or going through the negotiation processes for financing to get those hotels underway. We already have a number of hotels that are under construction and a number that are opened trending very well, but we want to accelerate that. We provided some credit support in that facility. So between the core demand that we're seeing for the brands and our pipeline growth and actually trying to address one of the key needs that we see in our owner community, which is financing for construction, we really feel confident that the six to eight percent range that we gave during Investor Day is going to be realized.

It's a very thorough and helpful answer. Appreciate it. Thanks. Thanks, Ben.

Yeah, I'll start, but I'll ask Joan to comment as well. With respect to group, we have 96 percent or 97 percent of the rooms sold this year, so revenue realized on the book's volume, which is exactly what we would expect it to be. And we have about over 55 percent, sorry, we think it's 55 and 56 percent, sorry, 55 and 60 percent is what it meant to save for next year, both now, which is right on path with what we would expect this time of year. So I think the booking window with respect to group hasn't really changed. The one thing I would note is that the quarter over quarter mix does shift somewhat materially.

So over the course of the year, corporate is really the key driver for our group realization, which is actually very good news always, because there's more in-house banqueting in F&B, so higher revenue base for our owners. So I would say that the mix is important as well as the booking curve. Britain curve is basically the same mix is actually favorable, and that's true globally, but it's especially true in the US.

With respect to leisure, we're about on track as well with respect to volumes, and Joan can talk about this with respect to HIC specifically, because that's the place where we have probably the most visibility in terms of mix and market. Business transient remains very short-term. The good news is that if you look, business transient group is up about five and a half percent and business transient was up over two percent year to date. And I think that's a very positive sign. In our case, it's more heavily concentrated towards luxury and full service hotels, but Joan, maybe you want to talk about HIC outlook.

Yeah, I would just say to add on to what Mark mentioned is that those numbers are our first half numbers, and it is true that our booking windows haven't changed much on the BT side. So while we've seen some increasing and encouraging activity, you know, embedded in our outlook for the full year is that those booking windows still remain shorter on the BT side. And for leisure, we have also, you know, booking windows that are 30 to 60 days out, except for maybe the HIC business, where a flight and a longer booking necessity from our guests to actually make those reservations. And when we look, I mentioned this in my prepared remarks, but when you look at Q3 and Q4, we're slightly negative overall.

And we had, we reported negative 1.2 percent in the second quarter for net package revpar, and we're seeing sequential improvement week on week into Cancun in particular, because that is the market that has been the most disrupted post the February security incident. So improving, but not as much as we hadn't anticipated. So what is encouraging is when we look out a little bit further, again, back to the booking windows, what we're seeing for the first quarter of 2027, still early days, but it's a very important indicator for us to start looking at now as we go into our planning season in the fall, is that the Q1 pace is up in the high single digits overall for the region.

So we're seeing Cancun a bit flat, but other areas, the west coast of Mexico and Dominican Republic are up significantly, but Dominican in particular is up over 20%. So that core leisure traveler and their demand for travel in those high season periods, we're seeing growing, and that gives us a lot of confidence into how Q1 in the 2027 is going to shape up. And again, back to the sequential into this year, we think we'll be, it'll be growing throughout the rest of this year.

Yeah, we just say quick editorial comment, flat for, flatish for Cancun in the first quarter at this point, might seem, you know, unimpressive, but don't forget that the security event didn't occur until the very end of February of 2026. So the first quarter of this year was actually pretty strong for the Cancun region. So for us to be flat at this point with a lot of looking remaining and a dynamic where both the west coast of Mexico and the Dominican have gotten a lot more expensive because a lot of the increase in the revenue pace is coming through rate increases will cascade into Cancun. So we expect to see Cancun sequentially improved from here on, from here out, and see Q1 serially improved.

Well, let me answer the first question, Richard. In the second quarter, we had anticipated that we would have an increasing demand. Actually, we saw it when we were reported Q1 results. And so that's what gave us confidence in what we reported in the end of the first quarter. And then it sort of leveled out. So that was the dynamic that we saw. Other regions were very strong. The Dominican was up 8% in the quarter. So people were sort of redirecting some of their bookings. And that's the dynamic we saw. But as we mentioned, it week on week has grown sequentially better.

So we believe that this is very much temporary. And as Mark mentioned, that this will accelerate into the latter half of this year as actually occupancies fill up into these other regions as well.

With respect to, we were locked out for investor day for a period of time in the second quarter. So that was part of the activity that you saw. I reaffirmed our guidance with respect to capital returns for this year between 325 and 375. So that's what you can expect to see the difference between what we've achieved year to date and our outlook at this point in the year.

You took the words right out of my mouth, the fact is that quality properties in high barrier to entry markets is what is garnering the most attention. And that is where all the activity is. So that is what we are seeing. The rest of the market is, I would say, flattish in terms of activity level.

And so, yeah, I think it's not surprising. We always knew, of course, I would have answered the same thing any quarter in the last 20 years. If you've got great properties in high barrier of entry markets, they always retain value and there's always a market for them. It just happens that there's been a flight to quality that's been more pronounced, I would say, over the last six months or so. So that's what we're seeing in the market.

Sure. You're right about the year to date. It was about 5% growth for the U. S. and it was pretty evenly split growth rates if you look across the two quarters between leisure, business and group. So that was obviously more heavily weighted into the second quarter with respect to group and the impact of the World Cup, which was significant. So as we look at the second half of the year, group, as I mentioned, is up in the mid-single digits, which is where we have the greatest visibility to demand. And part of what's embedded in our outlook is the lower visibility that we have to leisure and business. Given the momentum we've had, there's upside there.

Probably some conservatism there, but we want to make sure that we are sharing what we're seeing and the booking windows that we're seeing. So that's basically what's embedded in the outlook.

I would just add one other thing. Reminder, Liberation Day hit at the very beginning of the second quarter of 2025. So there's some lapping of that. That had a more pronounced impact on upscale and upper mid-scale hotels than it did luxury. For us, luxury and leisure continue to lead every dimension in every market around the world. So I went back and looked at the last eight quarters running. There's not any exceptions. Luxury was the highest rec park growth with the highest ADR growth in every region and every quarter. So too was leisure. So leisure luxury is where it's at. And that's what we're seeing. Most pronounced, actually, interestingly in China. China, luxury properties were up 11% this past quarter in China.

A lot of it's leisure. So China is on fire. We're up almost 10% in the first half in rev park in China. And it's been remarkable. And the Eurocoat performance has also been very robust because we are in key locations within the principal cities. So I would say, you know, luxury is alive and well across the board.

We're seeing increased inbound traffic into China as well. Up 18% this past quarter from the US and up 24% from Europe. Our inbound mix is about mid-20s right now, 24% or so. That compares to 30% pre-COVID. So I would say leisure and luxury has been the engine that has just continued to propel us to really, really significant fee growth.

We've gained market share. Our luxury and lifestyle hotels are up three points of market share this past quarter. So I would say we're clicking on all cylinders when it comes to the higher end guests. And my confidence level, even though so-called pace is hard to measure, is extremely high.

So we have some, Dwayne, that's right. There is a strong back half EBITDA assumption there. We do have distribution, actually, has most of the impact that we outlined is in the first half of 2026. So we have forecasted in the fourth quarter that we'll have some improvements. And a big factor driving that is the hurricane in the fourth quarter of 2025. So that had some disruption to result in the fourth quarter of 2025. That will be lapping. So there's some upside there. And the sea growth from core business in the U. S. and internationally will continue to be strong in the fourth quarter. We also have a little bit of GNA, because we had a little bit heavier GNA in the first half.

So as you look across our guidance, there's a little pick up there. And finally, I would just mention the Playa hotels that entered the portfolio. And the fourth quarter is a strong quarter seasonality for those hotels.

Those are for the distributors.

Yeah, Sean, thank you for the question. As you know, we have been forever owners of significant hotel hotels over time. Our portfolio is as small as it's been since the 1960s. So we've sold down a lot of assets as you know. However, the DNA of thinking as an owner hasn't left us. It's not been that long ago since COVID hit, and we were heavy into a lot of real estate ownership, and we were side by side shoulder to shoulder with all of our big owners, figuring out how to reduce break even levels for our full service hotels from the mid 40s to the low 20s, which we actually accomplished in the space of about four months.

So it's a muscle that is highly developed and very toned at Hyatt. So it's constant effort. It's in our DNA, and we have done exhaustive work on pulling apart our systems costs, which respect, I'm not talking about IT systems, I'm talking about commercial services systems, commercial services, and technology systems on a comparative basis. And we have extremely high confidence based on a lot of comparisons across FDD that have been filed and clarity around what's included in what line items.

That we are highly competitive, if not at a cost advantage to our largest competitors, which I think is counter to maybe accepted wisdom in the industry, which is you have to be gargantuan in order to be efficient. And that's just not the case. Some specific initiatives that we've undertaken, we've removed IT implementation fees for all new openings. The technology cost reductions are significant. So we have converted to a completely new platform, a fully new CRS, the implementation of Opera Cloud, and a new RMS, all three of them concurrently over the last 18 months. You might question our judgment for trying to do all three of those, but I can say now, talking with that we accomplish all of those on time and on budget.

As an example, on a per-room basis, our PMS cost to owners has been reduced by 40%. That's a significant move as a result of a big investment that we made. These were not bills that were sent out to owners to pay for the systems that we put into place. We paid for that out of our funds, and they derived the benefit on a run rate basis. And over the course of this year, we've developed an AI-enabled platform to help identify signals that our hotel teams can go after. And they primarily relate to revenue opportunities, not costs, but they also impact costs. So we've got a dedicated team now that is using an AI-enabled tool to look at things like vendor optimization and an overlay with respect to revenue management, which is one of the things that I think accounts for some of our market share performance.

I think we've gotten much more precise and very focused with respect to optimizing revenue, especially when it comes to total revenue and profitability in the group segment. We've developed a large-scale AI platform to actually score and value every piece of business that comes through the door. And if you put all of that together, we are seeing real significant flow-throughs. And we still own enough hotels to track that, but also we have 100% visibility to all of our managed hotels, which is about 70% of all of our rooms around the world. So I can tell you conclusively that we're seeing a really healthy flow-throughs as a result of all these initiatives. It sounds like a lot, and we've come through this in a really healthy way.

By the way, if you're sitting back and saying, geez, that must help your pipeline growth, you're right. We just had an owner advisory committee meeting maybe two months ago, and we went over all of these data with our owners. And quite a few of them said, yeah, it's not gone unnoticed. And our transparency with them about where the costs lie and how we're going after them has led to increased demand for our brands.

Yeah, I'll, I think the answer is yes, but I also give you a historical reference. A few back, and we presented this during the investor day, but 2017, over the last eight years, 2017, 2025, our organic net rooms growth over that period of time organic was seven. Our total was nine. And so I'm not, I'm not asking you to bend your imagination. I'm, I'm, I'm pointing out that our pipeline growth has never been stronger.

We are addressing some of the key pain points like financing. Our performance is continues to improve. Our systems costs, as I just described, are highly competitive. So all of that sets up for a very solid outlook for net rooms growth in 27, 28, and beyond. And I think as we see, and we get our hands around more efficient ways to get conversions through the pipe through the funnel, we'll see more consistent opening pace as we look forward.

You know, I think it's, it is important to remember that we've launched two new brands that are in our plans, and we, we're learning that our standards and the pit requirements are a little bit more significant than, than we had initially imagined they might be. And so they're taking longer. But that's good news, because what you end up with is a higher quality, higher rated, more profitable hotel coming out the other end. So I really think that we're talking about more of the same as opposed to some massive inflection point. The two-year stack I mentioned earlier is another proof point of that.

I would just add at our investor day, we commented that our fees, our total growth fees per room, are in excess of the industry. And when we look at our pipeline, the pipeline is accretive. So even with having some of these new brands being added, which are, you know, will be diluted because of the fees per room in that category, we still are very much modeling that fact that that accretion is going to come. And as we talked at investor day, the nine to 11% compounded rate over the next couple of years is absolutely our expectation at this point.

Yeah, I mean, I didn't follow my own admonition to you all. Joan just reminded me, it's net feed growth that matters. Let's focus on the fee. So organic feed growth over the last five years has been over 10%, 10.4%. And that is in excess of our peers, our larger peers, total fee growth over that period of time. So this algorithm that we're talking about, nine to 11, on the fee side, six to eight on the net rooms growth side, fees per key embedded in the pipeline being higher than they are on the existing portfolio, nothing has changed. All of those facts, all of those dynamics remain in place, and I would just continue to remind people to please pay attention to fee growth.

That's where you can take money to the back.

I think the answer is the mix that we have ahead of us is about two thirds international and about two thirds full service.

That's really what's embedded in the pipeline. Now, in terms of rate of growth of hotels in the pipeline, we are seeing higher rates of growth in our essentials brands. Nonetheless, we have 154,000 rooms in our pipeline. So there's the inevitability of the opening of those hotels, which looks a lot like our current mix. I think over time, with a continuous acceleration, which is my expectation of our essentials brands filling in really important markets that we don't not represent it today, we will see franchise increase as a percentage of the total. I don't think you're going to see a material increase over the next two years. I think five years, excuse me, five years from now, you will see a perceptible increase in the franchise mix.

Yeah. Thank you for the question. The key fact that I think you need to understand is that the segment that we're talking about, which is upper mid-scale, both for Eurocove and for Select, they're executed fundamentally differently than the hotels that are built in up-scale and above. So what do I mean? I mean, the vast majority of those hotels, vast majority, are at least properties that are primarily offices that are being adaptively redeveloped into hotels. It's not a business that we're in. We don't do that. We have to have a partner who can act as a lessee and who can also, who also has the capacity and the entire infrastructure to be able to do that efficiently and effectively.

And we have two great partners. We have Home Inns that has really done a remarkably great job and the combination of our brand power and world of Hyatt with their technical expertise and operational expertise for these types of hotels has led Eurocove to be a great success with something on the order of 120 to 130 hotels opening in the pipeline and real vibrancy there. Turnover, some of the hotels that became Eurocoves were already in the Home Inns portfolio.

These lease deals tend to be 10 years in length. That's commonplace for the marketplace. And so you end up with some turnover when you get to the end of lease terms. With respect to Dosen, another large, very capable group, they likewise have a great deal of specialization in adaptive reuse for upper mid-scale properties. They also play in other markets as those Home Inns in economy and some up scale, but our focus with them is on select. And so the purpose of that is to gain access to properties that we would not otherwise have an easy way to execute against unless we were to set up a lessee organization and an execution organization which frankly isn't a smart idea for us to do.

Meanwhile, our core business, which is heavily dominated and full service and luxury, is thriving. It is absolutely thriving. So we have, I would say, appropriate go-to-market strategies for the segments that we are participating in in China. Does that make sense?

So I want to thank, I'm sorry?

I think we're at the top of the hour. So I just want to thank all of you for your time this morning and your interest in Hyatt. We're of course incredibly excited about our future and I think you've heard loud and clear from John and I this morning that our confidence with respect to our model that we laid out during our investor day and our momentum into 2027 is very, very high and very strong. So I really appreciate the time and attention and also welcome you to stay at Hyatt as much as possible so we can make our annual numbers and you all will be very happy with us but also to experience the power of Hyatt Care firsthand.

Have a great rest of your day and we'll talk to you next quarter.