Hotel industry analysts expect to see several strategic changes at Choice Hotels International after Patrick Pacious stepped down as president and CEO in late May.
The investor reaction to Choice's CEO transition has been broadly positive in the weeks after Pacious stepped down from the role he held for nine years, analysts said in interviews. The hotel brand's board of directors appointed Dominic Dragisich, chief growth and strategy officer, as the company's interim CEO.
"I think most people agreed it was time for some new blood, some new energy," C. Patrick Scholes, managing director of lodging and leisure equity research at Truist, said.
Michael Bellisario, senior research analyst at Baird Capital, said there was some initial surprise when the news broke, but the company's management team has alluded to a transition process having been in place for Pacious' departure.
Both Baird and Truist said in their respective investor notes that Dragisich is seen as the likely candidate to become the permanent CEO. Choice said in a news release that it "will conduct a comprehensive search" among "all qualified internal and external candidates" to fill the role.
Scholes said while Dragisich should be considered the leading contender, investors believe there should be a thorough search before landing on a selection.
Pacious was promoted from within when he was appointed as CEO in 2017. Stephen Joyce, president and CEO of Choice from 2008 to 2017, got the job after working for Marriott International.
"The board owes it to the shareholders to not just shoo-in [Dragisich]. Maybe it turns out he is the best, but ... maybe there's a senior executive at Marriott or Hilton or Hyatt, just as there was with Steve Joyce. They shouldn't leave any stone unturned here."
As of its latest earnings report, Choice has 7,588 hotels and 658,348 rooms in its global portfolio.
Future of Choice
A clear area of improvement for Choice in the next iteration of the company is more clarity in its quarterly remarks.
"The lowest hanging fruit is the communication and disclosures with the analyst and investor community. That was a clear and obvious shortfall," Bellisario said.
In Choice's most recent earnings call, for example, Pacious pinned some of its year-over-year declines on boosted demand in 2025 from those displaced by hurricanes. Scholes said this could have been communicated better ahead of time.
"I definitely, and this is also from investors, would like to have a little bit more clarity on the guidance as it related to the upcoming quarter. Not just a full-year guidance, but how to think about some of the nuances with the upcoming quarter," he said.
In terms of strategy, Bellisario said Choice could turn to a more asset-light strategy, similar to the other major U.S. hotel brands. The company has gone away from this strategy over the last decade, he said.
Choice could sell some of its owned hotels to monetize that real estate and compensate for the key money spending on the Radisson Americas acquisition and the Choice Canada buyout, he said. The company currently owns over a dozen hotels.
"The growth is cleaning that up, monetizing that, and then the output will be better, cleaner asset-light growth on the back end," Bellisario said.
Whoever takes over the CEO role won't be able to fix the revenue-per-available-room trends in the economy and midscale segments, or solve challenges such as high construction costs and limited development opportunities in the U.S. But they can change Choice's capital allocation and strategy direction, Bellisario said.
The CEO change comes at a time when Choice arguably needs to be more creative than ever to keep up with its peers. Its net unit growth has lagged as its competitors add more properties in the lower chain scales.
"There are three big players — Hilton, Hyatt and Marriott, you can argue IHG is getting bigger there too — that have moved down the chain scale," he said. "There's just more competition, there's more players, more brands in the same sandbox, and that has undoubtedly impacted their U.S. net unit growth over the last handful of years."
Scholes said this isn't an easy challenge to overcome.
"It's certainly possible, but it takes time and it takes effort and it takes creativity," he said. "The right management team can do it."
To combat this, Choice has some options, such as reinvigorating its current brands, establishing new partnerships or exploring merger and acquisition opportunities, Bellisario said.
Potential of Wyndham deal
In 2023, Choice publicly offered a combined $9.8 billion in combined cash, stock and assumed debt to buy Wyndham Hotels & Resorts. Officials from the latter opposed the deal, so Choice attempted a hostile takeover that it eventually abandoned after a lack of shareholder support.
While it's not likely that talks will pick back up, it's something worth monitoring with the CEO change, Bellisario said.
"Never say never, it could always come back, and why couldn't it come back? Because the hang up previously was regulatory antitrust, and we are in a very different backdrop," he said.
Bellisario said he doesn't believe that anything between the two companies will happen, but conversations like these tend to swell up when there's a change in the C-suite.
"I don't think it will go away in this current regulatory backdrop that we're in, so unless and until something changes like that, the door should always be probably just slightly ajar," he said.
Choice didn't respond for comment by the time of publication.