Good morning, and welcome to Hyatt's third quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. As a reminder, this conference call is being recorded. I would now like to turn the call over to Ryan Nuckols, Vice President of Investor Relations and Corporate Strategy. Please go ahead.
Thank you, and welcome to Hyatt's third quarter 2026 earnings conference call. Joining me on today's call are Mark Hoplamazian, Hyatt's Chairman, President, and Chief Executive Officer, and Joan Bottarini, Hyatt's Chief Financial Officer. Before we start, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q, and other SEC filings. These risks could cause our actual results to be materially different from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issue today, along with the comments on this call, remain only as of today and will not be updated as actual events unfold.
In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks under the Financial section of our Investor Relations website and in this morning's earnings release. An archive of this call will be available on our website for 90 days. Additionally, we posted an investor presentation on our Investor Relations website this morning containing supplemental information. Please note, unless otherwise stated, references to occupancy, average daily rate, and RevPAR reflect comparable system-wide hotels on a constant currency basis, and closed hotels in Jamaica are excluded from comparable metrics in 2026. Percentage changes disclosed during the call are on a year-over-year basis unless otherwise noted. With that, I will turn the call over to Mark.
Thank you, Ryan, and good morning, everyone. We appreciate you joining us today. I am extremely proud of our teams and the exceptional results they helped deliver in the third quarter. Hyatt continues to demonstrate the strength of our asset-light business model and our insights-led brand-focused strategy, supported by the talent and commitment of our colleagues. Our teams are focused on delivering on-property experiences that truly resonate with our guests, deepen loyalty, drive durable fee growth, increase free cash flow, and generate attractive long-term returns. Our third quarter results provide another compelling example of our strategy in action. We delivered strong RevPAR, fee, and adjusted EBITDA growth, expanded World of Hyatt membership, and grew our development pipeline to record levels, even as certain subregions experienced temporary softness in demand.
Our diversified global portfolio focus on high-end, experience-focused travelers, and strong commercial platform continue to drive performance and strengthen Hyatt's position as a preferred choice among guests, owners, and developers. Together, these advantages support high-quality operational execution and growth, driving higher fee earnings and free cash flow. Turning to our operating results, third quarter system-wide RevPAR grew 7.2%, exceeding our expectations. Performance was driven by durable demand from high-end travelers and continued strength across our luxury portfolio, with some benefit from the FIFA World Cup in July and the timing of the Jewish holidays in September. RevPAR growth in the U.S. also exceeded our expectations, while most international markets delivered strong growth. Average rates grew in all brand categories, driving nearly 80% of our RevPAR growth.
Our focus on driving high-quality RevPAR growth is intentional as it supports higher cash flow for owners, and it also results in higher fees and fees per room for Hyatt. RevPAR increased across all customer segments: business, group, and especially leisure travel. Year to date, we have gained 100 basis points of market share across our portfolio, driven by gains in average rate index, highlighting that our strong RevPAR gains are much more than just favorable industry trends.
Together, these results highlight the benefits of Hyatt's differentiated strategy, premium brands that resonate with travelers and win in their competitive set, supported by a commercial engine that drives superior results for our owners. Business transient RevPAR grew approximately 1% during the quarter, with growth accelerating to more than 4% in September, a sign of renewed momentum after the summer, with strong results in our select service brands in the U.S.
Group RevPAR increased a strong 8% in the quarter compared to last year, with some of that growth coming from the FIFA World Cup and the shift in the timing of the Jewish holidays. The strength and resilience of the leisure traveler drove leisure transient RevPAR growth of approximately 10%, once again led by our luxury hotels. Demand for high-quality experiences remains strong, with performance at our resorts in the Americas offsetting temporarily softer demand at our all-inclusive resorts in Cancun.
Looking ahead, we see continued momentum across all customer segments, and the pickup in bookings into Cancun is very encouraging. World of Hyatt continues to fuel increased performance across our brands and continues to grow at an exceptional rate with more than 72 million members, up 19% from a year ago. But it is not just about scale. World of Hyatt is central to our insights-led and brand-focused approach.
Its continued growth reflects the appeal of our brand and the value the program delivers to members and ultimately to owners. The way we connect and engage with our members differentiates their experience and provides us with valuable insights into what matters most throughout their travel journey. We see this reflected through the deeper and more frequent engagement with our members. Since 2022, we have seen members with over 100 qualifying stays per year increase by nearly 40%. Our recently announced long-term loyalty collaboration with Delta Air Lines is a great example of connecting with our members beyond their hotel stay experience. Our collaboration brings together two brands with a shared commitment to thoughtful premium experiences that put members first. Together, Delta and Hyatt aim to make travel more connected and rewarding through exclusive benefits and experiences that extend throughout their travel journey.
We're excited about this collaboration and look forward to sharing more as the program develops. Together, our differentiated brands, commercial platform, and growing base of highly engaged World of Hyatt members strengthen our value proposition for guests, owners, and developers. This drives demand for Hyatt Hotels and supports attractive owner returns, underpinning our quality growth strategy. Hyatt's value proposition continues to resonate with owners and developers, as reflected in our exceptionally strong development activity during the third quarter.
We ended the quarter with a record development pipeline of approximately 158,000 rooms, up 12% from a year ago. Year to date, we have signed 70% more deals compared to last year, and our construction starts are up over 40%. The performance of our luxury, lifestyle, and Inclusive Collection brands continue to generate strong owner interest in signings, while our Essentials brands are building continued momentum and expanding Hyatt's reach.
In fact, during the quarter, over half of the signings for our Essentials brands in the U.S. were in markets new to Hyatt. Third quarter net rooms growth was 3.9%, excluding rooms from the Playa Hotels acquisition that were removed from Hyatt's room count in the fourth quarter of 2025. Notable openings included the Thompson Seville, our second Thompson Hotels property in Spain, and Hyatt Vivid Punta Cana. Our expansion into upper mid-scale continues to gain momentum with 14 hotel openings in this segment during the quarter. As we look ahead, we expect over half of our openings for the year to occur in the fourth quarter. Approximately two-thirds of our anticipated fourth quarter openings are hotels in the final stages of pre-opening.
The remainder of our anticipated growth is largely comprised of multi-property conversions that in some cases have taken longer to finalize than anticipated, and strategic partner hotel additions. We've built a strong and rapidly expanding international pipeline that we believe will deliver accretive fees per room. We also see significant opportunities to expand our brand presence in the U.S. Together, these opportunities give me confidence in our ability to deliver the net rooms growth targets and, most importantly, the fee growth that we outlined at our Investor Day in May. Now, turning to transactions. We continue to make progress to sell the Hyatt Grand Central New York and are also advancing discussions to sell several additional properties. We will continue to provide updates as we make progress on these sales.
Throughout these sales, our disciplined approach remains consistent with our track record of pursuing transactions that achieve attractive values while securing long-term management or franchise agreements, supporting continued fee growth and shareholder value. We continue to sharpen our brand focus, invest in our talent, and leverage technology to deliver high-quality experiences and operate more effectively. The appointment of Amar Lalvani as Hyatt's first Chief Creative Officer reflects that commitment. He's helping bring our brand strategy to life across the company and equipping colleagues to deliver it. We believe these capabilities strengthen Hyatt's competitive advantages and support long-term value creation. As we shared at Investor Day, we've built a powerful flywheel that creates value for guests, owners, colleagues, and shareholders. Our third quarter results reinforce the strength of our strategy and our confidence in Hyatt's long-term potential.
Our opportunity is reflected in the strong development pipeline and the significant activity behind it. This is not about growth for the sake of growth. We are and will remain intentional about where and how we grow, focusing on openings that strengthen our network, further drive owner returns that will result in high quality, durable, and compounding fee growth into the future. I will now turn the call over to Joan to provide more details on the quarter. Joan, over to you.
Thank you, Mark, and good morning, everyone. Our third quarter results provide another proof point of the strength of premium leisure travel globally and healthy group demand. As Mark mentioned, RevPAR exceeded our expectations, increasing 7.2% compared to last year, driven by resilient demand from premium travelers and incremental demand from the FIFA World Cup. In the U.S., RevPAR increased a strong 8.2% compared to last year, driven by robust leisure travel and healthy group demand, with the FIFA World Cup contributing approximately 50 basis points to growth. Our select service hotels also performed well, with RevPAR increasing 6.8%, reflecting strong business transient demand and easier comparisons to last year. Outside the U.S., RevPAR increased nearly 6% in the third quarter. Outbound travel from the U.S. to our international hotels was up over 10%, reflecting robust international travel demand and continued strength in the higher-end U.S. traveler.
Asia Pacific, excluding Greater China, delivered robust RevPAR growth of more than 10%, driven by healthy inbound travel and demand in key markets where Hyatt has strong brand representation. Greater China RevPAR increased 2.1% compared to last year, supported by leisure transient demand and strong average rate growth. Europe generated RevPAR growth of 4.3%, driven by healthy domestic leisure demand and continuing growth of international inbound travel. In the Middle East, RevPAR declined by only 3% compared to last year, as strong domestic travel helped to offset a 40% decline in international inbound travel. In the Americas, excluding the U.S., RevPAR increased 9.2%, benefiting from strong resort performance in the Caribbean, highlighting the exceptionally strong demand for high-end leisure travel experiences. Net Package RevPAR in our all-inclusive portfolio declined only 2.5% compared to last year.
Strong demand for travel in the Caribbean and other parts of Mexico largely offset the more than 10% decline in Cancun. Despite these demand pressures, I am very pleased to share that our all-inclusive resorts in Cancun have gained 400 basis points of market share this year, reflecting the strength of our brands in the markets in which we operate. Turning to our financial results, our core fee business continued to perform well, supported by strong top-line performance, healthy hotel-level profitability, increasing scale, and the quality of our portfolio. Gross fees increased 15.2% to $327 million, ahead of our expectations, driven by strong performance across our managed portfolio, contributions from newly opened hotels, the new management agreements from the Playa portfolio, and the quarterly timing of non-RevPAR fees.
Our strong fee growth highlights the benefits of our broad, diversified, and differentiated portfolio and our ability to deliver growth even as certain geographies face demand pressure. Distribution segment adjusted EBITDA declined compared to last year and was below our expectations, as softer demand in Mexico and the reduction in flight capacity was more pronounced than anticipated. Results continued to be impacted by lower demand for four-star properties, and we expect a gradual recovery when flight capacity increases and travel spending improves among this consumer segment. Overall, third quarter adjusted EBITDA was up over 19% year-over-year, adjusted for asset sales, reflecting the strength of our core fee business. As of September 30, we had total liquidity of approximately $1.8 billion, including $1.3 billion of available capacity on our revolving credit facilities.
During the quarter, we also returned approximately $161 million to shareholders through share repurchases and dividends, bringing our year-to-date returns to $336 million. We ended the quarter with approximately $1.4 billion remaining under our share repurchase authorization. Our balance sheet is strong, and we remain committed to maintaining our investment-grade profile. Looking ahead to the fourth quarter of 2026, while travel demand continues to vary across regions, we remain confident in our full-year outlook, supported by the strength of our brands. Let me start with the two regions that are experiencing demand pressure this year. In the Middle East, while RevPAR declined by only 3% in the third quarter, we expect fourth quarter performance to be below those levels due to the seasonality of the business and the ongoing geopolitical conflict. We continue to anticipate an approximate $10 million impact to full-year fees.
In Mexico, booking trends at our all-inclusive resorts are improving sequentially but have not recovered to the extent that we expected for the fourth quarter. Despite the headwinds in Mexico throughout the year, our teams have delivered exceptional results, managing to mitigate the impact to a $20 million decline in fees for the year, which equates to about 1.5% of our total annual gross fees.
Looking ahead to the first quarter of 2027, forward-booking trends are encouraging, with first-quarter bookings at our Americas all-inclusive resorts up in the highest single digits and air capacity showing signs of improvement from lower levels. The continued strength of our core business reinforces our confidence in its underlying fundamentals, even as we navigate temporary regional challenges. In the U.S., forward-booking trends remain strong for the balance of 2026, with fourth quarter group pace for our U.S. full-service hotels up in the mid-single digits.
We expect fourth quarter U.S. RevPAR growth to moderate relative to the second and third quarters, reflecting more difficult year-over-year comparisons and the impact of the November midterm elections. Outside the U.S., we expect continued strong performance in Asia Pacific through the balance of 2026. Reflecting these trends, we are increasing our full-year system-wide RevPAR growth outlook to between 5% and 5.5%. We now expect full-year RevPAR growth in the U.S. of between 5% and 6%. We expect RevPAR growth in international markets to be slightly lower than the U.S. for the full year. We continue to expect full-year net rooms growth of approximately 6%, with momentum in conversions, including within our new brands, driving another year of strong organic growth. As Mark mentioned earlier, we expect more than half of our openings for the year to occur in the fourth quarter.
The strong development activity we are seeing reinforces our confidence in achieving the long-term growth expectations that we laid out at our Investor Day. We expect full-year gross fees to grow between 10%-11%, in the range of $1.32 billion- $1.335 billion, reflecting continued growth across our asset-light platform. Importantly, we are delivering this strong growth despite the temporary hotel closures in Jamaica and softer demand in Mexico and the Middle East, reinforcing my confidence in the strength of our fee business and long-term fee growth. We expect our full-year adjusted EBITDA to grow at a strong rate of 14%-17%, in the range of $1.17 billion- $1.20 billion. This outlook reflects strong fee performance, slightly lower adjusted G&A, and an approximately $30 million year-over-year decline in our distribution segment compared to 2025.
We are maintaining our adjusted free cash flow outlook for the full year in the range of $580 million- $630 million, an increase of between 20%-30%, and adjusted EBITDA to adjusted free cash flow conversion of at least 50%. Finally, we are raising our full-year outlook for capital returns to shareholders to between $375 million and $425 million. In closing, our third quarter results demonstrate the continued strength of Hyatt's asset-light earnings model. As we highlighted during Investor Day, our strategy is designed to generate high-quality, durable fee growth and increasing cash flow over time, and our results this quarter are another demonstration of the successful execution of our strategy. This concludes our prepared remarks, and we are now pleased to answer your questions.
We will now begin the question and answer session. Please limit yourself to one question to maximize the amount of questions we can take. If you would like to ask your question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking your question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Conor Cunningham with Melius Research. Conor, your line is open. Please go ahead.
Hi, everyone. Thank you. You have a competitor out there that is talking about 3%-4% RevPAR growth next year. Joan, you just listed a lot of headwinds that you had this year that shouldn't necessarily repeat next year. Just trying to understand the context of how you view RevPAR right now, just given where you sit on the demand commentary. Then maybe if I could just sneak a little one in on top of that, just bringing it back to fees. What gives you confidence in the NUG performance next year? Obviously, this year has been a little lumpy, so just any thoughts on the 6%-8% you laid out at Investor Day would be helpful. Thank you.
Sure. I will just start on 2027. We are in the middle of our planning process, and we will absolutely update you at Q4 with more specifics around guidance for 2027. But right now, it is setting up really nicely. Trends are strong across leisure, as we mentioned many times in our prepared remarks, and we have every reason to believe that those will continue. As we are looking into Q4, we are seeing that continue into Q4, so expect that to continue into the first part and throughout 2027. Group is also setting up nicely for next year. We are lapping some outsized group performance from the World Cup, but even despite that, we have got good group pace on the books for next year.
We also have the disruptions from this year, which are temporary, are going to help us next year as we go into early in the first part of the year. We already mentioned that the pace into our all-inclusive segment is up in the high single digits. So as we think about leisure, we have got visibility into those Net Package RevPAR numbers that they will be improving.
So we feel good about next year's setup, and there are several tailwinds that are going to help us into next year, including, I will just mention the hotels reopening in Jamaica as well. So there are several items, and we will unpack all of that for you in the fourth quarter when we give guidance for next year. That also just reaffirms what we said at Investor Day as far as our expectations around RevPAR growth and fee growth going into next year.
Mark will cover NRG.
I will just add one thing to what Joan just said. To support and substantiate the pace that we see in our all-inclusive business, airlift into Cancun is improving as we speak serially, and we see that continuing into planned schedule carrier activity in the first quarter and second quarter of next year. Jamaica is significant growth in airlift. Of course, the year-over-year numbers are stratospheric because they got cut back so severely in 2026, but it is a very quick ramp to restoration of lift into Jamaica. The Dominican Republic, which has had an absolutely stellar year, is holding its own with respect to airlifts, so should be able to support continued strong demand there.
The second dimension of this that I just wanted to touch on, which is really meaningful for us, is that if you look at the component pieces of group, by far, the largest growth is coming from corporates. If we look into what corporate looks like for the full year, this year, it looks like it could be up in the range of 7% or thereabout. If you look into next year, corporate pace is up almost 10%. First of all, we serve a relatively higher-rated corporate base. Secondly, when corporate bookings are that strong, other revenue streams, catering, banqueting, F&B, come along with it. That's probably the thing that I'm tracking the closest. This year, of course, we had a massive growth in sports and SMERF business that had to do with FIFA.
Even if you sort of ignore the FIFA impact there, the corporate forward bookings look really strong. As NRG, there's no question that we expect NRG to be more even over the course of the year in 2027. If you just look at the pipeline itself, without regard to any now unforeseen maybe year for the year opportunities that come up between now and the end of the year or into the first quarter, we will be solidly in above in the 6%-7% range in the first quarter, is our current outlook with respect to openings year-over-year increase. I think we're on our way back to restoring a more regular pace. You heard that the increase in the number of pipeline hotels under construction is up 40%. That's contributing to that.
We also are expecting some carryover of some of the portfolio deals and other conversions that we are working on today into the first quarter. We still stand by our annual outlook for 2026. It just means that we may end up starting with an extra boost from early openings in 2027. That's our outlook in the near term for NRG. Firmly-
Thank you.
I just reaffirm what we said at Investor Day for the 2026 to 2028 time period. We still feel very confident about 6%-8%.
Awesome. Thank you.
Your next question comes from the line of Brandt Montour with Barclays. Brandt, your line is open. Please go ahead.
Good morning, everybody. Thanks for taking my question. Maybe just following on that, Mark, I want to hear from you regarding the new development solutions that you rolled out in early October relating to conversions. What sort of prompted that? How linked was that to some of the, or I guess, the lowered revision on NUG last quarter? Do you think that that sort of improved any sort of slowdown or slow steps that you had in the process and in terms of how we should think about next year?
Yeah, I think there are several things that have happened over the course of this year. It's not just that which has happened in the last month or two. A couple of things. First, the utilization of AI to facilitate and accelerate how we approach property improvement plans for conversions. The turnaround time has been reduced from several weeks to a day, and that's already paid dividends in Asia Pacific, which that's the region that sort of led the way in terms of honing the best approach to making sure that we're taking structural considerations into account, plus brand standards and brand codes. So we feel like we've got an extra arrow in the quiver at the moment to be able to go faster, be more definitive, and even assist our developers in costing what the conversions might cost.
Secondly, we've been working on, and we continue to work on an end-to-end AI platform from the time that a deal is pitched through the time that the hotel is ramped. So it's a full continuum. I'm not going to go into further details because of competitive reasons, but we are starting to see some real benefits from that. I think some of the timelines that it has taken in the past, especially in and around systems conversions, require the old adage, if you can't untie the Gordian knot, you sometimes have to cut it. Well, we're cutting it because going in sort of traditional ways to reduce cycle time for systems conversion is painful and arduous.
We are actually developing some tools to be able to actually work around that and be able to have conversions go live faster and ramp the hotel faster by virtue of plugging in World of Hyatt. So those are the kinds of changes. I believe that we will be largely complete with the end-to-end product that we are working on now in the first quarter of next year, and I think it'll continue to benefit us because conversions remain a significant proportion of our total NUG.
That's good color. Thanks, Mark.
Thank you.
Your next question comes from the line of Shaun Kelley with Bank of America. Shaun, your line is open. Please go ahead.
Hi. Good morning, everybody. I think you tackled a lot of what we had to ask, Mark. It might be helpful, we have seen a lot of developments on the agentic AI front in the last few months, specifically really since early September. I know you are having a lot of conversations. You are pretty thoughtful on this subject, so just would love your view on how do agents specifically impact a little of the booking journey, and how is Hyatt able to sort of directly steer those agents to your direct channels as opposed to other aggregators that are out there? What are you kind of seeing on that distribution funnel? Thanks.
Yeah. So thank you, Shaun. First, I would say that, just to level set, the actual bookings that are being completed that originate through LLM platforms is very small. So we are still early in the days of direct agentic booking. It is coming, and it will grow fast. I think the pace of growth in AI related tools and technology has proven to be extremely high. I think we will see the same thing in agentic distribution.
We are absolutely focused on being available in the right ways to all purveyors. So across Gemini, OpenAI, Instinct, Muse, you name it, we will have presence. We are going to remain relatively agnostic. When I say relatively, I do not mean we have some biases. I am saying that the capabilities within these LLM frames are different. They are not all the same, and they do not all present your product the same way.
Our learnings from being very early in representing Hyatt directly in the apps that you can find through ChatGPT's platform have taught us a lot. We have a much better handle on the people who are coming through those channels. They are younger and spending a lot more on travel. The booking activity where it terminates, or concludes rather, in that environment is still very low. I would say I am a believer that agentic booking will be a significant portion of our total distribution picture. Over the next couple of years, I think we will see that expand. The key is that our strategy is really focused on elevating our brands and being brand focused.
The clearer and sharper you can define your brands and the experiences that people can expect to have, and also the total experience with respect to the pre-booking into stay and post-stay makes it clearer when a personal agent is searching for a particular trip. We believe that for our clientele, I would not say that this matters in economy, for example, or budget hotels. It matters a lot in resorts. It matters a lot in luxury and lifestyle. It matters a lot in some full-service hotels. I would say in the categories that we play in, that is the bulk of our system, it matters a lot, and that is why we are so hyper-focused on really elevating our brands and making them sharper, more defined, more findable, and more precise. We are actively engaged. I think you will hear this from everybody.
This is not the time to sort of narrow the focus. It is a time to experiment and continuously test and learn, and that is what we are doing.
Thank you.
Thanks, Shaun.
Your next question comes from the line of Ben Chaiken with Mizuho. Ben, your line is open. Please go ahead.
Good morning. Thanks for taking my questions. We've covered a lot of important topics. Just one for me. There was a number of impacts this year. Joan, you alluded to this, and maybe we can take it offline if you prefer, but to the extent we can quickly review the impacts in 2026 as they sound like most, if not all, will help in 2027. I believe, Joan, you said $20 million Mexico impact, $10 million from Middle East. I guess, was that the total impact or was that strictly within the managed and franchised hotel business as opposed to destination? Then part two, could you remind us the total Jamaica impact in round numbers and as well as the destination business? If I'm missing anything else. Thanks.
Sure. I'll just reiterate for you, Ben, our outlook that we have, the 10%-11% of fee growth for the full year and the 14%-17% of EBITDA growth for the full year, which has been raised in this release this morning, reflects the impacts that we've experienced across the course of the year. Really strong. And EBITDA. With respect to your question, just to summarize it for you, the fee impacts in Mexico and the Middle East for the year relative to our Q4 original guidance is about $30 million. That's just slightly higher, in our latest outlook relative to our Q2 outlook for Mexico. So $30 million in total for the year embedded within our full year guidance for fees. Again, that 10%-11%.
Stronger RevPAR that we've been experiencing, stronger demand, including significant rates across the world, has offset that $30 million. For EBITDA, the impacts, when you include the fees plus the distribution business, it's a total of $60 million. That is just wrapping it up into the aggregate numbers, again, from the beginning of the year till now. And we are remaining with this 14%-17% EBITDA growth outlook, which is very, very strong and very consistent with our algorithms embedded within with respect to RevPAR growth and the flow-through. Very good results, and that's the summary of company impacts for the year. Again, we believe these are temporary, as we've seen now improving sequential as markets, the dynamics that have impacted us, particularly in Mexico, which is the vast majority of that number, we're seeing improve.
And that is a really good sign for us as we look ahead into 2027. For Jamaica, we announced that in our original guidance, which was a $15 million headwind. As we look ahead into next year, our owners are very focused on opening up these hotels. Our current estimate right now is late Q1, early Q2 for the opening of those hotels in Jamaica. So we'll get some of that tailwind into next year and then into 2028 as well.
Ben, I think I have one thing I would-
Very good summary.
Yeah, I would just add one thing, and that is that we are tracking obviously how things are starting off in the fourth quarter. There are two areas that I just wanted to make mention of in passing. One is there has been a lot of disruption on the streets in France. That has not had an impact on our business to date. We are running ahead of where we thought we would be and pace for the quarter looks good. Actually, group pace has actually increased. The U.S. continues to hold up very well. Two areas, business transient within our upscale hotels and luxury leisure, which has just remained the juggernaut of growth for us and great stability, durability of demand. So those are the things that are encouraging us to set up well going into next year.
Joan covered it completely, and that is how we have mapped out the year to date. I guess what I would say is, while we are not taking any early indicators in October to the bank at this point, because we shouldn't. The world is a very volatile place, and we have midterms coming up. One thing we can say is that things are not falling through cracks or falling off the table at this point.
Understood. Very helpful. Thank you.
Your next question comes from the line of David Katz with Jefferies. David, your line is open. Please go ahead.
Thanks very much. Good morning. You have covered a ton of territory. I wanted to ask about the growth for Hyatt into the more moderate or limited service areas of the business. Understanding the strategic importance of having that as part of your portfolio, what I observe is that many of the other larger hotel platforms are trying to increase the economic intensity of fees per room of each new unit added to NUG. On the surface, that may appear to decrease in economic intensity. But I presume that it has other economic benefits across the entirety of a platform that you consider, not just necessarily each contract on the surface of it. Can you maybe help us just understand those economic benefits and how that adds to the totality of Hyatt, which is such a strongly growing enterprise?
Absolutely. Thanks, David, for the question. First, across the new upper mid-scale brands that we have launched, Hyatt Studios, Hyatt Select, and Unscripted by Hyatt, we have currently over 150 hotels in the pipeline. The signings that we have made, over half of the signings are in brand new markets to Hyatt, where we literally have zero representation whatsoever. We did an enormous amount of research in 2023 and 2024 looking at travel patterns for our members, and we discovered exactly when they were staying out of system, where they were staying, in which markets they were staying out of system, and we looked and evaluated those markets where our competitors had product in the mid-scale or upper mid-scale, and we did not, we were absent. That has been our target, and we are fulfilling that as we speak.
I think it is something like close to 70% of our openings in these brands have been in markets that we had identified as part of that research. So we are absolutely on strategy for covering new markets where our members were already traveling but staying outside of our system. The purpose of it is twofold. One, to make sure that Hyatt, in a very high-quality representation, because we want Hyatt Studios, Hyatt Select, and Unscripted by Hyatt to be at the high end of their competitive sets. We want them to have a quality experience in the upper mid-scale in those markets that can be affordable for developers to build and very profitable for them, but also create a good guest experience for our guests. That, so far, is proving to be true.
It is by definition true that when you have a hotel that has got a leading rate of $100 as opposed to $200, your total fee base and the room size is much smaller, the fee base is going to be lower. So that is just math. It is not an acute issue right now, meaning we do not expect, as we forecast and look at our total pipeline, including these 150 hotels, our fees per key in the pipeline is actually accretive. It is higher than our current fees per key in our open and operating hotels. So it will take years for that to start to show up in terms of our total mix, because the hotels that we are opening in the full service, luxury, and resort areas are very high rated, and our fee base continues to grow at a pretty good pace.
I am not worried about it from a system perspective, and you shouldn't be either. I think the key is being present where our travelers are traveling and being there with a high-quality representation. That was the rationale. That is what we are fulfilling right now. It is true that new construction starts in the U.S. have been low. That is partly why you see great results across pretty much all chain scales right now. I think that that will Yes, and borrowing costs have gone up, but I think that more and more developers will understand that in either new markets for Hyatt or markets in which we are very underrepresented, there are new opportunities to still earn a great return because underlying performance is so high, and it really helps our network effects significantly.
Perfect. Thank you so very much.
Your next question comes from the line of Duane Pfennigwerth with Evercore ISI. Duane, your line is open. Please go ahead.
Hey, thank you. Good morning. I was hoping you could expand a little bit on the recent announcement with Delta this past quarter. Any unique aspects of that partnership, maybe versus past relationships, and what future steps or opportunities in how you might work together? Thank you.
Yeah. The one thing I can say is what we've already announced, and that is that the arrangement that we've made is a dual earning relationship. So when you fly Delta or stay at Hyatt, you earn on both sides. That was a feature that is new to our partnerships, our airline partnership. That wasn't true in our prior one in recent years. That's the one attribute that we did talk about. We will tell you a lot more in the first quarter or so. When we announce fourth quarter earnings, we will unpack how we are approaching this partnership. I would say that the teams are working extraordinarily well together.
The customer base overlap is, that is the demographic overlap between our core customer base is very high, but the member opportunity in terms of expanding Hyatt member utilization of Delta and Delta SkyMiles participants' utilization of Hyatt both have big opportunities. That's why both companies saw there to be significant opportunity for us to actually make this a very strong win-win situation. And it's really important to us as we continue to hyper-focus on elevating our brands, that we really continuously deepen our relationship with the premium customer, with the high household income customer. And that's what we feel like we are gaining with a partnership with Delta.
Thank you.
Your next question comes from the line of Lizzie Dove with Goldman Sachs. Lizzie, your line is open. Please go ahead.
Hey, good morning. Thanks for taking the question. Could you maybe just talk about generally what you are seeing in the environment for key money overall? I guess on the near term, I think you raised adjusted EBITDA, but lower CapEx guidance and maintained free cash flow. I was not sure if that was related to key money or something else, but curious just over the long term as well.
Yeah. First of all, key money is actually a reduction of free cash flow. It is included in how we report free cash flow. I do not know how other companies do it, but that is how we report. The fact is that there is a lot of key money flying around development deals these days. I think the intensity that varies by type of project or chain scale. I think the thing that we have focused on most of all is being super clear and quite deliberate and precise about what the actual needs are for a developer. Oftentimes what happens is the allure of an upfront check tends to take hold in some cases. But when you actually think about it is actually a very small portion of the total earnings that the owner or developer can expect over a 20-year lifetime of a contract.
In a number of cases in the last quarter, and I am close to this because I have been directly engaged in several of these conversations with developers, the dialogue has been, "Look, you are presenting us with an ask with respect to a higher amount of key money. We are presenting you with a higher expected return over the next 20 years. By the way, your actual need is not a one-time injection at the beginning. It is actually a piece of capital, in your cap stack that you can benefit from and actually, yet still maintain your ability to do the transaction. What we get is a return of capital." So we have been doing more by way of, I would say, innovative ways to support development, that are not necessarily as key money-intensive. They still deploy capital, but maybe in a different way.
We have, I guess, both the track record and capability internally to do it. That is what we have been practicing. We actually laid out that we would be spending $150 million- $170 million a year in key money. I expect that over the next three to four years, that number will be in and around that range. It might be higher in one year and lower in another year, but my guess is that range is still a good range for you to be thinking about as you look into the future.
Thank you.
Your next question comes from the line of Rose Smedes with Citi. Rose, your line is open. Please go ahead.
Oh, hi. Yeah, thanks. It's Smedes. I wanted to ask you, just two quick ones. I guess the first one, just going back to Mexico for a moment. You said that it was weaker than expected than your expectations in the third quarter. And I was just wondering what sort of points were you looking at going into the third quarter that turned out to be maybe not so predictive or accurate and just what gives you confidence, now that we're in the fourth quarter, that we're not just seeing another head fake or maybe there's something competitive going on the ground in Cancun that's not necessarily related to the political disruption we saw earlier this year?
Yeah, Smedes. We actually saw some demand weakness in September, particularly in the third quarter. It was slightly worse than our expectations. We actually thought that flight capacity would be improving as we were looking at this Q2. It's been a little slower, but we're seeing it sequentially improve as both Mark and I mentioned. As we head into Q4 and to the first quarter, second quarter of next year, it's sequentially improving. My comment about market share in my prepared remarks is really remarkable and our owners are pleased despite what's happening in the competitive environment that we are delivering and our commercial and operation teams are delivering market share gains. That's what we need to be doing in this environment.
As we see the recovery continue from here, we will be able to just drive more top line and cash flow for owners into the future.
Yeah.
Fee guide.
If you think about the level of disruption in the Riviera Maya area, because that is really where it has been concentrated. The Pacific coast of Mexico, Dominican Republic, Costa Rica, they have been fine. In fact, Dominican Republic has had probably its best year ever. Yes, it is significant. It is a bit over 1/3 of our total all-inclusive business.
All in all, if you think about the severity of the disruption to gain 400 basis points of market share and only have a fee degradation of 1.5% of our total fee base, I think just demonstrates that the diversity, even within our Inclusive Collection business, let alone our total business, is proving that we are not highly subject to mass volatility as a result of what is going on in Mexico in a given area. Joan mentioned, in case you did not pick this up, it is an extraordinary number.
Americas, actually West is up 9% in the third quarter. That is extraordinary. A lot of that is in the Caribbean, in our other resorts. All I am saying is that the health of the luxury leisure traveler is very, very good, and we are capturing that in different ways, and we do have some headwinds that are specific, and part of that has to do with the sargassum, the seaweed problem, that abates seasonal. The first and second quarter are the best times, and they are also the biggest quarters for us in terms of total revenue. The times that it gets worse are in the weaker third quarter. That is some more color. I would say what Joan mentioned in passing is absolutely true.
We did expect lift to improve more than it actually did into Cancun in the third quarter, especially in September, and that did not come through. So that hopefully rounds out and contextualizes for you how we see our business there.
It does. I appreciate that. I just wanted to ask you quickly, you mentioned what looks like a really good pace of corporate group for 2027. What sort of percentage is corporate group of your overall group segment usually?
Yeah. Corporate usually, it typically goes something like 40/40/20, where we have 40% corporate, 40% associations, and 20% other. Other would be sports and SMERF and so forth, local.
Right
Also social. I will say that those proportions changed in 2026, where sports and social were much higher as a proportion of the total. That was very much FIFA for you.
I guess because of FIFA, right? Sure. Yeah.
Yeah, exactly. It is all FIFA.
Are you able just to provide or characterize the pace of group bookings just overall for 2027? Was it like mid-single digits or maybe
Yeah. If you remove FIFA, it is mid-single digits right now. I think the year is young, the corporate demand is very encouraging. It is not just corporate, by the way, in group, but if you look at our negotiated business, we were up 4.8%, something like that, in the third quarter for corporate negotiated business across our full-service hotels. That is significant. I think that we are seeing significant health amongst the larger corporations, so they are traveling. They are out. They are supporting business travel generally, and group is a particular standout in terms of rate of growth into 2027.
Well, see, now that is why Hyatt is not on Citi's travel portal. Because you are doing too well. But thank you for your time.
Our last question comes from the line of Dan Politzer with JPMorgan. Dan, your line is open. Please go ahead.
Hey, good morning, everyone. Thanks for taking my question. I just wanted to follow up on the distribution business. How are you thinking about the recovery into next year, and the path to getting back to those 2025 EBITDA levels for that business? Then similarly, can you maybe talk about your attitude or willingness and how you are thinking about keeping or selling this business and if this is something you have inbounds on? Thanks.
Sure, Dan. As we look into, again, we are in the early cycles of planning for next year, but we do see this airlift capacity will have a direct impact for the distribution business and sequentially improving into next year. So that is absolutely what we are seeing in the data. And half of the business, we have reported this before, is in the four-star category. So as that consumer and their spending improves over time, and we are seeing some of that in our lower chain scales in the U.S., so as that improves, we will see that business improve into those markets as well. Finally, with Jamaica reopening, that is a nice tailwind for the distribution business as they have more inventory to sell into next year. So if you want to comment on the other question Dan had.
I think the answer is we really don't have any further update on how we're thinking about strengthening that business. It still remains a very important distribution channel for us, and it's certainly helped us significantly in the gain of market share that we have seen, because we're able to track where lift is coming from and where demand is coming from, primarily because we have a booking platform in use by over 175,000 travel advisors and travel agents. We have a pulse on the market, and that allows us to be responsive to what we're seeing come through the system. Admittedly, the vast majority of that which we are focused on is five-star. That's really our core. But now by Bahia Principe and some other activities that we've got going under the Alua brand, we will see more four-star activity over time.
I think the value of the platform is not diminishing in value. In fact, it's probably grown in value during tough times. And the ability to improve our competitive positioning remains ahead of us. But nothing more specific to share with you at this point. Thank you all for joining us. I really appreciate the time that you've taken out of your busy days to listen. And stay tuned for what will be another active quarter ahead. And we have, as you've heard from us, a very constructive, positive outlook for the future. Thank you again, and have a good day ahead.
This concludes today's conference call. Thank you for participating, and have a wonderful day. You may all disconnect.