Q1 2022 Playa Hotels & Resorts NV Earnings Call
Good day and welcome to the Playa hotels <unk> resorts first quarter 2022 earnings call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone and to withdraw.
Your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Mr. Ryan Hamilton. Please go ahead Sir.
Thank you Chuck and good morning, everyone again, and welcome to Playa hotels, <unk> resorts first quarter 'twenty two earnings conference call.
Before we begin as always 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, but yes, you see we've updated our investor relations website at investors, our Playa resorts dot com with that.
Company's recent releases. In addition reconciliation to GAAP of the non-GAAP financial measures. We discuss on today's call were included in yesterday's press release.
Call today, Bruce Ward, Inscape, Pliers, Chairman and Chief Executive Officer will provide comments on the first quarter and key operational highlights I will then address our first quarter results and our outlook Bruce I'll 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, Brian Good afternoon, everyone and thank you for joining us.
Once again, our first quarter results experienced a continuation of the fundamental momentum that built throughout 2021 and exceeded our expectations. Despite the impact from the omicron Varian during the early part of the quarter as.
As we shared with you on our last earnings call, our bookings accelerated materially at the beginning of the year, which we attribute it to catch up demand from the impact of them a crime on our bookings during the month of December .
The ongoing recovery.
However, this elevated pace of bookings continued through the entire quarter exceeding typical seasonal patterns and as a highly encouraging trend as consumers shift back to spending on services as.
As of May 1st our Playa owned and managed revenue on the books for the third quarter is pacing up 37% year over year and over 70% versus 2019.
In the fourth quarter is pacing up 23% year over year, and also nearly 70% higher versus 2019.
Most importantly, this robust demand has come at very healthy 80, ours, and we will continue to balance both occupancy and yield while continuing to deliver on the operations and guest satisfaction front.
One of the interesting developments during this recovery has been the repricing of off peak periods, which resulted in highly abnormal ADR trends for Playa during 2021 with 80 hours improving sequentially during each quarter of the year. We believed that we would likely see any sticky rebased a pricing during our summer period.
And that the dips from the traditional high season might be shout shallower and going forward that view appears to be playing out in 2022 based on our bookings we expect our second quarter ADR two increased nearly 40% versus our second quarter 2019 ADR.
Which is an acceleration versus the growth rate reported during this first quarter, our QC or I'm, sorry, our Q3 ADR growth on the books year over year is up nicely as well and continued to build during the first quarter.
Successfully lapping the robust results from Q3 2021.
We expect our Q3 ADR to increase at high single digit rate year over year.
Similarly, we expect Q4 80 yards to be up high single digits year over year as well as momentum to the upside for both periods.
We expect our occupancy rate for the remainder of 2022 to improve slightly versus our occupancy in Q1.
These ADR and occupancy gains bode well for our ability to deliver an exceptional customer experience and strong resort EBITDA margins.
Although this earnings call is to discuss results from the high season that just wrapped up. We're also highly encouraged by the book of business building for the next high season in 2023 as the year over year revenue and ADR pacing remained robust driven by our mice business pacing at two times, the pre pandemic levels for the year at.
It is important to note that all of these positive trends are occurring without us experiencing a full customer does.
A man dynamic there still groups of customers, particularly families with young children not traveling yet due to pandemic concerns there are potential customers, who do not wish to travel due to the testing requirements to reenter the USA and the risk of having the return trip impacted.
Finally, we have not seen a full recovery of our international markets, particularly Asia certain parts of Europe , and our Canadian gas.
The positive trends, we are experiencing are even more encouraging given the potential for higher demand levels. Once all customer segments are fully recovered.
With that in mind, let's turn to the first quarter fundamentals, which once again improved sequentially with occupancies continuing to ramp up particularly in the Dominican Republic the.
The strength in the business was consistent and relatively broad based with occupancy improving sequentially each month and consistently strong ADR performance.
As we discussed on our last earnings call. We did not expect record Q1 resort EBITDA margins given the impact from home of crime and the absolute level of Revpar and resort margins in our prior first quarters, but our results significantly exceeded our expectations as our mice business during the quarter was not significantly disrupted by the omicron variant.
Well I'll close in demand drove higher unexpected 80 ours and our operations teams continued to execute at a very high level I still strongly believe we're in the initial phase of the resurgence in travel in the trial and awareness of the all inclusive experience also have a long runway.
Today's inflationary environment, our relative value proposition has become incredibly compelling despite our ADR gains. This value continues to be reflected in the pace of bookings, which is significantly ahead of last year on both revenue and ADR for the second half of 2022.
Looking at our segments, the Dominican Republic, once again experienced the biggest sequential occupancy improvement in the quarter as.
As you may recall, the D or had the highest mix of European gas in the pre pandemic period, which was a drag on our performance during the early part of the recovery, particularly particularly in our mid scale properties. The return of European gas has been the key driver in this segment.
Thrilled to be a destination of choice as they resumed traveling.
Once again, our flagship Hyatt Viva and <unk> led the way as it has established itself as a rate leader in the market with the resorts EBITDA margins exceeding 45% during the first quarter with occupancy in the low seventies.
As a result of the strong first quarter, our trailing 12 month EBIT EBITDA at the Hyatt cap Cana has already exceeded our goal of 12% to 15% stabilized cash on cash returns on our investment in just two full years of operation and has not even reached its full potential.
The segment's profit performance was weighed down by our two externally managed properties, which have lagged behind our globally branded resorts in the segment with respect to rate gains in margins. You also yield a significantly lower absolute ADR compared to our globally branded and Playa managed resorts, which is a drag on the segment's ADR gains as the occupancy improves it.
These properties.
Turning to Mexico performance has remained steady in this segment and we expect this to continuous recovery progress both year over year and sequential occupancy gains in Mexico were driven by higher my script and increasing guest counts from Europe and Canada.
Turning to Jamaica, despite being hit.
Hardest by Omicron of any of our segments, Jamaica had the largest sequential improvement in occupancy during the first quarter largely driven by group business.
But the most encouraging development in this segment is the recent announcement that the pre testing requirements to enter Jamaica expired on April 15th this bodes well for our business here based on the recovery we experienced in the Dominican Republic. After removing the same requirement and also in the negative impact on or if youre, making results following the implementation of the incremental restructuring.
Fictions, while Jamaica has seen a nice pick up in occupancy recently, we have a lot of room for ADR improvement in this segment as the restrictions have caused you may cause ADR gains to lag their potential and our other segments.
Our focus on direct channels continues to pay off we are confident that playa is on target with our five year plan to increase consumer direct business to at least 50% by 2023.
In aggregate during the first quarter of 2020 to 42, 4% of Playa managed room nights booked were booked direct down eight two percentage points year over year, reflecting the continued relative strength of our direct channels, including a significant acceleration in group and third party source business.
During the first quarter of 2022, Playa resorts Dot com accounted for 15, 7% of our total Playa managed room night bookings down eight seven percentage points year over year. This is a critical aspect of our business I believe many overlook.
We apply a drive a significant portion of our direct revenue in house, which is now a major competitive advantage for our current portfolio and for potential third party managed resorts in the future.
Finally, as a reminder, we anticipated that as the world slowly return to normal or mix of direct business would likely fall below 50%, but we still believe it will remain higher than levels seen prior to the pandemic and significantly higher on an absolute dollar basis.
Now taking a look at who is traveling a little less than 40% of the Playa managed room nights stayed in the quarter came from our direct channels as our group mix improve sequentially and O T. A mix remains significantly depressed.
Geographically our U S sourcing increased approximately 10 percentage points compared to Q1, 2019% to 67% of managed room night, while our South American <unk> business increased 200 basis points and European guests mix mixed six percentage points higher given the changing state of travel restrictions, our Canadian and Asia.
Customer mix remains significantly depressed versus pre pandemic levels, our booking window was similar to what we experienced during the fourth quarter of 2021, but the first quarter was the first quarter in the post pandemic period to exceed the pre pandemic lead time for the comparable period.
Our length of stay during the first quarter was in line with Q1 2019 and was in line with Q1 2020, and this trend is expected to continue as we rely less on close in bookings.
Once again I would like to thank all of our associates that have continued to deliver world class service in the face of pandemic related challenges their unwavering passion and dedication to service is what truly sets play out apart.
With that I will turn the call back over to Ryan to discuss the balance sheet and our outlook.
Thank you Bruce Good morning, I guess good afternoon, everyone again, I'll first give you an update on our liquidity and balance sheet and review the fundamentals of the first quarter and then finish with the discussion of forward bookings and market trends.
As you know we finished the quarter with a total unrestricted cash balance of just under $300 million and I'm pleased to share that subsequent to the end of the quarter. We have satisfied the conditions for the release of our restricted cash pursuant to the terms of our property loan agreement, which totaled a little over $20 million.
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, one 4 billion.
We anticipate our cash capex spend for full year 2022 to be approximately 30 to 35 million with approximately 5 million being carried over from Capex. We did not spend in 2021 as anticipated the vast majority of our projected 22% to capex is maintenance related.
Turning to our mice group business, while our business on the books in this segment saw some movement between quarters as a result of omicron. We're pleased that we experienced very minimal cancellation activity during the first quarter and have seen a nice pickup in demand for the rest of 2022 or 2022 net mice group business on the books was approximately $41 million versus 36.
At the time of our last earnings call and is well ahead of both our final full year 2019 mice revenue of $32 million and well ahead of the 33 million. We had on the books in early 2020 for that year prior to the onset of the pandemic.
Or at least 75% of this mice business are slated to stay in the first half of 2022, which is slightly more balanced in our mice pacing at the time of our last call as many of our incremental bookings have come the second half of the year, given limited space and some movement of existing reservations.
Our pacing for 2023 has remained quite strong as well with nearly $21 million already on the books, which as Bruce mentioned is roughly two times the amount of mice revenue. We had on the books in April of 2019 for the year ahead in 2020.
The return of this mice business should provide a good base to help manage yields and drive improved profitability year over year, particularly to our results resorts in Las Cabos Rose Hall.
Now moving onto the fundamentals our first quarter results exceeded our expectations as a result of higher than expected ADR and resort margins resort margins benefited from marketing efficiencies given the higher booked revenue position, while F&B costs were higher compared to Q4 due to both inflationary pressures, but much more importantly, additional targeted investments.
And the guest experience on the cost front as Bruce mentioned the teams have done an excellent job navigating the current environment. We continue to expect a similar degree of inflation in the first half of 2022 that we experienced in the second half of 2021, though it is still early we do not anticipate expense inflation to be worse in the second half of 2022 with the exception of <unk>.
Insurance costs, beginning in the second quarter of 2022 in connection with our regularly scheduled annual property policy renewal.
With respect to the topline I continue to believe 2022, it can be a phenomenal year for playa as they look out and how our book of business has been building for future periods, we're particularly encouraged by year over year ADR gains and revenue pacing in the second half of the year as we expect to lap lap the second half of 2020 one's record ADR perf.
Formats.
Both the third and fourth quarters are pacing significantly ahead of the comparable periods in 2019, and just as importantly ahead of 2021 in both revenues and ADR.
At the second quarter, we expect occupancy to improve modestly versus the first quarter with ADR up nearly 40% when compared to 2019 and as Bruce mentioned earlier, which should continue to lead to excellent resort EBITDA margins.
As we move into the second half of the year. The typical interplay between occupancy ADR and Opex for modeling purposes should again become easier in order to maintain property margins. We experienced in the second half of 2021, we will need to grow ADR slightly faster than inflation to account for additional head count required for higher occupancy levels until we reached stabilized occupancy.
We expect occupancy to be in the mid Seventy's in the second half of 2022 and high single digit ADR growth over 2021 with an upward bias on our ADR forecast based on what we're seeing in this current booking environment.
Give us just some additional detail and context on that our ADR for the second half of 2022 have continued to improve materially since even our last earnings call as we keep booking at significantly higher market rates versus what is on the books already in our forecast does not assume any further improvement I.
I hope that framework helps as you fine tune your models without turnover Bruce for some closing remarks.
Thanks, Brian .
So in summary, given what we're seeing on the bookings front and the recent change in travel requirement travel requirements in Jamaica, I have never been more optimistic for the ongoing recovery and our ability to drive value by providing a one of a kind guest experience increase ADR and take care of our guests and Playa team members. We will continue to look for ways to leverage our expert.
Ts leadership and experience in the all inclusive segment to create shareholder value.
Playa is arguably the best positioned institutionally focused owner and operator of all inclusive resorts in the world and we want to move quickly to continue improving upon our strategic initiatives with that I'll open up the line for any questions that you may have.
We'll now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Shaun Kelley with Bank of America. Please go ahead.
Hi, good afternoon, everyone.
Thank you for all the color I'm, sorry, I was kind of typing furiously and I don't want to make sure I caught it all so first question would just be.
Hopefully an easy easy wanted clarification did you said QQ ADR to be up 40% over the same quarter in 2019, if I caught that right Brian .
Bruce and if Thats the case am I calculating that Youre actually yes sequentially you might be down, but you are kind of within striking distance of the ADR is that you posted in Q1 again I just want to make sure on and are in the right ballpark of that yes, you've got all that correctly technically I said nearly 40%, but you are right John and then definitely.
In spitting distance of the ADR that we just put up correct.
Super Okay. Thank you. Thank you for the clarification and then.
Second question would be just a little bit more static and I got pulled out of queue. Here. So if you said this I apologize for the repeat but.
When thinking about Jamaica, obviously sort of the one market that you probably didnt have a.
A major contribution for in Q1 relative to pre Covid.
Any way you could help us think about the building blocks for maybe how much if that market with stabilized you might have left on the table there will be that in either revenue or EBITDA terms.
Yes, probably EBITDA.
Yeah. So we looked at a couple of different ways, just based on how our other markets trended and built kind of starting a couple of quarters ago for the first quarter to kind of triangulate kind of the impact of that market and where it's at so just in rough terms, it's roughly a 2.5% drag on our total fly at ADR growth versus 2019.
Said differently, our ADR would be roughly $8 higher.
Roughly a 2% drag two percentage point drag on our occupancy or to answer your question, specifically, roughly a $6 million to $9 million drag on EBITDA or lost EBIT potential.
Great and Brian that was just for the quarter right just for Q1 correct.
Or.
Fair last question little bit Nabatic, but obviously, we've seen you just incredible numbers across a lot of the Caribbean markets.
These types of metrics would theoretically attract a decent amount of interest from developers and supply can you just give us kind of.
Current thoughts or outlook on supply landscape, maybe you can narrow it to maybe just can't coon in the Dr to con Ed to be thoughtful, but like what are you seeing out there and how much just generically are these markets.
Do you expect these markets to grow on the supply front in 'twenty, two and 'twenty three.
Sure I mean, you know in our markets, Sean if you look back over over time and over a long period of time, there's been pretty healthy growth in supply year over year and it's in it's relatively easily absorbed into the market. The one good thing about kind of the all inclusive world is that it's a more as Mary are kind of situation, where you know as you if you.
Markets that have more and more rooms within the market it attracts more more.
Airplane seats and it attracts more customers you know you can send to you know kind of throw out a wider net so first of all I just wanted to comment on that because it's not like New York City, where you know you have like.
New rooms coming in and then you know rates are coming down you know we've actually experienced just the opposite that demand is driven for us, particularly.
Most of the new rooms that I'm going to talk about are coming in at.
Competitive levels and prices that are below below most of our properties and so you know up at where our guests are trending right now we're not seeing as much do supply. So with that you know if you look at Cancun proper.
You know in the hotel and the hotel zone, there is virtually no new supply coming okay.
No land there and there is nothing coming so.
The resorts that we have in the India.
Telephone I think are going to continue to perform exceptionally well.
And Youll see that so then you go down you know Riviera Maya and all the way from boredom of railroads to apply at El Carmen to loom and is there new stuff coming yeah, there's new stuff coming but as a caveat. It before you know it is not necessarily directly competitive, but any new room as a new room, but you know you will see some some projects.
Hilton just announced I think it was a 750 room, new Hilton down into loom. The thing about the loom is I felt really far away down you know down the coast people I think are.
Not familiar with how big the coast is and the way to think of it it's almost like going from Miami, All the way up Florida coastal from key West all the way up. So you know we're talking you know it gets up to like 90 miles 100 miles of resort coastline. So you know there are many distinct markets within that.
Within that.
Airport location and the thing is the further you get away from the airport the less attractive it is particularly again for our customer okay at lower price points people are willing to be on you know a big Boston go an hour and a half or more.
We just don't see that so.
While there will be new supply in Riviera Maya.
Don't think it's going to be overly concerning to two or.
Our resorts, okay. So that's kind of the Yucatan part of a yard much more restricted unlimited I know you didn't ask about that in Los Cabos, which you've seen in Los Cabos as it's been much more at the high very high price point EP hotels, not a lot of an all inclusive. So again I think we're well positioned in the Dominican Republic.
It's a similar situation I would call it two to Riviera, Maya or or can't Kuhn. Most of the close in properties are relatively built out. Okay. So you look at our situation in cob corner with our flagship Hyatt <unk> and highest Florida. There there is very little land space Theres a.
A little bit and copco on it but very little so I think we're incredibly well positioned there.
Other close end locations near the airport and Punta Cana also historically have already been built out I think the opportunity for us and others going forward would be more conversions than newbuild and so a lot of the newbuild that youre seeing in the Dominican or kind of newer destinations and destination significantly further away from the airport.
So way up north past market called who bear alto or in the new markets Osaman on other newer locations. So the Dominican and the government and the tourism Ministry are touting all of these and pushing them, but I think it's going to be more challenging to get people to go there and I think theyre going to be at lower price points. So so again, while new stuff will come in.
In.
In the long run is not going to be overly.
No competitive to US and then you know for Jamaica, and I know you just wanted to poke some extra the Dominican but just in the short term, there's really nothing nothing going in Jamaica. So I think that's a good situation.
Thank you.
Thanks, Sean.
The next question will come from Christopher Walker with Deutsche Bank. Please go ahead.
Hey, good morning, guys and congratulations on the quarter.
Bruce maybe we could drill down a little bit on customer mix and how it kind of relates to the right I mean, it almost sounds like.
You can keep these like for like rate structurally higher kind of where they are now do you intentionally maybe stay away from certain buckets of business, whether thats, how theyre booked or certain geographies. Just is that is that possible should we think about occupancy not getting back to.
80% or something.
Well, thanks, Chris Good talking to you good question.
From our standpoint, we have been focused and we've said this in previous calls.
On rate since the beginning of the pandemic, okay and back in the very beginning our thought processes, hey, just lowering rates isn't going to drive any more business right. The people who are going to travel are going to travel and then you know as the as the travel increased over the last couple of years, we've noticed a lot of very interesting trends okay.
Really it's a lot of new people trying out all inclusive. So these are people, who maybe previously would have gone to Europe or.
On a cruise or to other Caribbean islands, and those opportunities weren't available to Mexico as people are well aware, we're never had restrictions at all on entering the country.
The Dominican had it early on but then lifted and now of course, Jamaica has lifted theirs. So what you've seen us into our market has been relatively easy to travel there and so because of that we've seen you know a lot of different people no question.
The.
Dominant supply market for us is the United States.
That's been really good Europe had more restrictions Asia that business still isn't coming back in Canada also was shut down. So that was the biggest thing that changed was just the percentage of Americans so that increased but.
It's also the type of customer who that is and so you know I think we got a lot more exposure and you know if you recall right before the pandemic. We had just finished construction and the opening of hides evens Lauren coquina, the renovated Hilton to resource the all adult and all ages in La Romana and the all adults.
And in Playa del Carmen So those things just we're open.
Our plans to launch and ramp up the business and then the pandemic came and they shut down. So what you started to see in the last 12 to 18 months is really the ramp up of those resorts and so youre seeing the strong customer acceptance of those resorts. The investment we made there and the quality of the resorts in the high <unk>.
Level of service are really paying huge dividends for us and so that's not really so much.
Mix changes just you know achieving what we expected to achieve anyway, even if there had not been a pandemic, okay and so I think that's really positive to note and overall you know and we've emphasized this but I've got to emphasize them because you know having listened to some of the other earnings call from other lodging companies in the U S and <unk>.
<unk> people have over sustainability of leisure rates, we're in a very very different position I think our rates are more than sustainable and I would argue there is still incredibly cheap okay and so if you look at the value proposition of ours, we are not seeing any kind of risk of the rates coming down for the rest of this year and going into next year and I think.
As more and more people get kind of dismayed by what they may have to pay to go in Arizona or a.
The second summer in Fort Lauderdale, I think youre going to see that our resorts are going to be just great options for them and we will continue to drive rates. So our focus is on rates number one okay were all inclusive so the more people we have the more expensive right because we provide all the food and beverage. So it really makes sense for us if we wanted.
Drive more.
And to the bottom line to focus on rates and not necessarily occupancy we may never get back to some of the really astronomical occupancy levels that we ran in the past and that's totally fine I would much rather traded off for <unk>.
Higher rates and better customer experience and that's what we're seeing that's why we're driving high margins and that's why I think we're going to get more and more people coming to our resorts, particularly in the summer season.
Chris the only thing I'd add to that to your point just on the inflection in occupancy versus ADR. This marginal.
Marginal booking in a demand environment like the one we have today is incredibly attractive to the existing base of business versus a world, where you're discounting to fill a final room and expect and accepting essentially a low profit margin.
We live in today the final room is incredibly incredibly attractive.
Yeah, no for sure a very helpful commentary and agree with you on that the relative value proposition. So that's great just as a follow up.
Or is this is this is kind of a spinoff of sean's question, but.
More on the more on the M&A side, I mean with things looking pretty good for the future do you think we're going to see any transactions out there that maybe give folks comfort and some of these per room values that we might.
And to your assets and then secondarily you talked about.
With rates hopefully being structurally higher are there going to be more opportunities for you guys participate whether it's management contracts or joint ventures or anything like that.
Okay, I'd say on question, one and I'll elaborate I'll say I hope, so and a question to absolutely yes, okay. So with the M&A opportunities.
Different in our market as I know you know, but just kind of talking to the audience listening today, we don't have the.
Breadth of institutional owners of our properties many of the resorts all inclusive resorts in our markets are owned by family companies owner operators they have very long.
Investment periods, I mean, there could be forever kind of investment periods. So thinks on trade is offense. So you know it's always more challenging to see having said that the interest has been building and building.
From all kinds of different players institutional owners of real estate the global brand companies.
Others looking to expand in this segment if theyre already there are others looking to enter the segment. So do I think there's a good possibility of M&A activity, Yes, do I think those will trade at attractive prices that will make our values look cheap yes. Okay. So I think that's kind of answers to that question and then from our perspective do I think we.
Can grow and get more management contracts and new opportunities I think absolutely yes. So the good news.
About being the only public all inclusive company and reporting our numbers is that everybody gets to see our results and so the positive is that our results have been really strong and growing and that has brought people who may not have been interested in talking to us before who are now looking at us and they want to talk to us about.
What we're doing with our strategy with our are.
Global branding strategy on the resorts and the way we sell as we've mentioned the strength of Playa resorts Dot com. The focus on direct sales you know a different distribution channels.
Every resort, we add owned or managed to our portfolio gives us more ability to spend money on reaching more and more customers and I view that as a big positive. So I think it's going to be positive for us and you'll see us make more announcements about growth.
Okay, Great sounds good I appreciate all the color. Thanks, guys. Thank you thanks, Chris.
The next question will come from Chad Beynon with Macquarie. Please go ahead.
Hi afternoon, congrats on the results.
You said you guys provided a lot of commentary on the revenue side.
I wanted to see how this could translate to EBITDA.
I don't know, we generally think about it from a flow through standpoint, and I think given the details that you've that you've provided the next couple of quarters, we'll probably see.
Revenues anywhere between 15 and $30 million off of what you guys just printed.
But historically that would kind of lead to a greater.
Degree of EBITDA decline I'm wondering how we should think about flow through our margins any help there to kind of frame the back half of the year, which is.
Certainly different than what you guys would do in 17 and 18 or 19.
Things are certainly off to a great start and I think one of the things that we kind of want to get across like one we've made it very clear that we're not immune to inflationary pressure right, but we aren't having some of the severe issues are out of control.
For lack of a better term like were not getting completely crushed by cost like so many others in the world are inflation has always been a normal part of the operating environment in our regions and there's really nothing new we have labor cost increases at least with the line staff at least every year or in some cases every two years.
Even though it's very elevated at the moment, we have a good experience dealing with all of that at the property level.
If we think of it as a fairly a fantastic opportunity for us to one kind of continuing to flex the operating muscle that we've already done so but actually play more offense and what you see and I was very specific in some of the prepared comments that while our costs are up some of that is voluntary and very very intentional we're choosing to invest in the guest experience and maintain.
And grow our edge and maintain those rates that we've made very clear that our paramount to this operating model and lead to record record margins that you saw last year and that we expect to be repeated again. This year just some simple examples of them and things we've invested in weather.
Whether it's hires at the corporate level for food and beverage and procurement staffing areas. We've made investments in the food and beverage quality and presentation at our at our properties and I think more importantly, because we've been asked this before like or do you think you're over earning now from a staffing perspective are you having some of the issues that you hear so many other operators talk about it in and while we have our own yoon.
<unk> set of circumstances from time to time and as we've come out of this pandemic are currently our essentially our labor per Gastar, our head count per guest.
At or above pre pandemic levels. So I think we can definitively say we are not over earning in this environment and everything I just mentioned right now it was already in our Q1 numbers and it is already there so.
This continued rate environment that is completely playing in our favor on just given the relative value proposition that Bruce covered and just given the fact that we can operate incredibly well, which should lead to better margins than you've seen even in like you said in 2017 or 18 alright.
Great. Thanks, Brian .
And then just in terms of the outlook on the airplane side of things.
Do you have a sense of if theres been any pushback from the consumer as flight prices may have increased with the increase in gas prices or just given that's such a small part of the overall trip and more importantly, the experience the.
The consumer is strong and theyre kind of looking past any increase on the on the flight side, Yeah in short you're correct. I mean, obviously it goes without saying, we always monitor and pay attention to anything that affects airline pricing given that's the only way our customers can get to our properties right but.
Ultimately it kind of depends like most of the time higher oil prices as a result of a stronger economy and demand and thus not really noticeable on our business.
Commodity price shocks. However, certainly can cause some sort of hesitation or are these short term issues the traveling but to your point, we have not seen any of that any factor in our business from the recent move in oil obviously, it's likely a function of a very good and robust job market higher earnings for a segment of the population.
I think one of the bigger factors at play and others in our space have kind of touched on this throughout this earnings season.
Ongoing shift back to services from durables right in travel happens to be the service that is universally loved by all and as Bruce mentioned earlier, there is still a large swath of the population in the U S and abroad that still has not hit the road and traveled again, so so far so good.
Great. Thank you very much congrats.
Thanks, Chad.
Question will come from Smedes Rose with Citi. Please go ahead.
Hi, Thanks, I just wanted to ask you specifically a little bit about.
The introduction of Alto.
Altra brand and kind of how.
So take.
Pick up the customers there.
Yeah, I mean, I think speeds to the brand has started very very well.
First of all just and I think we May have said this before but our relationship with Wyndham and kind of the efficient operation coordination between our two companies.
Say as exceptional so.
That's just the first 0.2nd.
At that price point, you know as I alluded to when I was answering kind of the supply question is that's the that's the big Big.
Big bubble in the all inclusive world is that price point, so theres a lot of of property at that price point and what I think we.
We have with Wyndham Altra has the advantage of standing out from the crowd.
So a lot of the other brands aren't that recognizable by consumers, particularly the U S consumers they tend to source much more of it.
Through.
Through.
Tour, operator channels and other high expensive.
Customer acquisition channels, and we tried to do the same thing we're doing with our hyatt's, our hiltons and so I think that's a big big positive for us. So at this point in time.
Extremely positive about the relationship with Wyndham Altra. So we have the two wondering Ken Kun and one in Playa del Carmen and it would be great in the very near future that we could significantly expand that relationship and have a lot more of those properties and when I commented on people, reaching out to us they see our.
<unk> they want to talk to us I can assure you a lot of them are at that price point and I think that's going to drive a lot of growth.
With that brand and that relationship.
That could be more on the on the management contract side.
Yes sure.
It could be acquisitions to reposition these renovations, but also our management contracts on both yes. Okay.
And then.
It's hard to be like really specific here, but I just I did want to ask you your.
Hi, Conor.
Connor.
There is a large lot next correct.
Partially extreme actually it looks like maybe some cargos are going to be felt still fair but.
There is the Margaritaville opened fairly recently and it looks like maybe there's another hotel coming up there are slated there I was just wondering if you could maybe talk about any impact from that.
The margaritaville or is it just totally different customer base and your thoughts on.
Potentially having another hotel adjacent to that.
Well first of.
All I've mentioned.
That's a plot of land that Youre right immediately adjacent next door Bruce can comment on whether or not I don't believe anything is actually fully been plan. Despite what signs are put up there or not but the margaritaville I think has been successful but it is in a unique position is kind of behind our sanctuary asset that we operate right and so it's kind of a funky situation lay out in a very <unk>.
<unk> Beach, but yeah, I think that's true so first of all I was talking about margaritaville.
I think it's a nice nice project and very attractive.
Construction project that was delivered there, but as Ryan said about 80% of it.
Sits behind our sanctuary resort, so it's not on the beach so.
So that part is kind of a big it's a big.
Well almost like you know on the map you can think of it like New York State right, where you have kind of New York City and that part sticking down that's kind of a beach part of of the Margaritaville and so the access to the beach in the kind of water views et cetera are much more limited.
That's the situation there as far as impacting.
Either of our properties in <unk> it is not.
I can tell you it is not impacting either of our properties here. So so I think that's.
That's you know.
That's kind of neutral to nonexistent as far as that goes we're driving plenty of business. There at both the sanctuary handler heightened Stephens, Laura kind of and then as Ryan said.
You know that that piece of land I can I can assure you there is nothing committed to that piece of land today.
Uh huh.
We are.
Obviously incredibly happy with what we've done in top corner.
Love to have more <unk> in the future. Let me just end it that way.
Okay.
I appreciate it okay.
The next question will come from Tyler <unk> with Oppenheimer. Please go ahead.
Thank you good afternoon.
I just wanted to ask the margin question, a little bit more directly here.
High single digit year over year ADR growth in the second half what does that really imply for margin compared with 2021, I mean, it sounds like youre, telling us that under that scenario you expect margin will be flat with 2021 in the back half, but I just want to be.
Be sure that I'm understanding that correctly yeah.
That is correct it should be.
Give or take but roughly at or near or slightly above those historical levels that we saw last year correct.
Okay, Okay, great Shlomi sure on that.
In terms of the Jamaica announcements and appreciate.
Some of the some of the numbers you provided on that but maybe just to play Devil's advocate for a second.
Do you think this announcement really really grows things or is this potentially a scenario where we've.
It was just a little bit of a share shift and maybe folks that we're going to be going to cancun or or Dominican are now just going to be switching and go into Jamaica, maybe it's the net that kind of a kind of a wash in terms of the overall business about that scoping.
Let me just start and then I'll pass I'll pass it over to Ryan Tyler, but I'll tell you. This from my standpoint, Jamaica has always done incredibly well, it's a different market people, who go to Jamaica are historically very different than the people, who would go to cancun or the Dominican Republic. Okay. Typically it's a much higher rated business you get a lot more nor.
Orthesis.
U S people that go to Jamaica, as well as a very high U K component given the historical connection with the with the the United Kingdom.
Prior to the pandemic just to refresh everyone's memory, Jamaica was our best performing segment. So I don't think youre going to look at this and say okay. It's just people switching not going to Kan coon are not going to put to content going to Jamaica, I think we're going to open it to a lot more people second let's just talk about again, who typically has gone into Jamaica coming out of there.
The northeast market. So, it's a higher rate market much higher disposable income and to be quite honest. It's a group that really has not come back significantly due to pandemic concerns. Okay. So I think the.
As things have changed all the cities in the northeast have opened up people are getting more comfortable with the removal of a mask mandates and other protocols related to COVID-19.
The potential for Jamaica is huge absolutely huge.
Okay excellent that's very helpful last one for me I'm interested.
I know you track, where your guests are coming from quite a bit then you follow that very very closely.
You think youre getting some incremental folks that have never been through an all inclusive resort before that are coming down and maybe visiting you guys for the first time and hopefully have a good experience and then come back I'm just kind of interested how that compare now in terms of brand new folks or even just to your specific properties, maybe yes, no absolutely.
Absolutely yes.
Yeah, absolutely Tyler, we're seeing a lot more people, who never experienced all inclusive before over the last two years, Okay and Paul.
It became.
There was we were the only game in town right. So you know you could you can only go to our markets and so as people people looked at our properties and I think there was a <unk>.
Very high desire to stay at an all inclusive because at the early part of concerns about Covid people felt safer being at an all inclusive. Okay. So they knew what we were doing they didn't have to go outside to restaurants, where they didn't know what what the safety protocols were et cetera. So they felt very comfortable so we got a lot of people trying all inclusive.
And it's always been the case I mean I've been involved in all inclusive now for 20 years and from the very beginning my goal and my kind of.
She was like how do you how do you drive more people, particularly U S consumers to this segment, which I just think is amazing.
And experience and so every time you do that people like it and they come back we have a very high return percentage. After we get people to come to our resorts and so I think I think that that's.
A big part of what we do and then add to it our focus on brand deck right. So we are the only one.
All inclusive major all inclusive who focus was on branding why do we do that as we've said early on we can never replicate what the brands can do we can't have over 100, 150 160 million members in our frequent stay program and the reach that the brands have and the ability for people to use all of their built up frequency.
<unk> points and use them as redemptions at our resorts. So our affiliation with the brands is another big component of it and then finally look at what the brands have been doing over the last two years and all inclusive there.
Eager they have grown and they're eager to grow even more.
You saw Hyatt acquiring Apple Leisure group you saw Marriott doing the elegant portfolio and then the <unk> transaction. Our core just made a major announcement about <unk>.
Our strategic focus on all inclusive.
<unk> been particularly focused kind of in Europe , and the middle East in the Mediterranean and now Theyre going to focus more on our part of the world. So every time one of these brand companies takes the initiative too.
Drive all inclusive is going out to tens of millions or over $100 million gas and I think that is just really good for us people start looking at all inclusive. They start looking at Tripadvisor ratings were at the top of the list we get a lot of those eyeballs looking at us.
Okay very helpful. That's all from me. Thank you. Thanks Tyler.
This concludes our question and answer session I would like to turn the conference back over to Bruce <unk> for any closing remarks. Please go ahead Sir.
Great. Thank you very much. So just quickly I just want to make a couple of points just to make sure people walk away with kind of the themes hopefully they got them today, we had a great first quarter and we've got momentum rolling into the second quarter.
We think our prices are still really cheap as we said is a great value proposition for our resorts are second half <unk>. This year are surpassing really strong second half ADR. Some 2021 lots of cohorts cohorts have not yet started traveling and as we mentioned the people with young children or people that were hesitant.
Covid or people coming out of Europe , or Asia, or Canada, we're starting to see that business coming back and finally, our mice business is back and it's really building well into 2023, we think you take all of these components and things are looking really good for Playa.
Thank you again for participating this afternoon hope everyone has a great weekend.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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