I’ve just finished updating my analysis on $CHH (Choice Hotels). The company franchises a wide range of hotel brands—including Comfort (Inn, Suites), Quality Inn, Econo Lodge, Rodeway Inn, Sleep Inn, Country Inn & Suites, Ascend Hotel Collection, Clarion (including Clarion Pointe), WoodSpring Suites, and MainStay Suites. These brands span the spectrum from economy to upscale. Altogether, CHH has nearly 8,000 properties, representing over 650,000 rooms.

On the most recent conference call, management was asked about the softness in leisure and lower-end chain scales—an outcome that runs counter to expectations of “trade-down” in a weaker economy. The CEO’s response was telling: in uncertain economic periods, Choice’s established brands with strong name recognition tend to attract more independent hotels looking to join a larger system.

To illustrate just how much “economic times”—something no company can control—can affect business (sometimes positively), take a look at the first chart below. The blue line shows the actual royalty rate that CHH charges hotel owners to be part of its system. While Choice Hotels was already working to increase fees, it was able to raise them by about 25% (from ~4% to ~5%) almost instantly during the pandemic.

What stands out is that this increase in fees happened during a period when both average occupancy and ADR (Average Daily Rate) were lower than pre-pandemic levels (all figures in USD are adjusted for inflation). These two ratios combine to produce RevPAR (Revenue Per Available Room*), which remains below pre-pandemic years—nearly 20% lower in 2024 compared to 2017 (the peak year over the past two decades).

In other words, it wasn’t a boom in business that drove thousands of independent hotels to join the Choice system. Rather, Choice Hotels’ brands are strong enough that, even with significantly higher royalty fees than before the pandemic, the net return for hotel owners is still attractive.

[*] RevPAR = Occupancy x ADR