Playa Hotels & Resorts NV (PLYA, Financial) could deliver a successful share price turnaround following its 10% decline over the past year.
The all-inclusive resorts company is investing in new technology, upgrading its website and offering an increasingly innovative range of products that could improve its financial outlook.
Innovative strategy
The company is investing in innovative new features that could enhance its competitive position. For example, in fiscal 2019, it began to roll out a new booking program at a small number of its resorts. The technology identifies new sales opportunities for the business, such as additional room packages, that can be offered to existing customers in real time. This could increase the company’s sales per customer as it is gradually implemented across its resorts.
In addition, Playa Hotels & Resorts increased its product range in the fiscal third quarter to include additional services such as airport transfer. This could open new revenue streams for the business.
Website upgrades
The business upgraded its website in the first quarter. Travel agents can now make reservations directly on the company’s website without being required to go through a third party. This reduces Playa Resorts & Hotel’s costs by around 8% per booking, while also providing a simpler service to travel agents that may encourage them to make additional sales.
The company plans to include an online facility for booking air travel, as well as other services such as dinners and spa appointments. This will make it easier for travel agents to book a fully inclusive vacation on its website from 2020, which could catalyze its financial performance.
New technology
The business rolled out new technology in the first quarter that will determine the prices it charges for rooms across its resorts. The system is designed to utilize historical data to decide the highest price possible for each room in different seasons in order to maximize the company’s sales and profitability.
In addition, Playa Resorts & Hotels will launch new sales tools for its staff, which could make it easier for it to sell additional products to existing customers. This could boost its sales per existing customer and lead to greater levels of productivity.
Potential risks
The performance of the company’s resorts in the Dominican Republic in the third quarter was disappointing. It experienced a 30.8% decline in revenue per available room in its resorts across the country, driven by a decrease in occupancy levels as a broader travel slowdown made trading conditions in the country more challenging. Additionally, Playa Hotels & Resorts wrote off $800,000 in relation to the bankruptcy of travel agent Thomas Cook. Further write-downs could be ahead in the final quarter of fiscal 2019, as well as in 2020.
In response, the business has increased its focus on European-based consumers when selling its rooms at resorts in the Dominican Republic. This led to an increase in the proportion of rooms sold to European-based consumers from 32% in the first quarter of fiscal 2019 to 45% in the third quarter of fiscal 2019. The company will also seek to become increasingly efficient through a cost-cutting program, while it may seek to sell its less profitable assets in the future according to its third quarter conference call.
Outlook
Market analysts forecast that Playa Hotels & Resorts will deliver an increase in its earnings per share of 89% in fiscal 2020. Since it trades at a forward price-earnings ratio of 82, it could offer investment appeal after its share price decline over the last year.
Disclosure: The author has no positions in any stocks mentioned.
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