Strength in numbers, loyalty key for La Quinta in 2016

LAS VEGAS—If there was any concern among the estimated 1,500 attendees here at this year’s La Quinta Inn & Suites annual conference that the lodging chain had lost any momentum following the departure last year of its long-time leader, Wayne Goldberg, it was quickly wiped away by the public company’s new President/CEO Keith Cline, who presented an overall positive performance picture that is expected to be maintained this year.

“Last year, La Quinta demonstrated the many strengths of our business. We continue to execute our significant unit-growth opportunity, deliver strong and consistent free cash flow, demonstrate the efficiency of our owner/operator franchise business model and unlock value from our balance sheet,” said Cline, who was helming his first conference after serving as La Quinta Holdings Inc.’s EVP/CFO since 2013 and interim president/CEO since September.

“Interest in developing and operating under the La Quinta brand remains very strong,” added the CEO, noting the company signed 37 new franchise agreements in Q4 for an aggregate total of 107 for the year, which is the highest number of agreements signed in any year since 2008, he said.

La Quinta opened 19 franchised hotels representing approximately 1,600 rooms in Q4, with net franchise unit growth of 13 hotels representing approximately 1,100 rooms.

Despite some Q4 hiccups that saw system-wide comparable RevPAR tick down 0.3% to $51.14, ADR increase 1.3% to $81.96 and occupancy decrease 102 basis points to 62.4%, fundamentals for the year showed system-wide comparable RevPAR increased 3.5% to $58.23, ADR advanced 2.9% to $86.21 and occupancy grew 35 basis points to 67.5%.  

The chain opened 47 franchised hotels representing some 4,000 rooms for the year and agreed to sell 24 of its owned hotels, 11 of which were sold during Q4. La Quinta expects to close on the remaining 13 hotels before the end of the first quarter.

The company also captured another market in its quest to be in all 50 states, adding its first location in Alaska, leaving only Delaware and Hawaii on the check-off list.

The CEO noted, at year’s end, there were 228 franchised La Quinta projects, 86% of them new construction, representing more than 20,000 rooms in the overall pipeline—also the highest amount since 2008—and include locations in Chile, Colombia, Guatemala, Mexico, Nicaragua and the U.S. 

The CEO cited some 20% of the projects are in higher-RevPAR urban locations, including New York, Pennsylvania, Virginia, Utah and Oregon, with 12% in Mexico, and Central and South America. “And, we took an important step forward in our international development with key agreements for the development of 10 new locations in Mexico,” said Cline.

The company also is doing a sea change in that country and other Latin American locations, creating a distinct brand name for both existing and planned hotels. Properties in Mexico will be known as LQ Hotel by La Quinta, which, executives indicated, is better understood than the Inn & Suites descriptor. In countries where there are trademark issues around usage of the term La Quinta—a common phrase in use in many Latin American locations, according to EVP/Chief Development Officer Raj Trivedi—properties will be known as LQ Hotel. 

La Quinta’s Del Sol prototype, a scalable model introduced in June 2013, is gaining traction, according to the CEO, with three opened in 2015. Thefirst one came out of the ground in College Station, TX, last year from A & M Developers, LLC, led by Principal Mukesh Patel and Managing Member Ajay Patel.

“Eighteen more are under construction and an additional 62 are in development,” said Cline. 

For example, franchisee Sunil Wadhwani currently is under development with a Del Sol in Mcallen, TX.

La Quinta closed out the year with 886 hotels: 340 corporate owned, 545 franchised and one joint venture.

“Nearly 50% of our 2015 growth comes from within,” said Trivedi, and 100% of the growth has been on the franchise side, according to Cline. 

This year, Cline said the company would continue building on “three key strengths of our brand: the quality and depth of our franchise partners and their continued interest in growing the La Quinta brand; the scalability and efficiency of our business model and the substantial free cash flow we’re able to deliver; and that we operate in the highly desired select-service segment.”

He cited several initiatives slated to advance the company. These include an accelerated renovation program for LQ’s owned hotels that would budget $60 million each year for two years to upgrade an additional 100-120 hotels that would help drive consistency; unlocking value through a comprehensive real estate plan that could potentially include divestment of properties; enhancements to the hotel operating model, such as adding labor to assist front-desk staff during peak hours (in beta at some corporate hotels), to help increase net promoter scores and ultimately increase RevPAR Index share and profitability; and introduction of new features and benefits for La Quinta Returns loyalty members, such as redeeming points for everyday purchases and redeeming free nights while on property.

Retaining frequent guests is critical indicated Chief Marketing Officer Julie Cary. She noted a lodging landscape that includes Airbnb, OTAs and new brand entries has changed the traditional reservation dynamic. “Research says the average traveler shops 27 sites and reads more than 15 reviews before booking a hotel,” she said. 

Add to this social media and traveler reviews and the guest experience “has never been so transparent,” she said. “We have seen the reason for not choosing a hotel because of reviews quadruple in importance.”

As part of remaining top-of-mind with guests, Cary said La Quinta would continue to innovate along both tech and loyalty avenues. In recent years it launched “Ready for You,” a mobile app that alerts guests when their rooms are ready and “LQ Instant Hold,” which allows a guest to make a reservation by entering a cellphone number. The reservation is held for four hours until the guest arrives at the hotel or calls to secure the room with a credit card number.

Ted Schweitzer, SVP/digital commerce for La Quinta, said 37% of La Quinta’s traffic last year was on a mobile device and its mobile revenue grew by almost 80%. He noted 45% of bookers on are using the Ready for You alert, so it’s been added to the mobile site, “and it’s coming soon, with a brand-new look and feel, to our apps.”

David Sims, VP/loyalty marketing, said the company was relaunching its La Quinta Returns loyalty program.

“One of the things we hear all the time is our members want to use their points, period. They want to use them when and where they want to,” said Sims. Toward this, three major benefits are being added to LQR: 

Known internally as Hotel Anywhere, guests may now book rooms at any of 11,000 resorts and luxury properties worldwide using LQR points; “Benefit X,” via a partnership still under wraps, will see Returns points have immediate value and allow members to use points not only at La Quinta hotels, but at retail outlets such as restaurants, gas stations and stores; and “instant free nights,” which basically allows qualified members to use their points when and where they need a LQ room. “If they have enough points in their account for that night, they’ll receive a notification from the La Quinta Returns app, asking them if they want to use their points to book a room for that night. They say yes, select a room type, the reservation’s instantly made,” said Sims.

La Quinta is continuing to roll out its proprietary mobile operations platform, known internally as MOP, developed by LQ franchisee Pradip Mulji, who owns a La Quinta Inn & Suites in Cedar Hill, TX. The platform, launched last year and now a required brand standard, is geared toward housekeeping and front-desk staff, who, via a digital chart on a WiFi-enabled phone, are alerted in real time when a room is ready to be cleaned, when a guest has extended his/her stay and when a room is ready. Mulji added more capabilities, such as maintenance requests/responses; special guest requests, e.g., a crib; lost and found tracking; and the ability to record room inspections, among other functions.

“We have finished 100% installation at our company-owned assets and we have finished a little more than one third of franchise assets—about 200 assets or so,” said Trivedi. “The feedback that we have received from the operators that have MOP is absolutely very positive. They are pleased with the technology, pleased with the reporting, pleased with how convenient it is for their housekeeping and maintenance staff, and also front office.”

MOP features are continuing to be reviewed in order to further enhance the capacity of the system, added Trivedi, noting MOP brings efficiency to hours worked, materials used, getting rooms ready faster and helps establish a pattern of how staff functions in a room.

“Because it’s mobile enabled, it can track exactly not only how much time it takes to clean a room, but what’s the down time between rooms,” said Vivek Shaiva, EVP/chief information officer. He said a built-in inspection feature “enables the property to reduce the number of rooms that end up with a defect to the customer, because it’s been tracked. It’s like the basics of Six Sigma…just the act of measuring something automatically results in process improvement and that evidence is there from the numbers that we’re tracking. It’s pretty powerful.”

Every housekeeper has a smart phone, the CIO noted and La Quinta is “looking at other things we can do with it. It opens up a whole realm of possibilities on using technology.”

When Cline was promoted out of his CFO role, Jim Forson was officially named EVP/CFO at the same time. As with Cline, he had been serving in the role on an interim basis since September. 

Noting LQ has “all these initiatives going on in 2016,” Forson saw his new role as that of an enabler. “There’s lots of demands for cash flow, lots of demands for communicating with the investing community,” he said, adding he needs to make sure the cash flow is available to enable LQ’s executive’s to bring strategic plans to fruition. 

“I’ll have a big part in deciding which hotels leave the system ultimately,” said Forson, deriving input from Trivedi as well as EVP/COO Angelo Lombardi regarding the assets, “then lining up all the metrics” to see if the hotels should remain with the flag.