Playa Hotels & Resorts NV (PLYA) 2022 Q2 法說會逐字稿

Good morning, and welcome to the Playa Hotels Resorts Second Quarter Earnings Conference Call... If you need assistance, please signal conference specialist by pressing the star key followed by zero. After the presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. Now I'd like to turn the call over to Mr. Ryan Hymel. Please go ahead.

Thank you very much, Nick. Good morning, everyone, and welcome to Playa Del & Resorts Second Quarter 2022 Earnings Conference Call. Before we begin, I'd like to remind participants that many of our comments today will be considered forward-looking statements and are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated. Forward-looking statements made today are effective only as of today, and the company undertakes no obligation to update forward-looking statements. For a discussion of some of the factors that could cause our actual results to differ, please review the Risk Factors section of our annual report on Form 10-Q, which we filed last night with the Securities and Exchange Commission. We've updated our Investor Relations website at investors.playaresorts.com with the company's recent releases. In addition, reconciliations to GAAP of the non-GAAP financial measures we discuss on this call were included in yesterday's press release.

On today's call, Bruce Wardinski, Playa's Chairman and Chief Executive Officer, will provide comments on the second quarter and key operational highlights. I will then address our second quarter results and our outlook. Bruce will wrap up the call with some concluding remarks before we turn it over to Q&A. With that, I'll turn the call over to Bruce.

Great. Thanks, Ryan. Good morning, everyone, and thank you for joining us. Business momentum continued during the second quarter as Playa generated the high second-quarter adjusted EBITDA in the company's history as our occupancy rate continue to rebuild and our ADR growth compared to 2019 accelerated to approximately 40%. As of July 24Playa-owned owned and managed revenue on the book for the third quarter is pacing up nearly 35% year-over-year and nearly 75% versus 2019. And the fourth quarter is pacing up second-quarter nearly 20% year-over-year and nearly 60% higher versus 2019. Based on our business on the books, we continue to expect our Q3 and Q4 ADR to grow at a high single-digit rate year-over-year. We have not observed any meaningful changes to cancellation activity or booking demand, but we are prepared to adjust our costs and staffing appropriately if we were to see a pullback in the consumer demand environment. I want to remind everyone that not that long ago, we like many others in our industry, we're forced to go to 0% occupancy and then slowly rebuild back to our baseline over the past 2 years. So any adjustments needed to adapt to a changing demand environment are quite fresh in our memory, and we will act accordingly if the conditions call for it. With our book lead times at the healthiest levels we have ever experienced, we are confident in our ability to effectively manage through any potential slowdown, although we are not seeing anything on the horizon at this time.

As we look ahead to the upcoming high season, we are pleased with our revenue and ADR pacing, which have continued to build since our last call, led by demand in the MICE segment. I still believe the recovery in leisure travel is far from complete, and the consumer trial and awareness of the all-inclusive experience also have a long runway. In today's inflationary environment, our relative value proposition has become incredibly compelling despite our ADR gains. This value continues to be reflected in our strong guest satisfaction scores and the pace of our bookings, which are significantly ahead of last year on both revenue and ADR for the second half of 2022. It is important to note that all of these positive trends are occurring without us recapturing a full customer demand dynamic yet. There are still groups of customers, particularly families with young children that are not traveling yet due to lingering pandemic concerns as evidenced by the modest uptick in bookings we experienced following the removal of the US testing entry requirement. Additionally, to date, we have not seen a full recovery of our international markets, particularly Asia, certain parts of Europe and our Canadian guests.

Finally, I want to highlight that although our headline ADR growth compared to 2019 has been robust, I would like to remind everyone that the headline growth is benefiting approximately 3 percentage points from the noncash OTA billing methodology change highlighted in our earnings release, approximately 13 percentage points from asset dispositions of lower ADR resorts and the addition of our Hyatt Cocone resort. These are important considerations when contemplating our ADR growth sustainability and the compelling value we continue to offer our guests. Strategically, we still believe that seeding some occupancy in favor of ADR, mainly at our Hyatt resorts is the best path forward for Playa as it establishes us as the rate leader from a competitive standpoint in our respective markets and is more manageable from an operations standpoint. With the growing inflationary pressure, not only impacting consumers globally, but also the cost of operations for businesses, we are focused on pricing to continue offering a fantastic value to our guests while dealing with the economic reality of higher operating expenses.

Second quarter fundamentals once again exhibited an acceleration in growth versus the comparable period in 2019, with occupancies continuing to ramp up, particularly in Jamaica. The strength in the business was broad-based with ADR growth and occupancy gains leading to healthy margin performance despite the challenging cost environment. As we previously shared with you, the disruption from the omicron variant had a particularly acute impact on Jamaica earlier this year, but our bookings for future periods, combined with the removal of Jamaica's COVID testing entry requirements, gave us a sense of optimism for the remainder of the year. Jamaica led our portfolio in occupancy during the second quarter and currently has more occupancy on the books for Q3 than our other segments. We estimate that airlift capacity growth compared to 2019 into Montego Bay accelerated by nearly 15% sequentially during the second quarter. Which drove international passenger arrivals to finally exceed 2019 levels on a quarterly basis for the first time since the beginning of the pandemic. ADR growth in the segment lagged the impressive underlying growth exhibited in our other segments as there is a lag between demand growth and the lift to ADR as higher rated bookings mix in. In addition, future bookings in Jamaica have been stronger than our other segments following the removal of its testing requirements. This is all extremely encouraging as we always believe nothing has structurally changed in Jamaica, which was our best-performing segment prior to the onset of the pandemic. This leaves considerable upside from the ongoing recovery in Jamaica as we head into the second half of 2022 and into 2023.

Turning to Mexico, which has led the way during the recovery for Playa. We had another strong quarter, led by better-than-expected close-in demand on the Pacific Coast. The Dominican Republic continue to benefit from the capital investments we made prior to the pandemic, particularly the Hyatt Ziva and Zilara Cap Cana Resorts, which had another stellar quarter and are now generating a cash-on-cash return well above the high end of our target range of 12% to 15% on a trailing 12-month basis with a resort EBITDA margin that was over 40% in the second quarter. Our focus on direct channels continues to pay off, and we are confident that Playa is on target with our 5-year plan to increase consumer direct business to at least 50% by 2023. In aggregate, during the second quarter of 2022, 42.4% of Playa managed room nights booked or booked direct and 6.1 percentage points year-over-year, reflecting the continued relative strength of our direct channels, including a significant acceleration in group and third-party source business. During the second quarter of 2022, playaresorts.com accounted for 12% of our total Playa-managed room night bookings down 10 percentage points year-over-year. This is a critical aspect of our business that I believe many overlook. We apply to drive a significant portion of our direct revenue in-house, which is now a major competitive advantage for our current portfolio for potential third-party managed resorts in the future.

Finally, as a reminder, we anticipated that as the world slowly returned to a new normal, our mix of direct business would likely fall below 50%. But we still believe it will remain higher than levels seen prior to the pandemic and significantly higher on an absolute basis. Taking a look at who is traveling, a little less than 40% of the Playa managed room night stays in the quarter came from our direct channels as our group and tour operator mix improved year-over-year and OTA mix remain depressed. Geographically, our U.S. sourcing increased approximately 10 percentage points compared to Q2 2019 to 67% of managed room nights. While our South American source business increased nearly 400 basis points and European guests mixed 1 percentage point higher. Given the changing state of travel restrictions, our Canadian and Asian customer mix remains significantly depressed versus pre-pandemic levels. Our booking window was significantly longer than Q2 2019, as a result of the robust pacing figures we have been sharing with you in recent earnings calls. Our length of stay during the second quarter was 2% above Q2 2019 and 4% longer than Q2 2021.

Once again, I would like to sincerely thank all of our associates that have continued to deliver world-class service in the phase of pandemic-related challenges. Their unwavering passion and dedication to service is what truly sets Playa apart. With that, I'll turn the call back over to Ryan to discuss the balance sheet and our outlook.

Thank you, Bruce. Good morning again. I will first give you an update on our liquidity and balance sheet and then review the fundamentals of the second quarter, and then finish with a discussion of forward bookings and market trends. As you know, we finished the quarter with a total cash balance of just under $349 million as of June 30. This balance is net of $25 million of mandatory debt repayments we made stemming from our 2020 asset sales. We currently have no outstanding borrowings on our revolving credit facility, and our total outstanding interest-bearing debt is $1.12 billion. Our net leverage on a trailing basis now stands at roughly 3.5x. We anticipate our cash CapEx spend for full year 2022 to be approximately $35 million for the year, with roughly $5 million being carried over from CapEx we did not spend in 2021 as anticipated. The vast majority of our projected 2022 CapEx at this point is maintenance related.

Now turning to our MICE group business. Our 2022 net MICE group business on the books is approximately $49 million versus $41 million at the time of our last earnings call and is again well ahead of full-year final 2019 MICE revenues of $32 million. About 1/3 of the $49 million is expected to stay with us in the second half of the year with 40% of that in the third quarter and the remainder in the fourth quarter. Our pacing for 2023 has remained strong with nearly $31 million already on the books, which is roughly 2x the amount of MICE revenue we had on the books in July of 2019 for 2020, and also 50% higher than what we shared with you on our last earnings call. The return of this mice business should provide a good base to help manage yields and drive improved profitability year-over-year, particularly at our resorts in Cabos, Rosehall and Cap Cana.

Now moving on to the fundamentals. Our second quarter results exceeded our expectations as a result of better-than-expected ADR and occupancy. With respect to the top line, occupancy came in slightly above our expectations driven by close-in demand in Jamaica and the Pacific Coast. ADR also came in above our expectations, led by better-than-anticipated ADR gains in the Dominican Republic at both of our managed properties. On the cost front, as Bruce mentioned, the teams have done an excellent job navigating the challenges of the current environment. Our resort margins were well ahead of Q2 2019 levels and just 40 bps shy of Q2 2018 resort margins. Margins benefited from marketing efficiencies given the higher booked revenue position, while food and beverage and utility expenses were higher compared to Q1 due to both inflationary pressures and targeted investments in food and beverage to enhance the guest experience.

I'd like to remind everyone of some of the factors that make comparing and analyzing our fundamentals versus the 2018 and 2019 period difficult. First, as a reminder, we closed on the Sagicor transaction in June of 2018. And as you know, while the Jamaican markets are historically have had higher ADRs on a like-for-like basis, the operating costs are higher and thus had a lower margin profile. Secondly, the construction disruption we experienced in 2019 related to our Hilton conversions have the most pronounced impact during the second and third quarters of 2019. And lastly, the Dominican Republic, as you recall, experienced a sharp slowdown related to perceived safety concerns beginning in June of 2019 and led to a material decline in profitability, which carried through the rest of the year.

At the segment level, as Bruce mentioned, Jamaica sequential occupancy improvement during the second quarter was the notable standout. Following the relatively slower start to the year, performance in Jamaica improved during the second quarter, and we expect further improvement in the second half of 2022 based on the business we have on the books, improved MICE booking pace and increasing airlift into the market. The recovery in Jamaica has the potential to be a meaningful contributor to EBITDA growth in 2023 as the relative ADR growth has been muted versus our other segments and historically comparable resorts. If you adjust ADRs in Jamaica for the mix impact of asset dispositions, like-for-like ADRs have only increased at a low double-digit growth rate versus 2019 during the first half of 2022, thus lagging comparable resorts by roughly 20 to 40 percentage points.

With the tailwind of the strength in the MICE segment and the removal of the COVID entry requirements, Jamaica will be particularly exciting for us to monitor in the coming months. Looking at our other segments, the Yucatan Peninsula continued to deliver strong results, driven by higher demand through our direct channels, leading to sequential occupancy improvement and reported ADR gains of nearly 60% versus Q2 of 2019 or approximately 39% adjusted for OTA commission adjustments and mix impact from asset dispositions. However, cost headwinds in food and beverage and utilities weighed on our second quarter margins in Yucatan, all they were still higher than 2019 levels. The Pacific Coast had a fantastic second quarter driven by strong demand throughout our direct channels and the MICE group segment, which helped offset similar margin pressure from utilities and food and beverage costs. Finally, our flagship Zilara Cap Cana resorts continue to lead the way in the DR segment with another quarter of strong margin performance. Results in the segment were once again weighed down by our 2 externally managed properties whose ADRs are still below 2019 levels.

As we look at the second half of the year, I continue to be excited about our potential based on how our book of business has been building. We're particularly encouraged by year-over-year ADR gains and revenue pacing in the second half of the year, and we expect to lap the second half of 2021's record performance. Both the third and fourth quarters are facing significantly ahead of the comparable periods in 2019 and 2021 in both revenues and ADR. For the second half of 2022, we expect occupancy levels to be similar to the occupancy rates reported in the first half of 2022 and a high single-digit year-over-year ADR growth, which is an acceleration versus the second quarter in trend when compared to 2019. Another reminder on the modeling and comparability front. The change in the OT billing methodology impacting our ADR was implemented during the second quarter of 2021 and should largely become comparable year-over-year in the third quarter of this year. The second quarter that we just reported was still materially impacted versus Q2 '21 as we had many reservations on the books ahead of the change, which are not subject to the new commission accounting treatment.

We do not anticipate expense inflation to be materially worse in the second half of 2022 as compared to the first half of the year, with the exception of increased insurance costs, which began in the second quarter of 2022 in connection with our regularly scheduled annual policy renewal and some higher F&B and utility costs. As a reminder, our costs experienced a step-up in inflation during the middle of 2021. So in conclusion, we still expect to hold or grow margins year-over-year in the second half of the year and lap the second half of 2021's record margin performance. We hope that framework helps guide you as you fine-tune your models and gives further insight in what we're seeing and expecting. With that, I'll turn it back over to Bruce for some closing remarks.

Great. Thanks, Ryan. With the increasing uncertainty in the macro backdrop, we are diligently focused on the areas within our control and are carefully monitoring the landscape. Given our leisure focus, the most important factor for our success will be employment as a major uptick in job losses or confidence could potentially derail the shift back to travel and services from durables. However, this morning's job report demonstrates no weakness in the overall labor market and gives no indications of an impending recession. As long as the job market remains strong, Playa's business outlook should be very positive. We believe the price certainty and amazing value provided by Playa continues to resonate with travelers even in the face of an uncertain economic backdrop.

Finally, on the capital allocation front, we have recovered faster than most of us expected just a short time ag, and now have a healthy cash balance. Which naturally begs the question, what is next for Playa? Our leverage has only now approached our long-term target of approximately 4x. And although financial market conditions aren't ideal at the moment, we anticipate refinancing our debt and extending maturities. As part of the leverage consideration, our 9.25% interest rate property loan recently became callable, which is another potentially attractive use of capital that we believe will save cash, provide a solid return, help with our debt refinancing and reduce our long-term cost of capital. Separately, we have been actively working for months on pursuing value-added projects that we have yet to announce, but which are a time-sensitive use of cash on hand.

Finally, if credit markets begin to cooperate and our stock continues to remain severely depressed, we would be interested in buying back our stock at its current valuation. With that, I'll open up the line for any questions.

I will begin the question-and-answer session. First question comes from Patrick Scholes, Truist Securities. Please go ahead.

Good morning, everyone. A couple of questions for you here. Certainly, the valuation on the stock where it's trading is possibly what the value is of the properties. Looks certainly very attractive. And my question here is, would you ever consider doing on a typical property, selling off a joint venture piece, really mark-to-market example of what your properties might be worth? I think of Ryman Hospitality that did something somewhat similar with their entertainment segment where there just weren't a lot of good comps. They sold off a small piece of that and certainly it was much higher than the Street was expecting. Would you do something to that effect so that you get a good example of really what they are worth?

I mean from an academic standpoint, the answer is sure. We would consider it. From a realistic standpoint, I'd say it's less likely. I mean, so you think about it, first of all, Ryan, we over what our cash balance is. So it's not like you need to sell an as we've been a part of an asset for any cash needs, right? Because we have a very healthy cash balance. So that's one. The second thing, I think the bigger overriding reason is the opportunity that exists for Playa in buying real estate in our markets is that it's an incredibly inefficient kind of market. You don't have, for example, REITs like Ryman or others in our markets that are competitively bidding on properties all the time. And so that there's a very efficient market to buy and sell assets. In our case, that just kind of doesn't exist. It's why things don't trade very frequently, maybe it creates some problems for people trying to find a comp. There's no question if we thought there was an opportunity to do a joint venture with somebody in sell properties and share, and that would really be from a standpoint of growth that we would be growing more than by doing something like that then growing less. So that's why we would do that. But I'm not against it. Do I inherently believe that we're undervalued? I think we're crazy undervalued. I mean, I think if you just look at the free cash flow we're generating and as I mentioned, there's no really indication of any weakness on our horizon. I think the market is always waiting for the other shoe to drop. And for our business, as long as people have income to spend to go on vacations, they're going to go on vacations. And as long as their health -- I mean, their employment is healthy and kind of jobs, wages are going up. They're going to continue to do that. And for us, inflation is not a big negative. I mean, sure, do we have some increase? We highlighted we have some increases in food and beverage and utility costs but overall, we're able to price our rates higher than our costs are going up. And as long as that exists, it's going to remain a positive dynamic for us. So we're not really fearful of inflation, and we're not really fearful that our business is going to be declining anytime soon.

My next question, you recently announced you had landed a new management contract. Would you just sort of, I guess, an outlook win? Were there any concessions you had to make to get that--?

Yes. No, actually, that contract is a good example. So I was down in Mexico 2 weeks ago, meeting with the owners of that asset. And they were so excited to get to the point where we were signing that management agreement and the reason being is that they look at our performance. Being the only public company in the only inclusive space, I can tell you that people, our competitors all look at our performance. And they said your performance into your properties is dramatically above what we were experiencing, and we wanted you to take over and see what we can do there. And so they're excited. I think our prospects for really improving their performance are very, very high. And so we and they are excited about doing that. So concessions absolutely not. I mean it was a very strong third-party management agreement. And I can tell you, we're in discussions with others. And so hopefully, in the near future, we'll be able to make additional announcements. But I think it's an exciting time for us because our performance has been very strong, even stronger than those in the markets that we operate in.

Congrats on that. And I admit I think I probably know the answer to this one already. But when we land on some of the resort markets have done exceptionally well over the past year. Whether you at Miami Beach or Vale and Aspen, we're starting to see some growth. As you -- obviously, in your numbers in 2Q, but as you look at sort of the year and early next year, seeing anything noticeable on pressure on occupancy? Thank you.

No. See Pat, and that's why we tried to make that point clear. You're absolutely right. We're not seeing any notable any change or slow down. While we're fully aware of the consumer crosscurrents, we're not seeing any erosion on ADRs in the portfolio. I mean just to reiterate again, like our headline ADR growth, is eye-popping, there are nonorganic drivers impacting those numbers. But our underlying organic like-for-like is still very impressive and reasonably sustainable. I think in some of those examples like places in South Florida and others, you kind of had a captive market, a captive audience that had nowhere else to go. And people may be willing to go to, I don't want to disparage any particular markets in South Florida, but people may have been willing to go there but I can say they probably don't want to go back next year and pay the same rates, right? Particularly with lower staffing levels, lower service levels where we've opted to do the complete opposite and make sure that we're pricing appropriately. Our pricing is still up, but the underlying ADR growth is not unsustainable while still investing in the product and investing in staffing.

Next question will be from Shaun Kelley, Bank of America. Please go ahead.

So I just wanted to dig in a little bit on, first of all, Bruce, your upfront commentary there about just the trends you're seeing for Q3 and Q4. So if I kind of got all this right, I mean, directionally, you're up 35% in revenue in Q3, 20% in revenue in Q4 on bookings thus far, and that's at high single-digit rates. Those are all year-over-year figures. So the balance of sort of A-B is the occupancy improvement you expect, which should get you kind of in like low to mid-70s, similar to what you did in the first half? How did I do?

Absolutely. You're really good.

Okay. I just want to make sure I caught all that as the decomposition. So really, the question then goes into next year a little bit, right? As we do start to cycle like the recovery part, obviously, for Playa's largely done, Jamaica has a tailwind to it that's going to last for a bit that you've outlined. But help us think about organic growth levers in '23? What can push the story forward as we are from a consumer perspective, even if things don't roll, we've taken a lot of price in that lane. So is it slowly building occupancy back up to the 80s and optimizing the resorts? Are there other organic opportunities around the properties? What can kind of drive mid- or high single-digit growth next year as we -- once we kind of hit like let's call it, some sort of normalized level of demand?

Sure. Well, let's step back and look at kind of what could keep going up and drive it? First of all, if you recall, we were definitely impacted in January and February by Omicron, right? So we did not have a normal first quarter of 2022. So right away, we're going to have a benefit of fortunately, let's just assume that we don't have another variant that's going to get it. So we should have a more normalized first quarter, we're going to have a big benefit there. Second, okay, is just the Jamaica effect. As you're well aware, Jamaica didn't lift their travel restrictions until middle of April. So we have 3.5 months that were under travel restrictions that, again, we should be able to significantly lap the results that we did in Jamaica. And Jamaica historically has been a great market for us. And then the third big one is MICE, okay? And that you've seen our MICE business continue to improve. And then I'd say the final component that may not drive so much in the first quarter, but really probably in the second half of '23 and then in '24 and beyond is going to be some of the capital projects.

So we highlighted that we have these time-sensitive projects. We haven't announced what they are. We will announce what they are. But across the board, our success with our capital investment has been incredible. We have really good returns whenever we invest money in the projects that we've identified and not surprisingly, are the best returning projects, okay? So as you look at what we're going to be doing later this year into the beginning of '23, those projects are going to generate some really nice kind of organic returns going forward. So I think for all of those components, it paints a very positive picture for 2023.

And Shaun, the only other thing I'd add is just kind of reiterate what I said earlier on Jamaica and just as a reminder. I mean, an ADR, that was traditionally our highest ADR market. And if you look at how it's performed thus far in the first half of 2022, it's really only been up kind of high -- excuse me, low double-digit ADR growth over 2019. Which when you compare to what the other guys have done the comparable hotels like Ziva Cancun and others, it's lagged by 20 to 40 percentage points. We've seen increasing airlift already start to build in that market. And then while it's small, we're in ones and twos, but if you think about what's opened in the last couple of years, we had the Hyatt Sawara Riviera Cancun at the end of last year, the Hyatt, [Sawara], Riviera Maya management contract that we started to take reservations for December, the [CDF] that we just mentioned. And they continue to recover the other third-party contract that we've already had. It's not an immense amount of additional revenue, but that proof point and that thesis is starting to build and should add some nice revenue next year and beyond as well.

And then my follow-up is sort of the balance sheet capital allocation question. So you alluded to the callability of the, I guess, the 9.25 notes so that sounds like an obvious maybe first target for something. And I'm not super familiar with exactly how much that would -- like just what kind of dollars we're talking about there or refinancing potential. But just help us think about, I mean, maybe capital priorities because it would strike me as you're getting into the 3 and 4x level. You should be -- you're probably at that place where you want to reload maybe the organic growth basket, especially if ROI potential around the properties is as high as you've demonstrated in the past.

Yes. And you're up the right. So we think of it kind of in those couple of buckets. So first, as Bruce mentioned, the capital markets are a little disjointed and not ideal at this point, but we certainly anticipate to need to refinance and extend the maturity of our debt. It's not due until 2024, but it's certainly something we're poking. And we may need some cash to help smooth that process over and help smooth that process over and help our overall cost of capital for the long run, right? And obviously, just like you said, that 9.25% debt, which would save over $11 million a year in cash interest expense is an obvious choice, and it just potentially helps kind of help facilitate a more smooth refinancing whenever that time may be if the markets remain a little more disjointed. As you're well aware, the high-yield markets have been incredibly bad, the leveraged loan markets are a little bit in better shape, but OID is still tough. So we're making sure we're preparing and getting ready in the background to address anything that we can if and when the markets fix themselves. But then to your point, you're absolutely right. Bruce alluded to it, but we've been actively working for months in preparing in the background. Our ability to pursue some compelling value-added projects that they're not yet announced or approved, but they are more time-sensitive and be a great use of our liquidity and capital.

Our next question will be from Chris Woronka, Deutsche Bank.

Bruce, you mentioned the time sensitivity on some of these CapEx opportunities. And I know you didn't want to get into specifics just yet, but is the time sensitivity due to something you think you need to do to maintain or grow market share? Or is there another angle to the time sensitivity in terms of an approval or procurement or something like that?

Yes. then, it's more of the latter. So just a couple of things, some of the dynamics with a couple of properties, that's what it refers to. I don't want to overplay that. Obviously, we could we could do things faster or a little bit slower, but it's more there's great opportunities. I mean I guess if any message I want to get across is there's great opportunities. And we have a really strong track record of delivering on those kind of projects. And we have more projects and we have cash, okay? So in the perfect world, we do even more, but we've prioritized them. So we've looked at the best returning opportunities, and that's what we're going to focus on. And so I think the results coming out, and it will be probably like beginning in the second half of next year will be positive, very positive.

Okay. And just a follow-up on that, Bruce. If you do move forward with some of those, can you do it in such a way that disruption is minimized because obviously that you guys kind of went through that in, I guess, 2017, 2018. So can we get -- do you feel confident you wouldn't disrupt a very strong revenue environment to do those?

Yes. So I mean, the things we're talking about, Chris, are going to have way less of an impact on disruption than we had back in '17 and '18. So that's number one. And number two, we take into account the EBITDA disruption when we're evaluating and prioritizing the projects. So that's definitely one of the key considerations. It's always frustrating to me. I mean, look, when I was getting my MBA in finance, everyone told me the capital markets were incredibly efficient and they value long-term cash flow, and they would discount them back at risk-adjusted results and you do the best projects for shareholder value. Well, I've learned, that's not the case, okay? The capital markets look next quarter and they want to see what your EBITDA is next quarter. And they assume if we have any EBITDA disruption next quarter, that's a permanent impairment of EBITDA, and you never get it back. So somewhere between the practical way the capital market value and the theoretical is what we're focused on. But we're going to do projects that make sense for driving shareholder value, and that's what we're doing. But we definitely keep our eye on that EBITDA disruption issue.

And then last one is on the non-package revenue, really strong number there in Q2 and both on an absolute basis but even more impressive on a per-occupied room basis. Can you tell us what drove that? Was it something intentional? Can you maintain some of that momentum going forward? Or is it more just a function of kind of higher pricing on everything at the resort?

It's a couple of levers there. So one, there was a few things that we were putting in place prior to the pandemic that just allowed us to roll it out more quickly. Like selling private transfers to and from the airport through our website. We started -- we'd already kicked around the idea of selling or charging for cabana usage at the property as well in a socially distanced world upon reopening in 2020, everybody wanted those. We started building more cabanas and charging more for them, but still offering them at a very competitive price compared to what you'd get in South Beach, for instance, right? We were able to do more spa business. And so long story short, we did a nice -- we have a nice base that already grew throughout the pandemic. And now what you're seeing is that you've layered on the return of MICE and wedding business, who's doing a lot of events and dinners on the beach, and celebrations and things like that. I was in Cap Cana in July. As an example, we've hired now 3 Indian chefs certified chefs, and we're doing very large Indian weddings there. And the one that I was there with a relatively cheap one, and I think it was $275,000 over 4 days, right? Now it's blown away with just the amount of just like the over-the-top celebration at that resort. And again, that was a relatively cheap one. So very focused on that package spend.

Our next question will be from Tyler Batory, Co Oppenheimer.

Can you talk a little bit more about performance within the portfolio at the different brands? I mean, obviously, the rate commentary holistically very positive. But is that being more driven by the highest than the Wyndhams, for example? I mean are you seeing any weakness in terms of some of the lower-rated business within your portfolio?

No, nothing yet. I mean, certainly, the Hyatts have always been kind of the core outperformers in our portfolio compared to kind of the Hiltons and the Wyndhams, but we're not seeing a slowdown. If you're trying to get at like the lower-end consumer, I still think even at our Wyndham Ultras and the Hilton, that's still kind of a mid-tier consumer, and that business is still very, very strong right now. We have pockets in various markets that are just different from one another, like you've heard us say many times that [Plaza Carmel], that whole market, that includes the Hilton and now when the ultra recovered more slowly than Cancun for all obvious reasons, had more supply over the years down there. It's further from the airport, it's not Cancun proper. But we're not seeing any pockets of weakness at the lower end properties vis-a-vis the high end, highest.

And then my follow-up question, there's a lot of headlines, news stories about the challenges for the airline industry, issues with flights getting canceled, rescheduled, capacity issues. Is that something that you've noticed in your markets? And what does the flight capacity look like in the back half of this year? I mean ramping up? I think it's kind of a little bit more stable?

Yes. We've not had any of the cancellation issues that you've seen in kind of longer haul flights in Europe than others. The back half of the year based on the data that we received, there's been a fairly large upward revision in Q3 and Q4 on top of what was already happening. You heard Bruce mention earlier that we finally crossed the threshold in Q2 for positivity in arrivals into Montego Bay, and that's essentially doubling in Q3 and into Q4 and then bigger upward revisions in Cancun and Montego Bay and Los Cabos as well. So not seeing that show up in any of the numbers.

Next question will be from Shabnam Macquarie.

We get a lot of questions from investors just around kind of a macro downturn hypothetical. Given your model, can you talk a little bit about some of the things that you could do if we see a slightly more price-sensitive consumer or just kind of a general weaker consumer out there to kind of keep margins at a relatively strong point?

So I'll let Ryan kind of get into details of that. But Chad, but I'll tell you just from the overall standpoint, I've been in the all-inclusive business now, it's been 20 years. And I can tell you, going through different down cycles, all-inclusive does incredibly well in downturns, incredibly well. And why is that? It goes back to the value proposition and the fact that you know exactly what you're going to spend going into it, and so it's not like this unknown. And so I would look at it and I see no signs and I have, quite honestly, and I tend to be a more kind of cautious person, not negative, but more cautious looking at kind of the downturns. I just don't see it, first of all. But if it comes, I think we will benefit much better than kind of traditional players will benefit. And I think we do have some levers to pull to manage through that. And then I'll pass that part over to Ryan.

Yes, I think the only thing I'd add just a bit more specifically, I think it depends a little bit on the property. But if you think about the highest and just generally across our portfolio in the beginning, Bruce has been pretty adamant about making sure that we're maintaining price and seeding occupancy in favor of ADR to establish our competitive positioning. And at the same time, so if there were -- that environment were to present itself, we're okay with giving up some occupancy because it makes it easier on the ops team and it allows us to kind of continue to price effectively when a rebound were to take place. That strategy may differ slightly at a lower chain scale property because you can be more flexible with expenses given the different guest expectations. But in general, the marching orders from the beginning of this recovery then favor rate and not overfill the properties.

And then separately, you mentioned some of the international inbound markets are recovering, but still certainly not where we saw pre-pandemic. Can you talk a little bit more about Canada, Europe, Asi. Asia obviously has pretty strong restrictions, kind of where that group of inbound percentages collectively maybe versus where we were pre-pandemic? And if you're starting to see improvement in that inbound?

Yes. Europe. There are parts of Europe that did actually recover fairly well. Actually, Q1 is as a percentage of our overall room nights. Europe was actually higher than it was in '19 by just like 100 basis points. We did see some choppiness at a few properties in June, but that is not continued into July. So no cause for concern there, just recognizing everything that's happened in Europe, right, over the last couple of months. Asia and Canada are still severely lagging, as you can imagine. I mean Canada prior to the pandemic was roughly kind of 5% to 8% of the overall room mix and Asia was less than 4%. So it's not a massive part of the picture, but Canada is the one that's lagging most behind.

This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Bruce Wardinski, for closing remarks

Okay. Great. Well, again, we appreciate everybody's time today. We think the business in the quarter was obviously very, very strong. We're looking forward to continued strength throughout the rest of the year and into 2023. I think as you picked up from my comments, I don't see the world coming to an end. So hopefully, it's not going to happen anytime soon, and we can continue to really execute at top level. So again, thanks for participating in our call. And please go ahead to playaresorts.com and book a stay at one of our resorts. Thank you.

Thank you for attending today's presentation. You may now disconnect.