KSL Capital Partners’ Post

Transcript

Eric Resner Resnick, cofounder of KSL Capital Partners, is focusing on the consumer and the outlook for travel and joins us now. And Eric, first, so great to have you on the show. Thank you for being here. Thank you And your firm overseas. Tons of some of the most popular names that people go and visit, whether it is, you know, the icon passes of ski lovers or whether it is the Marriotts and the Ritz Carltons and The Four Seasons that people attend. Do you think that there is? Too much pessimism right now about this sort of pace of spending, particularly on the discretionary front. I think there's too much reaction, too much reaction at reactionary. Thoughts happening based upon short term data when you look long term and I'm really here to thank you for being a customer of the icon pass I'm on a swing I'm on a swing thinking each one of our customers personally and this is my morning to thank you you can call him up if you've got an icon pass and that's right I'm here you feel free to call me no problem at all OK but the long term trends for travel are really positive people don't realize how actually resilient travel is even in the face of economic volatility you know we we. Take what you were just saying, we have to embrace the mess. Life's messy as you were saying. And, and the reality is in that mess, what do you wanna do? You wanna escape? You want to be able to have special memories and experiences with your friends and family. So we see the long term trends being favorable. We, we do see the same type of softening of trends. Still fine, still good, but it's not as robust growth in some of the segments that we invest in that we saw over the last two years coming out of COVID. I guess there's a bigger question. We were talking about this with Neila Richardson of ADP. Earlier this morning and she was talking about how the pace of job creation is actually still above 2019. You could point to similar types of trends and travel, people still spending more on travel now than say 2019. Is this the new normal where we can expect more spending and an accelerated pace or we going back to the old normal where people actually had to work? Well, they have to work things. Interesting one. I do think that the trend of remote work of people having bleisure trips, we were just talking about this on the break. Combining purposes of trips, I think that's all positive for travel because when you want to combine things, what do you tend to do? You're combining something that's that's vacation oriented or recreation oriented with what you're doing at work. So we see, you know, the skier visits, for example, are growing more rapidly midweek than they are in the weekends. Well, that's a better experience for the guests. It's better for everybody. I'm not sure about people saying they working from home on Friday, if we know that skier visits are off disproportionately on Fridays. But be that as it may, we're we're pro that. So I think, I think the new normal is. You know, we're all on all the time. We want to combine purposes and be more efficient with what we do. So I think in the end, that's that's probably good. It probably creates more balance for people and for us. It creates more, more opportunity for them to vacation and recreate and do those things that that we certainly like to invest behind. The vision of someone like with their laptop on the ski lift blurring out the background saying don't pay attention to the wings, the wind swinging back and forth and what you're saying, but you're OK. So you're talking about this, the the trend and the spend and how much that is normalizing. What about just what people? Expect when they go to a luxury hotel has something fundamentally changed after the COVID era of not being able to get out and they now want something different with their hotel experience that they didn't before. I think that's fair. I think they they want to have more than just your basic hotel experience. During COVID, we saw an expectation that it's OK to reduce services at hotels, right? You we, we couldn't staff, we didn't want to have physical contact. So we eliminated some of those things. That type of expectation has now come back, but they but the guests wants more than that. They want to be able to go on a. A trip business travels different, but for leisure travel, they want to be able to go on a trip and have more meaning. So for some that meaning is Wellness oriented and they want to do, you know, it could be as simple as a spa treatment. It could be something that's more holistic in terms of in terms of mental health or could be something physical, right? So I think the consumer, they just want more out of everything that they do. They want to feel that that's value. What does that mean for the Airbnb's of the world? Where do they fit into that? Because they're not exactly providing that kind of service. They're not I mean those. Airbnb and others in that business, they are trying to wrap around experiences and you see experiences is, is a watchword that you hear on whether it's earnings calls or you see in consumer, you know, conversations. But I think Airbnb has that challenge, which is it's great if you're in a city because I don't need the restaurant necessarily or retail experience to be in my hotel in New York City. It's the city is my is my canvas is my resort. But you know, if you're in a resort destination, you want those amenities that, you know, on the one hand. FNB offers wonderful value because you're getting more space and you can cook your own meals and, you know, congregate easily at your home, but it doesn't have the amenities. And I think they're trying to address that. And I, I think, I think they'll have some success doing that, which is, which is good for the consumer and I think good for the business. Where travelers going right now? I mean, you're seeing a bit of a dichotomy and that Europe is hot, Japan is hot. Recurrency is part of that. Part of that is you took international away. What happens when you take something away from someone? You know, I mean, if you have, if you're a parent of teenagers, you realize this, you take something away, they want it more. And COVID took international travel especially away from us and with currency being, or the US dollar being strong in foreign currencies being a bit weaker combined with coming out of COVID, you're seeing a lot of the, the luxury consumer want to go to Europe, want to go to Japan. And so that's creating, you know, kind of a normal or not yet a normalization of, of, of travel patterns. I expect that you'll, we're seeing in some segments, but the consumers, you know, the affordable, the more budget contract consumer is cutting back a bit more right now. The luxury consumer is going more abroad and witness you know Lisa going going abroad last week, but the not that not to about you there, but it's OK, everyone's doing it this morning. So why not first day back from vacation is what we all do. OK. So you're seeing a real bifurcation in where consumers are going. If you look at like select service spending for hotels, those trends are a bit softer than than the higher end and the last year you saw RevPAR for more luxury travel to be you know positive still three 4% while select service. Their cars down, I think that's that's indicative of that. But again, it's not dramatic, right. These these are evolutionary, not revolutionary shifts in consumer behavior that we're seeing normal, normal volatility, not abnormal volatility. One thing that you have is a really good lens on what the balance sheet equation really looks like right now, especially at a time where we are talking about increasing oil prices, maybe on the margins you see increase in commodity prices, you talk about how suddenly workers and that sort of consumer experience is much more important, how much are margins. Getting squeezed. If you look, if you look over the last four years or I guess now five years since pre COVID 2019, you know, margins for our margins are, are up. We've been able to, we've been able to move price more than our costs even though costs are up a lot, right. I mean the average worker wages in in our sector are probably 20% in the last four years, which is a lot, but price is up 20 to 25%. So that, that equation still works. I think if you have less distinctive properties or less distinctive experiences, you don't have that same pricing. For and margins are being hit more and that's the challenge I think right now. If you look at urban hotels, their margins are under a lot of pressure still. It's getting better as the business traveler has been coming back, but it's something to watch out for. Are you seeing hotels trying to spend to be able to deliver that? And then what does that mean for margins if in order to get the larger margins, you need to have this all around experience, but to get the all around experience, you have to build a lot of capabilities. Like everything, it's a paradox in life. I mean you have to be able to do 2 things at once, right? And so I think hotels that. Have the ability to spend on the consumer experience to create more differentiation and therefore, you know, justify a higher price to that consumer because they're providing that value. They're doing that. I think you see that and, but, but other hotels that don't have that ability, I think I think they're seeing more, more challenges. You know, we're seeing that we've got some wonderful resorts in in Italy and St. Barts that they put tremendous emphasis on the consumer and guest experience, investing in spa programming, Wellness, off-site activities, you know, picking up from the airport and with a. You know, a, a great car, those types of things, that's a luxury end, right. They're seeing prices that are exceptionally high and still able to push prices at the other end. And you know, if you're non more nondescript hotel, I mean, it's it's it's tougher today because the consumer is being more discerning and how they spend their money. So you talk about pleasure, which is a difficult word for me to get my head around pleasure. It's fun to say actually, and how increasingly businesses are are mixing business with pleasure. What's your life like? I mean, you basically just go around. And, and just experience the different experiences that your property you have and you just basically go there and you say, you know, I need a spa treatment to really understand the value that you're providing. Yeah. That message wasn't quite as good as it should have been. I need to do another one. Exactly. Yeah, it's a lot of that. Yeah. It's not not as interesting as as you would like to believe business trips are do tend to be to probably, you know, some more leisure oriented destinations than than most. So it's fortunate in that regard. I spent a lot of time talking to, you know, our the leaders of our businesses. We have about 25 business leaders across our portfolio. I spent a lot of time meeting with investors, meeting with other owners or, or constituents in the travel, leisure business. It's a, it's a large and growing sector. It's the third largest sector of the global economy. It's 10% of global GDP, 10% of global employment. But you know, it's a, you have to stay connected to the ground of what actually is happening. Not quite the massage, the massage and the spa, although I tried overtaking that once in a while, but I tried to get a sense of what the consumers is, is. Looking for and so I spent a lot of time on the road and a lot of time trying to understand consumer trends, investor trends, and the mindset of our management teams and the challenges that they deal with day-to-day and on the ski slope on a Friday to see how many people are accusing from working from the slopes. Eric Resnick of KSL Capital Partners, thank you so much for being with us. Truly a pleasure having you here.