We expect Wyndham Hotels & Resorts (WH) to gradually expand its room share in the hotel industry and sustain a brand intangible asset and switching cost advantage. This view is supported by the company’s roughly 40% share of all U.S. economy and midscale branded hotels as well as its loyalty program, the industry’s fourth-largest by membership, which encourages third-party hotel owners to join the platform. Also, Wyndham has 10% and 5% shares of existing U.S. and global hotel rooms, respectively, with a pipeline that represents around 22% of its current unit base. As a result, we see room growth averaging around 3% over the next decade, above the 2% long-term U.S. supply growth average.
With all but 2 of its 9,000-plus hotels managed or franchised, Wyndham has an attractive recurring-fee business model with healthy returns on invested capital, as these asset-light relationships have low fixed costs and capital requirements. This asset-light model creates switching costs, given the 10- to 20-year contracts that have meaningful cancellation costs for owners.
Dan Wasiolek does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.