Are hotel stocks under pressure from operating in Russia?
By Jenal Mehta
10:16, 26 April 2022
Whether it be due to reputational risk or personal ethics, the Russian invasion of Ukraine was followed by many companies ceasing operations in Russia in solidarity with Ukraine. However, due to difficulties in untangling existing contracts, for many hotels its business as usual.
The general public in Russia is currently unable to get coffee at Starbucks (SBUX), or buy an Apple (APPL) iPhone. Due to political tensions, they are also unable to use online services such as Twitter (TWTR) and Facebook (FB)
However, booking a hotel room is just as easy as it’s always been. International hotel chains such as Hilton (HLT), Hyatt (H) Marriott International (MAR) and Intercontinental Hotels Group (IHG) still have their hotel chains open in the region.
Most of these companies have ceased new operations in Russia. The reason they are still operating existing chains in Russia is due to their ongoing contracts with local franchisees.
Even if they incur reputational damage from this, the recovery from the pandemic has kept their profit margins strong. At the moment, the bigger threat to the sector, like many other industries, is rising inflation.
Stocks in Hilton (HLT), Hyatt (H) and Marriott International (MAR) have gained 20%, 15% and 21%, respectively, over the past year and their more recent performances are still in the green.
What is your sentiment on H?
Hilton Worldwide
Why is it so hard to leave Russia?
While many of the hotel companies have ceased new operations, they are unable to get out of existing contracts with local hotel owners.
This is due to the complicated contracts they have for operating their hotels. As Marriott (MAR) explained in a statement, its hotels in Russia are owned by third parties. This complicates the company’s legal ability to abandon the nation in a short notice.
IHG (IHG) also released a statement, saying that “IHG-branded hotels in Russia operate under complex long-term management or franchise agreements with independent third-party companies that own the hotels. Given the increasing challenges of operating in Russia, we continue to evaluate these contracts and are in discussions with owners, but this is a complicated process and will take some time.”
Hyatt Hotels
Covid-19 recovery continues as expected
After almost 18 months of incurring profit losses due to quarantine rules and travel restrictions, the hotel industry is finally on its way to recovery – and it appears this recovery may be affected only minimally by the war, if at all.
Per insight published by STR, the occupancy rate in hotels has remained stable in spite of the ongoing war in Ukraine. Occupancy rates in northern and eastern Europe dipped slightly immediately after the start of the war, but soon picked back up. Occupancy rates continue on a steady incline in all regions of Europe.
Hospitality sector recovery is expected by other analysts, too. Kevin Brown, an equity analyst at Morningstar, believes the hotel sector has “years of strong growth” ahead of it.
Meanwhile, in an analyst note seen by Capital.com, Christopher Babatope, associate director at Oxford Economics, said that in a scenario of continued war in Ukraine, the hotel sector might be slower to rebound from the post-pandemic slump, but recovery is unlikely to be halted.
Stocks outlook
Any reputational damage these companies may have faced as a result of continuing operations in Russia has been trumped by their strong post-pandemic recovery. Their stock prices have reflected this.
Stocks in Hilton (HLT), Hyatt (H), Marriott International (MAR) have all grown by 3.49%, 3.45% and 6.37%, respectively. In the same time period, the S&P 500 (US500) and FTSE 100 (UK100) fell by 6.11% and 0.38% respectively.
This is in line with the strong recovery that analysts predict for the sector.
Markets in this article
Related topics
