Budget Brands Lift Choice Hotels Despite Slowdown Fears

Choice Hotels dialed back revenue expectations for the year, while highlighting strength in its economy and extended-stay properties.

The hotel franchiser on Thursday projected that its revenue per available room (RevPAR) in the U.S. will range between a 1% decline and 1% growth, down from its previous forecast of 1-2% growth.

While its mid-market properties struggled in the first quarter, brands like Econo Lodge and extended-stay options boomed.

CEO Patrick Pacious chalked up the performance to strong employment, low gas prices, and infrastructure investments tied to artificial intelligence, even as the company joined competitors Wyndham, Marriott, and Hilton in modestly lowering its outlook for growth for the year.

What Was Strongest

Economy hotels. Choice’s budget hotel brands in the U.S. saw a 7.1% jump in RevPAR, year-over-year.

“Employment remains high, gas prices are low, and consumers appear to to be saying they’re going to drive as opposed to fly,” said Patrick Pacious, president and CEO. “So that that generally does really well for our hotels right next to the highway, and our 1,500 hotels near the national parks.”

Small business travel and group travel. “Our business travel segment grew 10% year-over-year in the first quarter, driven by both group and business transient travel,” said Pacious. While people aren’t booking rooms as far ahead as usual, he said, they’re still traveling.

Extended-stay. The operator’s extended-stay brands in the U.S., such as Woodspring Suites, saw a 6.8% spike in RevPAR, year-over-year. That was significant because the company increased the size of its extended-stay portfolio by 19% over the past 5 years to about 53,000 rooms.

Pacious attributed part of extended-stay boom to “companies involved in the substantial infrastructure investments required by GenAI and the push towards reshoring of American manufacturing.”

What Was Weakest

Mid-market brands. The company’s “midscale” brands, which include Quality Inn, Sleep Inn, and Park Inn, had only a 1.7% rise in RevPAR.

Upscale and Above. RevPAR for the company’s highest-end hotels declined 4.3% year-over-year. However, executives said this performance was due to some unusual changes in some hotels leaving and joining the system rather than demand softening and they expected it performance to normalize.

Tariffs Not a Worry

Choice’s executives said they weren’t concerned about the affect of a tariff war on the cost of constructing and operating hotels. They said they met with many vendors at their annual trade show last week and the tone was optimistic.

“Many of them have gotten ahead of the whole tariff impact by bringing inventory here sooner,” Pacious said. “And secondly, many of them told us they have figured out ways not to pass that cost on to the owners.”

“Anybody who was talking about a price increase, it was usually 10%, that seemed to be the number we were hearing, which is very absorbable in the way our franchisees are thinking about development moving forward.”

Key Trends to Watch

Choice Hotels has higher-income guests, on average. Whenever the next recession might hit, the franchisor may be more resilient to handle it than in the past. They credited their multi-year effort to shift the company’s hotel portfolio to higher-end, well-renovated properties with better branding.

“We have more higher-income guests than before,” Pacious said. “Half of our customers now have annual household incomes exceeding $100,000, which means they are more than 24% higher than the median national household income, and nearly 20% surpass $200,000.”

Baby Boomers as a tailwind. The company also expects a growing demand from people who are newly retired.

“Over 4 million people are expected to reach retirement age this year in the U.S., and they have more time and disposable income to travel for leisure and seek brands like ours that provide value for their money,” Pacious said.

“And the pool of these retired travelers continues to expand, with more than 1 in 5 Americans expected to be 65 years old or over by 2030.”

Robust Quarter

• Pricing and stays were both up. The domestic average daily rate grew by 1.7%, and occupancy levels increased by 30 basis points, enabling the company to boost its earnings in the quarter.

• Profitability rose. Adjusted EBITDA for the first quarter was a company record of $129.6 million, up 4% year-over-year, on net revenue of $209 million. Choice essentially took a 5.1% cut of franchisees’ rates for rooms.

• Loyalty strengthened. The company’s rewards program rose to over 70 million members, an 8% year-over-year increase.

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