They Tried To Take On Marriott and Hilton. Now, These Hotel Upstarts Are On Life Support. – The Average Joe

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    They Tried To Take On Marriott and Hilton. Now, These Hotel Upstarts Are On Life Support.

    Noah Weidner

    May 15, 2024

    The days of “revenge travel” might be over, but Americans can’t stop traveling — despite eye-watering prices. In 2023, the average nightly rate at US hotels hit a record high of $155.62, up 4.3% year-over-year. Even Airbnb ($ABNB) can’t offer much relief for weekend getaways. In recent years, new franchises promised hotels’ posh convenience alongside long-term apartment rentals’ cost and flexibility — but investors are finding that “cheap and luxury” and “apartment and hotel” are a costly oxymoron.

    No free lunch: Founded in 2014, short-term rental company Sonder ($SOND) and boutique hotelier Selina ($SLNA) aimed to offer an affordable mix of Airbnb and hotel experiences. After opening dozens of hotels with tens of thousands of units in world-class cities, they turned their widespread presence into billion-dollar valuations by going public via SPACs during the pandemic, only to see their stocks plummet by over 98% since then, risking delisting.

    • Despite 2023 revenue in the hundreds of millions, they lost even more — prompting “going concern” warnings in recent reports.
    • Making matters worse, both firms have struggled with property management, customer support, and quality — with Trustpilot ratings averaging 1.4 of 5 stars for Sonder and 2.3 for Selina.

    Hotel shakeout

    Sonder and Selina aren’t the only ones finding it hard to keep up with hotel giants like Marriott ($MAR) and Hilton ($HLT). Travelers prefer recognizable hotel chains over independent hotels or Airbnbs. And as a result, many boutique hotel chains are seeking new strategies in a post-revenge travel world.

    • In March, university-focused Graduate Hotels sold to Hilton for $210M to fuel rapid growth, aiming to become a “megabrand” with 400-500 hotels.
    • Days later, FT reported that European micro-hotel chain citizenM was searching for a new majority shareholder, seeking billions in capital to expand.

    Grow at all costs: Alastair Thomann, CEO of Generator Hostels and Freehand Hotels, emphasizes that “it is all about expansion,” even with “the current macroeconomic challenges.” Yet, high interest rates pose hurdles to profitability. And we speak for most travelers when we say that whatever they decide to do, it better not come in the form of extra cleaning fees (Airbnb, we’re watching you).

    Read: Leisure giants warn that hotel demand is leaving the country

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