00:00 Speaker A
With consumers feeling the effects of President Trump’s tariffs, names in the travel space are also feeling the pressure. For more, we’re gonna welcome in now Chad Beynon, senior gaming, lodging, and theaters analyst at Macquarie US Equity Research. Uh Chad, it’s always good to see you on the show. So, tariffs, uh, front and center, Chad. Worries about what it means for the US economy, Chad, what it means for the global economy. I’m sure you’re getting all kinds of questions from your clients. Uh ask you how this is gonna ripple through your coverage universe. What are you telling them, Chad?
00:53 Chad
Sure, thanks Josh. Thanks for having me on today. Uh so within our sector, I’d say most of our companies rely on the domestic consumer. And most of them have improved their balance sheets. They have pretty good free cash flow, low capex. Um so we think there’s some really good value opportunities. Um firstly, as we think about the lodging companies, companies like Marriott, Hilton, Hyatt, uh these companies generate about 70% of their profits from North America. The calculus in terms of how they get to earnings growth, it’s unit growth, that’s mid singles, and then it’s rate increases, which is low singles, and that gets to a low double digit earnings impact. Um Now the biggest question now is what’s gonna happen with that consumer. The leisure consumer has been extremely strong since COVID. Um so that’s gonna be more of, you know, an inflationary, uh, consumer sentiment type of issue. But from a tariff standpoint, we think that’s gonna impact a little bit of the construction, uh, build for these companies, but it’s gonna be a lower impact than what you’re seeing with some of the other consumer companies, particularly retail and the others.
02:54 Speaker A
Chad, even though they, you know, they get most of their revenue from North America, how much of that is incoming tourism from other countries who are coming to North America, or even cross-border travel? Because there’s been a lot of reporting that, um, overseas travel to the US is down. Especially Canadian travel to the US is down. So are there, are there companies in your universe that are more and less exposed to that trend?
03:45 Chad
Yeah, it’s a good question, Julie. I’d say long haul international travel is a little bit under 5% uh for these companies. That’s mainly business going into, you know, New York, Los Angeles, San Francisco, Miami, and some of the bigger, bigger gateway cities. Um that hasn’t fully recovered since COVID, so I don’t think there’s gonna be a lot of lost business there. Uh it’s a really good question in terms of, uh, Canada and Mexico. Um and, and we’re seeing that in Vegas. So looking at some of the Vegas numbers in February and from what we’re hearing in March, uh Vegas derives about 11% of their visitation from international, and a little over half of that is from Canada and Mexico. And we are seeing declines there. So yeah, I’d say for, for the big hotel companies, um mid singles. And then as we look into other markets, whether it’s going into Europe, going into Asia, I think that’s gonna be a low single digit impact. The business traveler at this point remains somewhat resilient, and that was something heading into ’25 we were pretty excited about. Um you guys just talked about, you know, that small business sentiment declining. That actually became more important than the big business for these hotel companies, which was a complete reversal versus what we saw five or 10 years ago. So that’s something that we’re definitely tracking at this time.