Goldman Sachs downgraded their recommendation on Hyatt’s stock to sell.

But they’re really making a broader point about the economy, and the toll it will take on the lodging industry.

Hyatt just bears the brunt of the recommendation because they do better in good times and worse in bad times than their major competitors because they still own a good portion of their hotels, or rather a larger portion than the industry at large. So they aren’t just earning revenue from fees.

We are in the downward leg of the hotel cycle, which will be characterized by rising supply, weakening demand, downward estimate revisions, and multiple contraction. So while the stocks have underperformed, we expect another leg down. We are most negative on hotel stocks with high operating leverage (high ownership) and little to no corporate finance levers.

…Only 21% of H’s 2016 revenues will be from fees, meaningfully lower than CHH (100%), IHG (90%), and MAR (67%).

Room Rates May Be Under Pressure, but the Park Hyatt New York Did Just Get its AAA Fifth Diamond

The hotel business has been on the upswing since the depths of the Great Recession.

Much of the growth in the business has come in markets that are struggling especially China which is cratering. South America is weak — especially Venezuela, Argentina, and even Brazil ended 2015 with negative GDP growth. The Eurozone is increasingly fragmented, and is hardly out of the woods after deferring the Greek crisis.

With cheap credit over the past several years hotels have been on a building boom. More rooms, without concomitant increases in demand, mean lower prices. And demand may indeed be lower in the face of economic weakness.

That’s bad news for the hotel industry as a whole, although mergers (IHG/Kimpton, Marriott/Starwood, and Accor/Fairmont with perhaps more to come) may help them weather a slowdown.

Slow times in the industry could translate to good news for consumers, however.

• Lower occupancy and thus lower rates across the board

• Flash sales and deals

• More hotel loyalty program promotions to put heads in beds

• Slowing of the trend towards devaluation —
  1. Hilton was the only chain to devalue during the Great Recession and IHG Rewards Club (née Priority Club) mocked them mercilessly for it.

  2. Programs that base redemption rates on anticipated average room rates certainly shouldn’t be raising points prices.

Hotel program devaluations in the current environment would be cheeky to say the least.