Q2 2021 Playa Hotels & Resorts NV Earnings Call
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Good day and welcome to the Playa hotels second quarter 2021 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then 1 on a touchtone phone.
To withdraw your question. Please press Star then 2 please note. This event is being recorded I would now like to turn the conference over to Ryan email. Please go ahead.
Thank you, Matt and good morning, everyone and welcome again to Playa hotels, <unk> resorts second quarter 2021 earnings conference call.
Before we begin I'd like to remind participants that many of our comments today will be considered forward looking statements and are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated.
Forward looking statements made today are effective only as of today and the company undertakes no obligation to update forward looking statements.
For a discussion of some of the factors that could cause our actual results to differ. Please review the risk factors section of our annual report on form 10-Q, which we filed last night with the Securities and Exchange Commission, we've updated our Investor Relations website at investors that Playa resorts Dot com with the company's recent releases in.
In addition, a reconciliation to GAAP of the non-GAAP financial measures. We discussed on this call were included in yesterday's press release.
On today's call Bruce word inskeep, Playa Chairman and Chief Executive Officer will provide some comments on the second quarter and key operational highlights I will then address our second quarter results, our liquidity position and outlook.
Bruce will then wrap up the call with some concluding remarks before we turn it over to Q&A with that I'll turn the call over to Bruce.
Great. Thanks, Ryan Good morning, everyone and thanks for joining us as always we appreciate your interest in Playa and hope that all of you are in good health and spirits enjoying the summer.
I'm sure. Most of you you have had a chance to review our Q2 results reported last night, so let's begin the discussion.
Second quarter results exceeded our expectations as the momentum that began in March carried through into the second quarter driven by strong close in demand pricing discipline and increased airlift into our destinations all of which led to a spectacular month of June for Playa.
All segments reported higher occupancy levels as compared to the first quarter with many also delivering higher sequential adr's a phenomenon, we don't typically see in a resort destinations.
Importantly, while our guest mix toward premium resorts has boosted reported ADR as all of our owned and managed resorts also reported same resort.
Our growth versus 2019 for the months of May and June give.
Given we have never manage through such a large scale reopening with the nuances that the pandemic has presented our base case assumption was that our extraordinary revenue on the book percentage gains compared to prior year's would normalize as we approach the second half of 2021.
It has not been the case our revenue on the book percentage gains have largely remained steady while <unk> across all segments have continued to build for future periods.
In addition, while it is still early we're not currently seeing any noticeable impact on our bookings or cancellations as a result of the Delta Varian.
Looking ahead forecasted airlift into our destinations is expected to increase significantly during the third quarter, but we're not necessarily banking on this given the fits and starts with the easing of travel for Europeans and Canadians, which account for quite a bit of the expected airlift ramp.
Looking at our segments, Mexico has led the way during the recovery and our results there in the second quarter were once again, the standout with comparable occupancies into the high <unk> for the quarter, the highest ADR on an absolute basis and excellent flow through.
Flight capacity in our Pacific segment destinations has significantly outpaced all other destinations with Los Cabos reporting international passenger arrivals during the second quarter, increasing versus 2019, and Porto VR to also crossing that threshold in the month of June.
As I mentioned the quarter finished on a strong note with occupancy levels in Mexico, increasing into the sixties, keeping our resorts in compliance with local occupancy limitations.
As is usually the case there have been some challenges, namely rising COVID-19 cases in recent months in Mexico likely due to the Delta Varian and the sporadic return of sargassum.
With respect to COVID-19 cases, the good news is that fewer than 15 basis points of the nearly 200000 guests we've tested so far generated positive results.
Moving on to Jamaica, following a strong March Jamaica surprised us once again during the second quarter as international passenger arrivals sequentially improved by over 30 percentage points compared to 2019.
Our occupancy gains during the quarter were capped off with the month of June approaching 60% far beyond what we thought was possible at this at the time of our last earnings call.
Demand here continues to build as we look out to the fourth quarter, which is 1 flight capacity is expected to see a sizable ramp.
We are very encouraged by the increased demand in Jamaica, which was our best performing segment prior to the pandemic and we do not anticipate the market being structurally impaired or on weaker competitive footing. Despite a slower start after reopening last year.
Similar to Jamaica, the Dominican Republic also experienced a nice sequential increase in international passenger arrivals, which drove our approximately 20% improvement in occupancy versus Q1.
Once again, our flagship Hyatt even for Lora comp kind of led the way.
It has established itself as a leader in the market with the resorts EBITDA margins nearing 40% for the second quarter.
The resorts progress and ramp gives us further confidence in achieving our goal of 12% to 15% stabilized cash on cash returns on our investment there. This.
The segment's overall performance was weighed down by our 2 externally managed properties, which have lagged behind our globally branded resorts in this segment and also yield a significantly lower absolute ADR compared or globally branded and Playa managed resorts.
Our focus on direct channels continues to pay off and we are confident our company is well on target with our 5 year plan to increase consumer direct business to at least 50% by 2023.
In aggregate during the second quarter of 2021.48, 5% of room nights booked were booked direct down 2.7 percentage points year over year, reflecting the relative strength of our direct channels, but also an acceleration in group and third party source business.
During the second quarter Playa resorts Dot com accounted for 22% of our total room night bookings down 6.5 percentage points year over year.
Looking ahead to 2021 as a whole as of July 15th Playa resorts Dot Com has generated approximately $102 million of bookings for 2021 compared to $6 million for 2020 at the same time last year and versus $47.5 million for the 2019 comparable period.
As a reminder, we anticipated that as the world slowly return to normal or mix of direct business would likely fall below 50%, but still believe it will remain higher than levels seen immediately prior to the pandemic and significantly higher on an absolute dollar basis.
So modest in dollars non package revenue continues to be another pleasant surprise of the recovery driven by pent up demand and an improved execution on our offerings.
Again, it is difficult to gauge if the current levels of non package spend are short lived but this has been an area of focus for our resort Gms given the attractive margin profile.
Finally on cash.
Cannot reiterate enough how impressed I am by our team.
Their ability to adapt and execute continues to surprise me and our guests. So once again I would like to thank each and every 1 of our associates for their dedication and passion to delivering service from the heart and making Playa of success with that I will turn the call back over to Ryan to discuss the balance sheet and our outlook.
Thank you Bruce.
I will first give you an update on our liquidity and balance sheet and then review the fundamentals for the second quarter and then finally finish off with the discussion of forward bookings and market trends. So starting with the balance sheet liquidity like last quarter. We've included a monthly cash bridge in our earnings release to help guide the discussion.
We began the quarter with roughly $200 million of unrestricted cash and as our business accelerated meaningfully versus last quarter I am excited to say that we did not earn cash on a companywide operational basis during the second quarter as.
As you May recall, we previously expected to reach this milestone once occupancy levels were closer to 60%, but robust rate growth allowed us to get there sooner.
Also during the quarter, we completed the sale of the Capri Hotel generating net proceeds of just under $50 million with half of it immediately going toward paying down our term loan.
All of the aforementioned efforts bring us to a total unrestricted cash balance of roughly $238 million as of June 30.
Also as a reminder, we have roughly $25 million of additional restricted cash on the balance sheet from our June 2020 financing on.
On the other side of the Ledger. We currently have no outstanding borrowings on our revolving credit facility and total outstanding interest bearing debt of $1.5 billion.
Much like previous quarters, given the extremely limited visibility into our future business, we will not be providing burn rate, nor EBIT guidance, but I have a few items to note as you think about cash and liquidity in the second half of the year.
First we expect to make roughly $8.5 million of insurance premium payments in the first month of July that we previously had anticipated spending during the second quarter and also in July we expect to pay roughly $5 million for.
Income taxes in remaining transaction costs related to the sale of the Capri Hotel.
Beginning in August we will have roughly $1.5 million of monthly insurance payments through the remainder of the year and wanted to remind everyone that no such payments were had in February through June of 2021.
We anticipate our GAAP and cash Capex spend for full year 2021 to be in the range of $19 million to $21 million for the year.
We anticipate Q3 capex of roughly $7 million with $3 million of it being spent at the Hilton Rose Hall, which again will be funded from restricted cash.
Approximately half of our full year 2021, Capex will be spent on maintenance with the remainder being spent on final payments related to existing projects and a little over $5 million at the Hilton Rose Hall.
Now turning our attention to mice group business demand in this segment has been nothing short of staggering as of now we have approximately $14 million of group business on the books for 2021 with approximately 80% of it expecting to come in the second half of this year the.
The demand for 2022 and beyond however is where we have seen our greatest gains with meeting planners confidence desire and ability to travel improving as we look ahead into next year combined with 2 years of lost meetings. Therefore demand has far exceeded our expectations.
Our 2022 mice group business on the books is over $30 million in increasing and compares to $24 million at the time of our last earnings call.
Therefore, this puts our current <unk> revenue on the books within 10 percentage points of our final full year 2019, <unk> revenues of $32 million and to 33 million. We had on the books in early 2020 for that year prior to the onset of the pandemic.
From a pacing perspective. This compares to just under $27 million on the books for 2020 at the same time in 2019 or said differently up 12%.
Nearly 95% of this mice business is slated to stay in the first half of 2022 and the return of this mice business should provide a nice base to help manage yields and drive improved profitability year over year, particularly at our resorts in Los Cabos Rose Hall and Kafka.
With respect to advanced deposits as of July 9th we had just under $37 million sitting with us versus $35 million at the time of our last earnings call with roughly 40% of that relates to stays in the third quarter of 2021, and 12% related to stays in the fourth quarter as a reminder.
For the majority of our leisure business has not been advanced at the time of booking.
So now moving onto the fundamentals starting in the Yucatan as Bruce mentioned Q2 fundamentals improved sequentially versus Q1, despite normally being a seasonally slower period.
The quarter continued the momentum seen in March despite rising COVID-19 cases in the country ADR.
ADR growth remains solid in the quarter progress aided by strong close in demand. Once again, we believe it has the utmost importance to maintain price integrity and allocate inventory accordingly in a rising demand environment.
Revenue on the books for the Yucatan for Q3, 2021 is up low double digits versus 2019 at the same time.
ADR is pacing well ahead for Q3 relative to 2019 up around 30%.
Revenue on the books in the Yucatan for Q4.2021 is up nicely versus 2019 at the same time.
ADR is also pacing well ahead for Q4 relative to 2019.
Our Q4 book position in the Yucatan has continually maintained a healthy rate of revenue gain versus 2019, while ADR has continued to climb.
In the Pacific the segment experienced a larger decrease in demand during Q1 as compared to the yucatan, reflecting a less geographically diverse customer mix with a high concentration of guests coming out of California, but bounce back significantly in the second quarter with incredibly robust air lift recovery in this segment as Bruce mentioned international.
Passenger arrivals exceeded 2019 levels in Los Cabos for Q2.
And ported by air to achieve the same milestone in the month of June.
Looking ahead revenue on the books for the second half of 2021 is up nicely versus 2019, and the Pacific with ADR growth in Q3 up over 40% versus 19 and robust gains as well in Q4.
Turning to the Dr. As Bruce mentioned, the Hyatt <unk> <unk> is gaining momentum and delivering extraordinary results in this segment, while our 2 third party managed resorts are weighing on sentiment segment results looks.
Looking ahead, we hope to see their results improved in the second half is forecasted airlift is expected to ramp materially.
Dr segment revenue on the books for the second half of 2021 at the Playa owned and managed resorts is significantly ahead of 2019 levels at the same time that year, driven obviously by the addition of <unk> and the newly renovated Hilton La Romana.
ADR on the books and the segment is also pacing nicely ahead of 2019 levels.
2 externally managed assets. However are behind 2019 in both revenue and ADR on the books for both Q3 and Q4.
Finally fundamentals in Jamaica ramped nicely during the quarter and easily exceeded our expectations. We're happy to see this segment stabilizing but expect the recovery here to be choppy given the visibility on flights and COVID-19 related travel restrictions.
<unk> revenue on the books for Jamaica is lagging 2019 for the third quarter, but rates are up mid single digits.
Revenue on the books is modestly ahead of where we were at the same time in 2019 for the fourth quarter of 2021 with ADR is up high single digits for the period.
Now taking a look at who was traveling nearly 45% of the planet Playa managed room nights stayed in the quarter came from our direct channels, which we believe is a function of the weakness in tour, operator channel being down roughly 38% versus 2019, and otas down roughly 37%, while our direct channels are up over 50%.
Geographically our U S sourcing increased approximately 19 percentage points to 77% of manage room nights, while South American business increased 230 basis points.
Given the state of travel restrictions, our Canadian European and Asian customer mix was essentially zero as compared to mid teens percent of mix in 2019 for Canada, and Asia and again severely depressed for Europe.
We've mentioned several times 1 of the biggest challenges we face in our industry. During the reopening process has been the contraction of cancellation policies.
So roughly 24 hours across our portfolio and across the lodging industry generally I am pleased to share with you that as of July 1 we've returned to our pre pandemic cancellation windows. This should help us continue to manage and extend our booking window, providing much needed visibility on that point. Our Q2.2021 average lead time improved versus Q1 and was a low.
<unk> number of days since we reopened most of our resorts last July this should continue to improve given the booking curve and changing cancellation policy.
In aggregate our revenue on the books for Playa owned and managed resorts for the third quarter of 2021 is currently pacing up roughly 30% versus where we were in 2019. During the same time with ADR is driving the bulk of the revenue increase.
The fourth quarter is also pacing ahead of 2019 levels still up in the high 30 percentage points with ADR up high teens versus 2019.
As a reminder, these statistics exclude the 2 externally managed assets in the Dominican Republic, which as I mentioned earlier are both pacing behind 2019 for Q3 and Q4.
This obviously excludes resorts, we manage on behalf of third party owners.
<unk> taken this altogether, we hope that the worst the pandemic is behind us, but are still focused on tightly managing expenses and preserving cash with that I'll turn it back over to Bruce for some closing remarks.
Great. Thanks, Ryan.
So in summary, we are very optimistic for the upcoming high season and for 2022.
I have never felt better about the aggregate strength and competitive position of our portfolio from a rate customer sourcing and operational perspective.
I do expect there to be bumps in the road.
But my level of optimism grows with each passing month that being said the topic that is surely top of mind for many of you as our capital allocation priorities.
Interesting to even think that we are having this discussion right now but conditions have changed surprisingly quickly.
Not to say, we aren't looking for opportunities to expand and grow but it is too early to share a formal plan for capital allocation at this time at a high level competing projects under construction in our markets remains remained relatively relatively muted and construction financing is extremely limited in the Caribbean and not much better than Mexico.
With our direct booking capabilities, improving each day and providing a real competitive advantage for backdrop for organic growth is very constructive for us at the moment.
If the recovery continues on the path we have seen thus far in 2021, we will have more to share with you later this year with respect to capital allocation.
I'd like to reiterate that we are focused on growing via high return opportunities that can leverage our direct booking platform and all inclusive operating expertise.
Also while the highest even to Laura <unk> has been a success. Thus far we do not currently foresee any other ground up development projects as there exists a healthy number of turnkey resort opportunities that meet our success criteria of being under branded and under managed these type of opportunities would allow playa to do what we do so well.
And to generate dramatic increases in direct sales average daily rates occupancy levels, and most importantly, outsize growth in EBITDA dollars.
It's been so frustrating for me personally as well as for the entire Playa team, who have had to retrench over the past year and a half.
However, it was critical to behave extremely prudently and protect the interest of our shareholders and all other playa stakeholders, we have exceeded our expectations of 12 months ago and I strongly believe we will continue to over deliver.
Now is the time to focus on taking playa to the next level on our sales and operational basis switching from defense to offense.
Thanks for all of you who stuck with us through this pandemic rollercoaster, we think you'll be happy that you did with that I'll open up the line for any questions.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Anytime you question Thats been addressed and you would like to withdraw your question. Please press Star then 2 at this time, we will pause momentarily to assemble our roster.
Our first question will come from Chris <unk> with Deutsche Bank. Please go ahead.
Hey, good morning, guys.
Yes.
Bruce maybe you could.
Give us a little color on some of these occupancy caps in Mexico and Jamaica.
Tethered to key accounts or what would need to happen to kind of get those reversed.
Okay.
So the occupancy caps really.
Number 1.
Not really impacting us significantly in any situation.
And you can have a row Riviera Maya we're capped at 70% and point of a yard to 80% of Dominican Republic, 85%.
And Cabo.
It's a lower number but it fluctuates based on the situation at any point in time. So nothing is limited us we actually even received after a recent inspection and exception.
In the <unk> market for for the levels. So we can have a higher occupancy limit there. So when you when you really look at it.
It's not impacting our business, Chris and very importantly, given that we know we do have caps theoretical caps in some cases.
We're just focused on driving the ADR so.
In some ways.
Force discipline right. We know we can't go to a 100% anyway why would we why would we sell any cheaper than that we need to and so we don't need to and so I think thats, what youre seeing and when you have that kind of ADR growth and you realize that the customers out there and they're willing to pay the price.
It gives you the level of confidence to continue doing that and that's leading into Q3 Q4 and into into the first half of 2022.
Then I think very importantly.
<unk> to the rates that are being charged in the U S. At resorts in the U S and I think were just a tremendous value proposition.
Compared to what the alternatives are so I think all of this bodes very well for us on a go forward basis, but really the limitations aren't impacting us adversely.
Okay.
That's good news thanks, Thanks Bruce.
A lot of data points for you guys gave out on.
Rates on ADR going forward in all sound pretty pretty promising I guess my question is.
If we think about those on a like for like basis, because you have a big mix shift going on you still have more I guess Hyatt.
Loyalists and things like that.
Third party is it possible to drill down and look at maybe the same people who were staying in 2019, what they're paying for back half 'twenty, 1 or versus 19 or is that too granular.
It's not as easy as Abbott in general everybody's paying for.
That's the short answer.
The short everybody I'd like you to think about I think the question, we've probably been at the most most recently has been do you think rates are you essentially resetting a new floor or is this kind of a year year and a half phenomenon because people are tired of being in their homes, they want to get out and travel and specifically travel leisure destination.
We can't change the consumer's mindset, but what we can change and control is all the things we've done behind the scenes things you just mentioned driving more through our website partnering with more brand moving away from high price probably tour operators and continually pressing the otas to lower their commission so that even if the consumer sentiment kind of flipped back after a year or so.
And they say, okay, I'll look I was willing to overpay in this upcoming high season, but never again.
We can behind the scenes reset that floor on our net rates because of everything we've done behind the scenes to lower customer acquisition costs.
And if you look at our overall portfolio, we've invested a lot of money in recent years and our expectation was that in 2020 pre pandemic, you're going to see a very healthy ramp anyway, and I think what this has done is just kind of somewhat accelerated that due to competitive dynamics, but I think it reflects the quality of the resorts.
Both the physical product and then the level of service that we drive and you can see it on our Tripadvisor.
Ratings and how well.
The product is being in product and service is being received by our customers and.
And across the board, Chris our like for like resorts to a hotel in May and June were all up positive ADR.
So it includes the Lora can kuehne for instance that we've had this entire this entire time and haven't spent any money in the last year. It was still up over 20%.
Okay terrific I appreciate all those data points sounds.
It sounds really good last 1 for me is just on kind of going back to the capital Bruce.
Would you look at something.
I understand your comment on ground up but how would you look at something like a zone.
These larkin Kuhn renovation that I think you wanted to do kind of pre COVID-19 versus another kind of conversion opportunity rebranding opportunity and then you have the management contracts Theyre, just trying to get a sense for prioritizing those given what opportunities are out there in the market share.
Sure I mean, obviously, we've added some management contracts the nice thing Hasnt management contracts as Youre well aware is that there's no investment right. So the return is incredibly positive and it really leverages and provide synergistic benefits to us as we are able to sell more rooms in our markets. So there is a lot of benefits management contracts.
Next would be okay are there under branded under managed opportunities absolutely absolutely there are.
Being the only public all inclusive company a lot of people watch us right in our space in our industry and owners are looking at the results and they are saying Wow My resort isn't doing as well.
As Playa is doing and why is that and I think they look at the things we're doing.
With the brands with our direct sales initiatives with just our overall.
Quality operations expertise and they realize that we're driving more profitable results and so with that.
If we find an opportunity where something is under branded and under managed instill.
It kind of.
Highlighted turnkey and a lot of the things we're looking at our turnkey. So they are very high quality so essentially the.
<unk>.
Disruption or level of investment would be incredibly minimal that would be really really attractive to us because you've seen the case.
Study examples of where we have done that and the results have been incredible. So if that existed we would be very very interested in it and as I highlighted.
There's even a larger top corner is just an incredible asset I think it will do so so well.
It takes multi years. So you get a project like that design built and opened and ramped up and where.
We're not.
Don't need to do that right now so that's the issue.
Specifically talking about the Lora can kuhn.
We've done.
Kind of the more minor renovations without having big EBITDA disruption at that resort.
Would we like to do more significant renovation and potentially expansion share, but in today's world I don't think thats. The best use of our capital. So I think the best use of our capital would be to find those kind of turnkey opportunities that will generate great returns and we're just kind of being patient and disciplined in looking at those.
Okay very good Super helpful. Thanks, guys. Thanks, Chris.
Our next question will come from Shaun Kelley with Bank of America. Please go ahead.
Pardon me, Sean your line might be muted.
Our next question will come from Chad Beynon with Macquarie. Please go ahead.
Hi, Good morning, Nice results and thanks for taking my question.
Wanted to ask about your your EBITDA going.
Going forward pretty impressive in the quarter as we think about margins or free cash flow.
Flow through.
Is there a good way to think about what normalized.
<unk> margins could be if you start to print revenues that we saw pre pandemic or I guess asked another way with the ADR increases does most of that go right to the bottom line. Thanks, Brett right now Thats a great question I'll try and keep this is high level possible. So I think very similarly to what you've heard other companies say that the site.
Even if you want to call. It a cycle does not remember resemble anything that we've seen respect for recovery and strength in ADR. So.
That in mind, you heard Bruce and I would say in our prepared remarks that we expect ADR to remain relatively strong and occupancy to follow and so stating the obvious if the strength in <unk> continues this will allow us to hit comparable pre pandemic property EBIT margins at lower occupancy levels, given the strength in the ADR makes it easier to get back to that so.
As far as cost increase that we think about and for your models. So generally throughout all of our all of our destinations in our segment on any given year, we would expect roughly 3% to 4% kind of resort level expense inflation in any typical year, largely led by wages F&B and sometimes energy costs and the like star.
Being in second half of 2021, we are seeing cost pressure stepping up to mid to higher single digit increases from a combination of inflation as a result of global supply chain issues and higher wages and more importantly investments in conscious decisions, we've made and the guest experience, which we believe drive higher ADR.
We believe we can deliver better total expense increases from our cost management efforts share, but right now we're kind of planning for a 6% to 8% increase in those expenses and so.
We expect that higher level of inflation likely through the first half of 2022, so that should help kind of give you a sense for the potential margin performance outcomes for clients for 'twenty..2 when you think about cumulative increases since 2018, 2019.2020, but.
Frame of reference I try and bring everybody back to for this quarter, specifically as you saw in our results. Our ADR growth in Q2 over 2019 was roughly 16% versus 19, and we were able to hit property EBITDA margins of roughly 26% on only 50% occupancy. So it's a long way of saying yes.
We believe the higher rates lead to better margin improvement and allow us a better chance of offsetting some of those costs and inflationary increases.
That's great. Thanks Ryan.
And then can we talk about the externally managed properties, which you've noted just continued to lag the net.
Owned and managed portfolio, how should we think about what this is correlated to is it more going to be driven off of the tour operator demand and you mentioned that Aero lift starts to look much better is that enough to get the externally managed properties kind of back up to closer to par with with your other trends.
So the things that those 2 properties don't have going for them is that 1 they are not globally branded.
To their fills essentially entirely from tour, operator, a higher cost channel and you've heard us say throughout this pandemic, that's where all of our channels are the weakest thus far.
All of our direct channels are backup faster the otas have come back more quickly in the tour operators remain challenged so those 2 properties are going to suffer that our hope and expectation is especially when you look at forecasted airline seats into that destination, which while they are not forecasted to be up as much from the international side, but they are forecasts.
It would be up quite a bit from the U S in the fourth quarter like well up over 40%.
Our expectation is that kind of that rising tide should float all boats. If you look at the pacing for those 2 properties from a revenue perspective, they do start to turn the corner in December and actually flipped to positive obviously, that's disappointing when the rest of our portfolio. There is up in the rest of our portfolio across the board as well up essentially in Q3 and Q4 so.
Our hope is that they kind of continue to move up but we recognize that theyre hampered from the get go because theyre not branded or managed by us.
Great helpful. Thank you very much thanks.
Thanks, Chad.
Our next question will come from Smedes Rose with Citi. Please go ahead.
Hi, Thanks.
I was just wondering about the sort of overall competitive landscape and do you feel like you're taking relative share from some of the other players in your core markets and do you think that there may be.
Distressed opportunities I guess that may come a little bit similar to what we're seeing in the U S market or or is it.
Just any sort of color you might be seeing on that in that respect.
Sure.
Look let's go from a big picture perspective, and obviously, we don't have as many Canadians and Europeans going into our market. So first of all it's a big shift to U S. Consumers right second you add in that the vast majority of our properties is we'd be discussing our globally brand.
I'm, sorry, Brian management have global brands on them right and so we're very very attractive.
Add to that the recent <unk>.
<unk> is an investment that we put in our.
Resorts that happened right before the pandemic began I think all of those kind of R. R.
For factors that has resulted in us taking more business no question.
We're taking it so if you look at though.
Dominance of the U S consumer going into these destinations we're incredibly attractive and then you look at the high quality of the properties and the level of service again, very very attractive and so I think we're getting.
A bigger percentage and people are willing to come to our resorts over many of our menu for our competitors and then I think the other ones are also fighting for kind of what tour operator business or what other business is out there and it's kind of a rate game and we have chosen very very deliberately not to play the rate game.
Sure.
Objective is to drive higher rates and higher levels of service and long term loyalty to our resorts and I think that's what we're achieving right now that will continue to achieve when it comes to kind of distressed opportunities earned no question. There is distressed opportunities in the lodging in the lodging industry overall everywhere everywhere in the world.
From our perspective.
We were very prudent in what we did what we had to do during during the pandemic and we're sitting in.
Enviable position right now.
Going forward I think if opportunities present themselves, we would be able to take advantage of them and would want to take advantage of them because again I think it can drive outsized.
Profit increases in outside value creation for Playa.
If they didn't materialize I think just organic growth getting.
The high level of direct sales and expanding management contracts et cetera, just that is going to drive.
Very outsized EBITDA growth percentages in the coming months and couple of 3.4 years. So I think we're in a very good position like we said things have changed surprisingly quickly no..1 could have anticipated at our last earnings call or certainly a year ago that we would be in today's position.
But we are and could there be further disruptions absolutely, but on a strong believer that.
Governments and more importantly.
Consumers and individuals citizens arent arent going to.
Go back to a full lockdown in a shutdown of the economies globally.
As a world.
We're going to have to live to learn to live with Covid and that's just the reality of the situation like we learned to live with a lot of other things and so I think going forward. We're in as good a position as anybody and I think we will take advantage of it as the weeks and months kind of evolved here.
Okay. Thank you thanks.
Thanks, Ryan Thanks, Bruce.
Next question will come from Shaun Kelley with Bank of America. Please go ahead.
Hey, good morning, everyone apologies.
Apologies.
Just a few of the prepared remarks.
There's a little bit repetitive.
And I apologize in advance, but I wanted to go back to the sort of just the general booking commentary, if we could and what I was trying to get a sense of and I know, both Bruce and Ryan you alluded to this to some degree.
The pattern of Aki.
Occupancy as it's building for the for the third and fourth quarter.
Can you just give us a sense of like.
Like what level historically would you have on the books for let's call. It the fourth quarter is probably more important given the seasonality would you would you have historically had.
And then help us think about how those points of occupancy look today, if you could.
Yes, so just as a quick recap.
30 high 30% revenue on the books for Q3 and Q4, we sit today for the Playa managed for Q3, it's almost entirely ADR driven.
And for the fourth quarter, it's about 2 thirds ADR driven so it kind of helps to answer the question on how we view occupancy building as we move towards fourth quarter. So I think you've heard us say that happen. We still believe Q3, particularly September is kids returning to school offices reopening and we expect to be a little more uneven and choppy to answer your other question typically right now for the fourth quarter we.
Would have a little over 60%.
For what we would expect on the book at this point.
Okay, So a little over 60%, Ryan and you're basically saying net of your 2 thirds of the gain that you are seeing is right then you're actually above that number today. So.
Would you do you expect that number to slip a little bit still kind of get based on your underwriting or.
Do you actually think you can kind of hold on to that I'm only talking on the occupancy the occupancy Brian.
Yes, I think I simply I said.
In my own words, because I said it last quarter that I expected that those revenues on the books to compress them as we got closer and you heard Bruce day, they hadn't I still expect them to compress some as we as we kind of move into the third quarter, particularly this time of year in a regular year, even pre COVID-19 bookings start to slowdown in the second half of August and ended September for normal return to <unk>.
<unk> and stuff like that so I expect the third quarter to compress a little bit and then I think.
Fourth quarter the revenue on the books, where we sit today I think we will we will compress a little bit more as well great and then last question for me would just be on the international front I need if all other things equal how much is that holding us back I think Dr. As a particularly important inbound market for you, but like like <unk>.
If everything else was equal we're back to 2019, but you had the international outlook that you have today.
How much does that kind of hold us back from from a full recovery.
I mean, depending on the market specifically in the Dr and those to the June non Playa managed assets. It certainly holds us back the nice part that we converted the Hilton what was it that that property prior to being a Hilton was 80%, 85% European previously so it's helpful that we've converted the portfolio.
But we do want to see that market come back.
The only thing that we will do though it will potentially in 2022 kind of weigh on ADR is a little bit as Europe, and Canada coming back and we mix just kind of some of that incremental occupancy.
We would like to see that come back kind of to your question, Sean If you look at it.
Again, Theres still forecast for Q3, and Q4, but you've heard us reference that there is we're expecting a nice uptick or at least the groups are forecasting a nice uptick in flights and seats into our destination to give you some context of the incremental slight gains into the countries.
A big chunk of them are expected for Europe. So for instance of the incremental <unk> that it can queue.
<unk> in Q3 versus Q2 roughly.
Roughly 2 thirds of that is international.
In the Dominican in Jamaica, it's pretty significantly pretty significantly.
Weighted towards international travelers coming back so that's the 1 thing that we have to contend.
And Chekhov.
Great. Thanks, guys I appreciate it.
Thanks, Sean Thanks, Sean.
Our next question will come from Patrick <unk> with <unk> Securities. Please go ahead.
Hey, good morning, everyone.
<unk>.
Bruce and Ryan I'm wondering if you can talk about the labor situation in your markets, obviously labor domestically here a huge huge issue for riding hotels I'm wondering.
What that looks like in your various markets. Thank you.
Sure.
Italy, Fortunately pattern.
Nearly as dire situation as it is in the United States. So we have some.
Unique situations here in the United States related to the.
Unemployment benefits that continue into September and other kind of dynamics with lockdowns and restrictions in different cities in different markets and a number of factors right. There's lots of factors in our markets, we havent faced that I'd say the.
Biggest.
Factor we face.
Particularly in Mexico was the debt availability.
<unk> of vaccines for our workers so fortunately in the Dominican Republic. The President there was very aggressive and we've got virtually virtually 100% of our employees are vaccinated in the Dr. So we're in a great situation and really from a labor.
Perspective, there's no issues in the Dr. In Mexico, it's been a little slower rolling out the vaccine until recently they were only in 50 and above and so.
They're now down to 30 and above 30 years old and above so that has been helpful. Because most of our employees are kind of more in the 30% and 40.
Year old bracket. So we've started to see good progress there, but that's impacted it is more.
Kind of a transitory issue that we've had because if there is any kind of COVID-19 situation is kind of temporary but then they are coming back and that's what we're seeing but I think as Mexico becomes more effective.
The vaccination of our of our of our team members, that's going to be very positive and then in Jamaica.
Relatively the same same situation.
So Ryan went over.
Cost increased expectations do we think theres going to be some cost share theres competitive dynamics and other factors that are that are driving that but fortunately the ADR increases that we're expecting that we have that have materialized and we are expecting our so significantly higher I think it's not going to have a negative.
<unk> margin implication.
Okay. Thank you and then I wonder if.
Revisit.
Pre COVID-19 issue and that was.
The customer acquisition costs, and certainly pre COVID-19.
It feels like a lifetime ago, there was an issue with.
Youre sourcing through Apple I believe it was.
Where do you where do you stand with.
Mark.
Cost per customer on sourcing and how much of that would be of that Apple issue have you been able to recover.
Through sourcing through the brands. Thank you.
I'm not sure exactly.
What you're referring to with the Apple, but I mean, I can talk generally about cost of sourcing acquisition cost of getting our customers. As we've stated our goal is to be at 50% dragged by 2023, obviously that is our cheapest cost way to get customers and we've been.
Incredibly successful during the pandemic, even though it's not fair to look at that on an apples to apples basis, no Apple Jochen tenant here, but.
We're doing really really well, there and I think our strategy and our focus.
On global brands and on direct sales and the investment we've made there and systems and dollar spent to acquire those customers is really paying off and that cost is very very low another big initiative, we've done as you know.
To go again on other direct channels, whether it's group or or working with our direct portal, where travel agents a number of initiatives in order to kind of drive the business away from the more expensive expensive channels and you've seen that and I think even when everything comes back okay. So when all of the channels are fully.
Operational youre going to see our percentage is significantly higher than.
The channels, we wanted it to be higher are going to be significantly higher than they were pre pandemic and so.
I think we're on a good trend line with that I don't know if that answers your question per se, but I think where we are today versus pre pandemic as we're in a much better position today and I think we're going to be in a much better position 3 months 6 months 12 months.
Okay, Yes.
Good day high level color. Thank you.
Great. Thanks.
Again, if you have a question. Please press Star then 1 our next question will come from Tyler <unk> with Janney. Please go ahead.
Hey, good morning, Thanks for taking my questions.
Just are tied together.
Some of the prior lines of question from previous discussions.
I really wanted to drill down into into demands.
And you've given some very positive data points here.
And a lot of statistics on the on the airlift going up which is positive and we're seeing a lot of information that mirrors that in terms of seats coming into the market.
Can you talk or give any perspective on.
Load factors or capacity.
For Airbus is going up if theres more flights coming that's great but for planes are only half for maybe.
Maybe a little bit of a different situation.
Take a step back when you book a little bit more broadly for your music really air lift and then obviously some of the capacity limits on occupancy are those really the 2 governors to watch in terms of the business on the occupancy side of things return back to more normalized levels or.
Perhaps do you think.
Consumer preferences, or maybe consumer comfort traveling outside the United States that maybe that has to shift a little bit as well from where it is today to get occupancy back to more normalized 2019 levels.
Well I mean, I mean, theres a lot of factors that will affect things, but I mean kind of from a metric standpoint, I think youre right Youre looking at flight and load factors right and that's the most important thing to look for when it comes to consumer preferences. I think we have done just an incredible job driving great service.
<unk> relates.
Great Tripadvisor and other social media.
Rankings, which drives more and more business.
And then people's willingness to travel or not travel I think where that is from my perspective is.
There's a lot more people that are willing to travel.
Or even 2 months ago.
And you can see it with the TSA numbers and how many people are flying.
The biggest negative for US is that there is still the requirement to get the testing to come back into the country. As we said the test results are incredibly low I mean, we have such low numbers on positive test results. So that's not really the issue.
Issues, just people's perception of an added added hassle in order to do that and so that they think about it when it when it comes to the load factors go into your first part of the question coming into it I can address it from.
Data if I can address it from anecdotal.
With all of our people that are traveling into the market as well as.
A lot of people I know friends and others, who have been going through our resorts because they tell me. The flights are full so I think from that standpoint.
Very good indication that the.
For the airlines are happy flying into our markets, which indicates to me that they will fly more flights into our markets.
Especially as business business travel remains muted and I think with the increase in the Delta variant, it's going to remain muted for the.
Profit for the rest of this year.
We're not seeing that same that same trend. So I think that's positive positive for us, but I think you watch.
<unk>.
The flight capacity going into the markets I think that's a huge indicator and I think that.
We will continue to do well.
The Canadian lights.
<unk> come back when the European flights come back as Ryan said it could.
Have some kind of impact because they tend to be lower rated business, but our focus is going to be going after the higher rated segment. There and there is a higher rated segment there and I think there'll be some kind of overall market compression and we can benefit from that too so I think.
We want we want the flights to increase.
Appear to be increasing in Q3 and.
I would imagine in Q4.
Since the airlines are economically driven to make money, if that's where the business.
Wants to fly I think theyre going to continue to fly to those destinations.
Okay. Okay, and then I wanted to follow up on 1 of the other prior questions as well lots of discussion about rates and ADR here and based on some of your commentary I mean am I right in thinking that perhaps occupancy could normalize at a lower level than prior years, just because of what you've done on rates and perhaps youre, okay with that.
Given some of the progress that you've made strategically on.
On the distribution side of things and the progress that you've made especially in the past quarter or so in terms of where you are where you're shaking out on the ADR side of things, yes, that's absolutely a possibility I mean like using hyperbole I don't think we'd be satisfied settling at 60% on a normalized basis from here, but traditionally let's use the greater Yucatan arcane.
CUNA that market traditionally our hotels run anywhere from the high <unk> to low 90 is year round. So if we settled somewhere a couple of hundred basis points lower than that that would not be the end of the world if youre, yielding up on the rate side of things. We are in year round markets. So you're never going to see us behave like a higher end market that only does well for a couple of months out of the year, but that's not a bad outcome.
All just given what we're seeing here that it was very frustrating us before because we had made as you know a lot of investment into the resorts and there were a lot of.
<unk> unique market driven situations that impacted impacted our business, particularly on the on the rate side and that doesn't exist right now and I think we're able to really materialize the rates that we should have been.
Getting and Youre seeing it because just again when I was referring to the competitive dynamic of resorts in the United States or other destinations and you look at the value proposition from an all inclusive and particularly from such a high end all inclusive.
Our resorts are and I think the consumers are realizing that this is a great deal comment made to me.
A couple of people that even with the rates, they're paying now they anticipate that the rates in the future will be higher just because our resorts are so great.
Add some friends, who went to property recently and they said Oh My gosh.
We're all going back in.
We're going to have to pay more so we need to probably book now and I think thats a dynamic that we're seeing.
Okay very helpful. Last question for me on the on the group business and I think some of the data points that you provided there.
Helpful very positive.
I think the $30 million number that you that you gave Ryan how much of that in.
Incremental brand new business versus business, Scott you had to be canceled that is re book and then what are you seeing in terms of wedding business specifically vs.
For some of the more corporate incentive type business coming back and being book.
Yes, so on the on the question around how much. It is it's been so fluid I honestly don't have a good answer for you like look we recognize that a lot of the business or a portion of the business. In 2022 is due to people moving which we're pleased with that people have no longer want to cancel and they would rather just moves so I can't give you an exact number how much of it.
It's just shifted but I don't think its.
I don't think its more than 50% of that $30 million to be clear and then let me just say 2 I can tell you from our mice group recent contracts, which is new business. We have just said like 2 or 3 new record for new business, that's coming into early 2022.
I know those because they come across my desk non always sent a congratulatory note to the to the salesperson. So that's new business. So again I don't like Ryan I don't know the exact number but I can tell you.
It's a pretty healthy booking.
Situation out there right now for groups and on the wedding side, we break that out separately.
The more social groups that actually I think we've talked about it a couple of calls ago, but that's 1 where we just from the consumer standpoint, that's not.
It's not 250 guests or a couple of thousand people like big corporate meetings and incentive groups right. So those groups and particularly if they're a little more familial oriented they were much more willing to start coming back sooner. There is a lot of couples or groups that didn't want to keep.
Playing a wedding, particularly in a venue that is largely outdoor open air footprint and they felt a heck of a lot more comfortable so we saw those social wedding groups coming back much earlier this year when the world started opening up in vaccines, we're much more readily available and I'm glad you actually are focused on the groups because I think it's really critical when you look at it next year.
So look at the fourth quarter and look at next year and for the profit potential. So it's not just a rate game with the group's right. The race pay I'm sorry, the group's pay often the highest rates that we're going to get but there's also a lot of incremental revenue that's associated with that business.
We have not had let's face it we haven't had it for a year and a half and so when you start adding in that group business. It does 2 things 1 is it really high profit level from the people that are attending with the group and then you have the compression factor and we're able to yield up on the.
The remaining room inventory that we have to sell so it's positive and positive.
So having the groups come back is really important to our future success, we designed let's face it the Laura Laura Cop, Ghana to be a group hotels and it is Los Cabos as a group hotel.
<unk> Rose Hall in Montego Bay, as a group hotel and I think Youll see those particular resorts really outperform as as we get into the rest of this year and into next year and like we said in our prepared remarks, <unk> 95 per cent of the businesses on the book for 2020 twos in the first half of the year.
Okay great.
I appreciate all that detail extreme.
Extremely helpful. That's all for me. Thank you.
Thanks, Alex.
This concludes our question and answer session I would like to turn the conference back over to Bruce for Dansky for any closing remarks.
Great now.
Thank you very much for participating in today's call.
Very positive about things and were hoping they continue on the trend line. So thank you very much for joining us today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.