Meliá Hotels International: A Business Model in Evolution

Every so often, we come across a company that sits at the intersection of legacy infrastructure, embedded goodwill, and quietly compounding change. One such company is Meliá Hotels International (BME: MEL)—Spain’s largest hotel group and the 17th largest in the world by room count.

We recently revisited Meliá as part of our ongoing research into underfollowed European operators with platform potential. What we found was a company in the midst of a decade-long transition—from asset-heavy hotel ownership to an asset-light management and franchise platform.

But like many transitions, this one is slow, messy, and full of accounting fog. Still, there’s a case to be made that the market may be missing the longer-term optionality embedded in Meliá’s portfolio—particularly if you believe that branded platforms in hospitality can, over time, generate higher-margin cash flows without commensurate capital intensity.

Before diving into the numbers, here’s what initially piqued our interest. Meliá holds an NPS of 59, among the highest in global hospitality, and it has improved year on year. That suggests real brand equity—not just price-led loyalty. It was also named Europe’s most sustainable hotel chain in 2024 and recently made headlines for purchasing housing for staff in high-rent cities. In an industry known for labour churn, that kind of cultural investment stands out. Still majority-owned by the Escarrer family, Meliá exhibits the stability and conservatism of long-term stewardship. This isn’t a company chasing quarterly targets—it plays a longer game.

Founded in 1956 and headquartered in Palma de Mallorca, Meliá operates 362 properties across 41 countries, totaling around 94,000 rooms. Under the leadership of Gabriel Escarrer Jr., the group is gradually shifting from a capital-intensive ownership model to one focused on brand, technology, and third-party management contracts.

In 2024, Meliá generated €2.02 billion in revenue and €333 million in EBIT. Despite solid performance and valuation support from real assets, Meliá trades at a modest 7.7x EV/EBITDA, or roughly a 20 to 23 percent free cash flow yield on current estimates. On paper, this looks like deep value. But when we dug deeper into how those earnings are composed, things got murkier.

Meliá reports €411 million in “management and franchise” revenue. That would be exciting—if clean. Unfortunately, a large chunk comes from internal management fees (€94.6 million from Meliá’s own hotels) and miscellaneous income (€242.8 million under “Other Revenues,” which includes loyalty commissions, grants, and casino earnings). This leaves just €73.6 million in pure third-party management fees.

Assuming a healthy 30 to 32 percent margin, consistent with industry norms, that equates to roughly €24 million in EBIT—just 7.1 percent of total group EBIT. For context, Marriott and Hilton earn €2,000 to €3,000 EBIT per managed room. Meliá earns roughly €380 per room from third-party operations.

So what gives? Are internal allocations absorbing too much platform cost? Is the company undercharging relative to brand strength? Are low-ADR markets like Cuba and the Caribbean pulling down averages? All of the above are plausible. But without clearer segmental disclosures, it’s difficult to separate the platform signal from the operating noise.

Much of Meliá’s perceived margin of safety stems from its real estate. But here too, nuance matters. While the company quotes a NAV of €5.3 billion, this includes leased assets capitalised under IFRS 16, which aren’t monetisable. Stripping those out, we estimate monetisable assets—owned and joint ventures—to be around €2.56 billion. Net debt sits at €773 million. That leaves a tangible equity value of roughly €1.78 billion. With a market cap of about €1.6 billion, you’re essentially paying near-par for the tangible equity and getting the platform thrown in for free. That sounds attractive, but only if you believe the platform will grow its contribution meaningfully and that the real estate is reasonably liquid and defensible across cycles. We think both assumptions deserve scrutiny.

To their credit, management is actively repositioning. The pipeline includes 69 hotels, nearly all under management or franchise contracts. If executed well, that could double EBIT from third-party fees in five to seven years. But the starting base is low—about €24 million in EBIT. Many of the new contracts are in low-fee, emerging markets. Only 28 percent of leases come up for renewal within five years. This isn’t a Hilton-style reinvention. It’s a long crawl toward platform economics.

Family ownership brings long-term alignment, operational prudence, and brand consistency. It also brings caution in capital allocation, limited urgency to drive returns or maximise disclosure, and no activist pressure or private equity-style efficiency lens. That’s not inherently bad. But in the absence of segmental clarity and platform-level transparency, it likely explains why the market continues to apply a conglomerate discount.

Despite all of the above, there is a bull case worth keeping in mind. If Meliá can grow EBIT from third-party management to €50 to €60 million, execute more capital-light monetisation deals—like its €300 million joint venture sale with Santander and its USD 63 million sale of Punta Cana hotels via Banco Popular Dominicano—and re-rate to 10x EBITDA as platform revenues gain credibility, then it could unlock 30 to 50 percent upside.

We’re just not betting on that yet. Not because we don’t believe it’s possible—but because the data doesn’t yet support the thesis.

Here’s what we like. Meliá has a strong brand and guest satisfaction. It operates with family values in a highly commoditised sector. The valuation is modest and backed by real assets. There is clear strategic intent toward asset-light growth.

But here’s what holds us back. There’s a lack of segmental transparency. Platform monetisation remains underwhelming. Lease roll-off is slow. Governance is stable, but passive.

We admire the brand. We respect the history. We’re rooting for the transition. But right now, this remains a tracking position for us—not a core one.

We’re looking for third-party EBIT above €50 million, sharper segment-level reporting, and more visible monetisation of the pipeline. Until then, the stock is probably fairly priced—if not slightly undervalued—but the upside case is too cloudy to underwrite.

Not yet. But not never.

-Komorebi