Playa Hotels & Resorts Direct Booking Project Pays Off

During Playa Hotels & Resorts N.V. Q2 2020 earnings conference call on August 7, 2020, CEO Bruce Wardinski and CFO Ryan Hymel spoke plainly about how their brand was faring during the COVID-19 pandemic. According to Wardinski, the company was willing and focused on keeping properties open as long as they were operating at levels near the “indifference point” – where the company loses the same amount open or closed. For Playa Hotels & Resorts, this number is in the mid-teens.

“Our objective is to open resorts which we believe can sustain occupancy levels near the indifference point,” Wardinski added, “because we believe booking momentum is likely to build once guests have confidence that the lights will be on for their future stays, and more information regarding the experience offered at our resorts is available on social media. This view has been playing out thus far.”

Additionally, the brand continues to keep the resorts open at this level because it has helped it gauge crew demand levels.

COST TO REOPEN

According to Hymel, nearly all of the hotels that Playa opened at the beginning of July are at or “well above” their respective indifference points.

“Additionally, because we're still getting our restarting costs and investments calibrated as we get accustomed to the new normal,” Hymel said, “we don't have an estimate of recurring incremental costs related to new safety protocols to share with you at this time. What we can share with you is that the incremental labor costs are negligible at this point, and we've invested roughly $600,000 in CapEx to prepare for reopening in a socially distance manner. We are pleased to see that guests are responding extremely positively to the intention to safety that is apparent throughout our resorts and demonstrated by our associates, especially versus some of our competitors.”

BENEFITS OF BOOKING DIRECT

For more than a year, Play Resorts & Hotels has been focused on growing its direct bookings. The company, prior to the pandemic, had a goal of increasing consumer direct business to at least 50% by 2023. Interestingly, the company remains on target with this goal.

“In aggregate, during the second quarter of 2020, 51.6% of room nights booked were direct,” Wardinski says. “That is up 23 percentage points year-over-year, reflecting the relative strength of our direct channels and our business model as a whole versus most of our competition.”

Wardinski went on to give a little color around its playresorts.com website and just how well it was driving direct bookings. According to the CEO, as of July 15, the website had accumulated $32.5 million of gross revenue for 2020 versus $47.5 million in 2019. During the second quarter of 2020, the website accounted for 28.3% of total bookings, up 17.4 percentage points year-over-year. And when looking ahead to 2021, the website has already generated $7.4 million in bookings (versus $6.1 million for 2020 at the same time last year).

“Generally, as we think about direct booking growth, partnering with globally recognized U.S. brands is key to driving the highest value guests at the lowest possible cost for resorts by reducing customer acquisition costs, increasing our total addressable market, mitigating the impact of supply growth and minimizing the negative effects of competition,” Wardinski added.

RATE INTEGRITY & GUEST EXPERIENCE

According to Wardinski, one bright spot in particular, is that its resorts rates have not taken a significant hit in order to lure back guests.

Traditionally, tour operators are the largest producer of customers for destination resorts, according to Wardinski, with many of its competitors getting 75 or even 80% of their customers from tour operators.

“We do not,” he said. “Other people are having to really discount their rates because they're losing their distribution sources.”

Hymel agreed, pointing out that the company is booking well over 50% direct, that its tour operator business is about 60% of where it was last year, and OTAs are at about half of where they were last year.

“It's an encouraging sign that we're able to do that much direct,” Hymel added. “You've heard us talk about being from a revenue perspective, about in the mid-30%, behind prior-year for fourth quarter, our rate is only down about one percentage point. And if you look out to the first quarter, it's up about one percentage point. So all things equal, rate is holding in quite nicely, all things considered.”

Instead of evaluating vacations based on rates, Wardinski feels that when guests are planning a vacation they’re more concerned about safety than they are about what they’re going to pay.

“People who are going to travel are going to travel because they want to go where they have the best chance of being very safe and having a great experience,” he noted.  

In particular, consumers want to know what the travel experience will be like (specifically at the airports) and what the resort experience will be like once they arrive.

Top Concern

“For the first time probably in my career, I'm not concerned about rates,” Wardinski said. “What I'm concerned about is occupancy, and that's going to build, it's going to take time, it's not going to come tomorrow. […However] I think we offer a better product than what people can get in the U.S. or in Europe or anywhere else, and I think you're going to see us doing better in the near, medium, and long-term."