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Executive Summary
The HYATT Hotels Corporation operates and franchises hotels, resorts, and vacation properties globally. The Hyatt Hotels Corporation, headquartered in Chicago, is a renowned multinational hospitality company with 20 well-known subsidiaries. The Companys objective to assist individuals in reaching their total potential influences its management decisions and expansion initiatives. It is intended to attract and keep exceptional employees, nurture customer relationships, and generate stockholder value. The hospitality industry is a large category of enterprises that serve travelers and tourists with lodging, food and beverage services, and other amenities. The goal of the hotel industry is to provide a pleasant customer experience.
With a lower D/E ratio, Hyatt finances most of its short-term liabilities using equity financing. This technique is not effective over the long-term, despite the advantages of equity finance. In exchange for equity funding and all of the companys substantial gains, Hyatt must share ownership. According to the BCG report, the hospitality industry faces a loss in its significant segments due to Airbnb, a possible hotel substitute. The decline has been partially linked to the effects of the COVID-19 epidemic on the total income generated by corporations such as Hyatt. Hyatt Corporation should conduct research and development to revamp the brand. This will contribute to the segments expansion and turn this cash cow into a star.
The remedy for Hyatts problem with limited growth should be significant growth into overseas markets. The corporation must abandon its U.S. foundation and expand into other markets. This, however, is easier said than done and requires an effective business strategy. According to Porters Five Forces model, the entrance hurdles for a new luxury hotel market are greater. Setting up a new hotel development involves both time and money. Therefore, Hyatt Hotels Corporation must generate more revenue to finance its expansion in the Eastern continent.
International Corporate Strategy: A Case Study of HYATT Hotels Corporation
HYATT Hotels Corporation is a global hospitality company that operates and franchises hotels, resorts, and vacation properties. The Chicago-based Hyatt Hotels Corporation is a renowned international hospitality firm with a network of 20 famous subsidiaries (Bloomberg.com, 2022). As of September 30, 2019, the institutions portfolio comprised over 875 assets in over 60 nations and six geographies (Bloomberg.com, 2022). The Companys mission to care for individuals so they can be at their optimum affects its management choices and expansion strategies. It is meant to recruit and retain outstanding coworkers, cultivate customer connections, and produce stockholder value.
The organizations affiliates build, acquire contracts, license, or offer solutions to hotels, motels, customized condominiums, and gymnasium and spa facilities. Hyatt Regency, Park Hyatt, Grand Hyatt, Miraval, Hyatt Zilara, Andaz, Hyatt, The Unbound Collection by Hyatt, and Thompson Hotels are the Companys hotel brands (Bloomberg.com, 2022). In addition, other chains include Hyatt Centric, Caption by Hyatt, Hyatt Centric, Joie de Vivre, Hyatt House, Hyatt Place, Hyatt Residence Club, Destination by Hyatt, and Exhale (Bloomberg.com, 2022). The Company administers the World of Hyatt loyalty program, which offers its valued members unique advantages and exclusive encounters.
The hospitality industry is a broad category of businesses that provide accommodations, food and beverage services, and other amenities to travelers and tourists. The objective of the hospitality business is to deliver a delightful client encounter (Goryushkina et al., 2019). Whether this satisfaction is derived from eating a delicious meal, unwinding in a magnificent spa, or having a restful nights sleep away from home, each customers needs must be met. Food and beverages (F&B), Travel and Tourism, housing, and entertainment are the four classifications of the hospitality sector.
The F&B industry is the primary category of the hospitality business, whereas travel and tourism are operations related to transporting individuals from one location to another. Buses, taxis, planes, ferries, trains, and other modes of transportation are a component of the travel sector. Lodging refers to a location to sleep for one or more days or a residence utilized to stay for a length of time. The recreation sector involves actions that people engage in for pleasure, amusement, and relaxation. This industry is a significant contributor to the global economy, as it is closely tied to the travel and tourism industry (Goryushkina et al., 2019). Therefore, hospitality businesses can range from small, independent hotels and restaurants to large, international hotel chains like HYATT.
Internal Environment Analysis
Financial Analysis
Financial analysis involves reviewing a companys financial statements and performance metrics to assess its financial health and determine its growth potential. This can include analyzing its operating income, debt-to-equity ratio (D/E), and current percentage over time to identify trends and determine whether the company is financially stable (Steiss, 2019; Henry, 2021). As illustrated in table 1, this report analyzes HYATTs operating income, debt-to-equity ratio, and current ratio.
Table 1: HYATT Hotels Corporation Financial Ratios
The operating income quantifies how much profit an organization makes on each dollar of sales. The operating income margin of the firm reduced from 3.9243 in 2019 to (30.9505) in 2020. However, HYATT recorded an increase in this margin to (8.2893) in 2021. In 2020, HYATT witnessed a rise in its current ratio (2.6047), up from 1.5709 in 2019. In the following year, 2021, the companys current ratio dropped to 0.9238. The D/E percentage of HYATT has been on the rise over the three years, 0.4091 (2019), 1.0093 (2020), and 1.1155 (2021) (Table 1). The organizations ROA decreased from 9.1006 in 20219 to (7.7007) in 2020. Nonetheless, in 2021, the firm recorded growth of (1.7615). HYATTs ROE decreased from 19.3033 in 2019 to (21.8731) in 2020. In 2021, the institution increased to (6.2255) from the previous year.
BCG analysis
Hyatt Hotels group operates in the upper budget, affordable, casual, and residentially and general hotels Commercialized, making it the star of the BCG matrix. Hyatts hotel brands, such as Hyatt Regency, Hyatt, and Hyatt Centric, contributed around 50% of revenue to the upper upscale market in 2021 (Macrotrends.net, 2022b). The global food strategic organizational unit is a cash cow for Hyatt Hotels Group. This business entity, as of 2021, had a 30% customer base in its sector; however, individuals are less intrigued by worldwide cuisine currently (CSIMarket.com, 2022). The industrys growth rate has decreased as a result of this shift in fashion.
Hyatt Hotels Corporations confectionary strategic unit is a question mark in the BCG structure. The market for confections is an appealing business that has been expanding over time. Unfortunately, Hyatt Hotels market share is minimal in this lucrative sector. The reduced sales are due to the companys limited reach and inadequate dissemination in this market sector (Chiu & Lin, 2019). The strategic department for synthetic fiber materials is a dog in the BCG analysis of Hyatt Hotels Corporation. The marketplace for these commodities has been diminishing; consequently, the organization has incurred losses for the previous three years.
External Environmental Analysis
PESTLE Analysis
Political. Hyatts functioning and stability are strongly dependent on political considerations as a worldwide firm. This comprises taxation and regulatory frameworks governing hospitality and logistics operations (Seyito lu & Ivanov, 2020).
Economic. Due to the companys global nature, Hyatts activities can be affected by various macroeconomic issues in constant flux (Team, 2022a). Long-term impacts of economic conditions in the nation of business, especially its growth rate, are common in the hotel business.
Social. Any regions procedures and internal culture are influenced by its inhabitants social traditions and values. Population, including educational qualifications and different social structures, are crucial societal determinants of Hyatt service utilization.
Technological. Hyatt relies significantly on innovation for scheduling, reservations, financials, distribution networks, and other organizational and behind-the-scenes tasks, despite being a service-oriented firm (Team, 2022b).
Environmental. Hyatt contributes significantly to the environment as a vast enterprise, especially when developing new properties. Its unique and current infrastructure generates waste, such as tons of rubbish and CO2 emissions from its air conditioning equipment.
Legal. Each country has its complicated legislative regime through which Hyatt must navigate. The company must safeguard its copyrights and brand. It must ensure that all worker conditions are met and that neither employees nor customers are discriminated against.
Five Forces Analysis
The threat of new entrants is low since the hospitality market is highly challenging to manage, frequently necessitates years of running at a deficit, and is extremely susceptible to external factors, making it a poor business proposition. The danger of substitutes is moderate since motels and hostels have emerged as alternative hotels to combat the rising cost of lodging. On the other hand, vendors power is weak since hospitality and guesthouses are primarily a solution and an experience, not a product that requires specific elements to manufacture. Hospitality relies on loyal customers who choose the resort network for their worldwide business and leisure visits; thus, stronger customer force. Competition is fierce due to the small number of enterprises and premium hospitality complexes.
Structure-Conduct-Performance (SCP)
The structureconductperformance (SCP) concept contends that the market system influences company behavior, influencing efficiency. Some of the barriers to entry in the hospitality industry are; the high costs of startup and management, intense competition, and shifting market dynamics (Gilbert, 2019) (Appendix 1). The market behavior adopted by actors in the hospitality industry when bargaining rates, payment methods, and the level of communication between them (Lelissa & Kuhil, 2018) (Appendix 1). The assessment of market performance is consequently based on prices, marketing expenses, and operational margins (Appendix 1). The industrial cycle for the hospitality industry typically lasts 7.3 years and serves as a canary in the coal mine for the broader economic cycle (Nusair, 2020) (Appendix 2).
Evaluation
With a lower D/E ratio, Hyatt finances most of its short-term liabilities using equity financing. Determined by dividing a corporations total obligations by its stockholder equity, the D/E ratio is employed to assess a firms financial leverage. The D/E ratio is a crucial metric in financial analysis, indicating the extent to which a firm finances its activities with debt instead of its resources. Despite the benefits of equity funding, this strategy is inefficient in the long term (Yuliarti & Diyani, 20218). Hyatt will have to share ownership of the firm in exchange for equity financing and all of its significant gains. Moreover, if there are variations in philosophy, organizational strategy, and business operations, and collaborating with others could cause anxiety and even confrontation. Hyatt could opt for debt financing since, with this kind of funding, Hyatt will not have to relinquish control of the company. When the company obtains a loan from a bank, the corporation must make timely payments to the creditor.
From the BCG analysis, the hospitality sector faces a decline in its significant sectors due to the rise of Airbnb, a potential hotel substitute. The fall has been attributed partly to the impacts the COVID-19 pandemic had on the revenues generated by companies like Hyatt. Therefore, Hyatt Corporation should engage in R&D to reinvent the brand. This will contribute to the segments expansion and transform this cash cow into a star. The overall advantage would be an improvement in Hyatt Hotels Corporations revenue. Consequently, the firms current ratio of 0.9238 in 2021 (Table 1) provides an opportunity for Hyatt to endure and meet its commitments even if the worth of its current assets is cut in half. In addition, Hyatts current ratio can be viewed as an excellent instrument for determining the margin of safety and displaying its short-term liquidity. However, Hyatt should endeavor to keep the current ratio above 1 for better business efficiency.
Rapid expansion into international markets should be the solution to Hyatts problem of stunted growth. The company must cease to be based in the United States and expand into overseas markets. However, this is easier said than done and needs a proper business strategy. As Porters Five Forces assessment indicates, the entry barriers for a new luxury hotel industry are higher. New hotel construction requires both time and money to set up, as all desirable geographic places are likely occupied. The average cost of a 5-star hotel is between $200 and $300 million (Cunha & Oliveira, 2020), even though Hyatt has a favorable D/E ratio in firm assets to be employed for short-term operations and reasonable debt financing. The business needs to earn more funds to finance growth in the Eastern continent.
References
Bloomberg.com. (2022). Hyatt Hotels Corp. Web.
Chiu, C. C., & Lin, K. S. (2019, July). Rule-based BCG matrix for product portfolio analysis. In International Conference on Software Engineering, Artificial Intelligence, Networking and Parallel/Distributed Computing (pp. 17-32). Springer.
CSIMarket.com. (2022). Hyatt Hotels Corp comparisons to its competitors and market share CSIMarket. Web.
Cunha, F. O., & Oliveira, A. C. (2020). Benchmarking for realistic nZEB hotel buildings. Journal of Building Engineering, 30, 1-13. Web.
Gilbert, N. (2019). The hospitality industry is big and diverse. Besides, every sectorfrom accommodation and recreation to travel. Web.
Goryushkina, N., Voinova, N., Voronkova, O., Sitnov, A., Shichiyakh, R., & Gordeyeva, O. (2019). Theoretical aspects of entrepreneurial education for hospitality industry. Journal of Environmental Management & Tourism, 10(4 (36)), 835-841. Web.
Henry, A. (2021). Understanding strategic management. Oxford University Press.
Kadim, A., Sunardi, N., & Husain, T. (2020). The modeling firms value based on financial ratios, intellectual capital and dividend policy. Accounting, 6(5), 859-870. Web.
Lelissa, T. B., & Kuhil, A. M. (2018). The structure conduct performance model and competing hypothesis: A review of literature. Structure, 9(1), 76-89. Web.
Macrotrends.net. (2022a). Hyatt Hotels financial ratios for analysis 2009-2022 | H. (2022). Web.
Macrotrends.net. (2022b). Hyatt Hotels revenue 2010-2022 | H. (2022). Web.
Nusair, K. (2020). Developing a comprehensive life cycle framework for social media research in hospitality and tourism: A bibliometric method 2002-2018. International Journal of Contemporary Hospitality Management, 32(3), 1041-1066. Web.
Peypoch, N. (2022). Market behavior of tourism firms and its effects on the boundaries of firm. In A Modern Guide to Tourism Economics (pp. 100-115). Edward Elgar Publishing.
Seyito lu, F., & Ivanov, S. (2020). A conceptual framework of the service delivery system design for hospitality firms in the (post-) viral world: The role of service robots. International Journal of Hospitality Management, 91, 1-10. Web.
Steiss, A. W. (2019). Strategic management for public and nonprofit organizations. Routledge.
Team, T. (2022a). Will economic headwinds hurt Hyatts solid run? Forbes. Web.
Team, T. (2022b). Will strong results and deal-making activity drive Hyatt stock higher? Forbes. Web.
Yuliarti, A., & Diyani, L. A. (2018). The effect of firm size, financial ratios and cash flow on stock return. The Indonesian Accounting Review, 8(2), 226-240. Web.
Appendix 1
The hospitality sector Structure-Conduct-Performance (SCP) analysis.
Structure
The market size for hospitality was roughly $3,953 billion in 2021 and is projected to reach nearly $6.7163 billion by 2028 (Gilbert, 2019). Some of the barriers to entry in the hospitality industry are; the high costs of startup and management, intense competition, and shifting market dynamics. Moreover, this industry commercializes comparable items with tiny differences that buyers consider when selecting. Finally, in this sector, most firms, including Hyatt, practice vertical integration, a growth tactic in which a single business assumes authority over one or more phases of a products manufacturing or distribution.
Conduct
The principles, strategies, and actions adopted by entities participating in the market to set the prices of enterprises characterize their market dynamics. These are also the methods adopted by actors in the hospitality industry when bargaining rates, payment methods, and the level of communication between them (Lelissa & Kuhil, 2018). Components of the behavior of enterprises in this industry include establishing pricing and production volumes, investments in promotion and advertising, internal advancement, R&D, innovation technique, external development, merger and acquisition, partnership, and collaboration.
Market Performance
This is directly assessed by producing and marketing things that contribute to community well-being. The hospitality markets success is influenced by the organization and operation of the market, as considered by product prices, costs, and volumes. The hospitality business is one of the few in which pricing disparity is tolerated and anticipated. Without price bias and optimization, customer happiness is negatively impacted by enterprises. The assessment of market efficiency is consequently based on prices, marketing expenses, and operational margins (Peypoch, 2022). A high price indicates that the products quality is also high; hence, the price is an essential instrument for creating and managing the Hyatt brand.
Appendix 2
The industrial cycle for the hospitality industry typically lasts 7.3 years and serves as a canary in the coal mine for the broader economic cycle (Nusair, 2020). The hospitality sector often leads booms by approximately nine months and troughs by approximately six months. Therefore, operators do not have the privilege of seeing a decline in the market and responding appropriately. Before anybody else, forward-thinking operators must plan for natural peaks and valleys.
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