Europe proves to be Hilton’s weaker link

Hilton

Hotels in Europe are taking a bigger hit from the COVID-19 pandemic than properties in all other regions, if fourth quarter and full year figures from Hilton Worldwide, one of the biggest hotel companies the world, is a guide. Chris Nassetta, president and chief executive officer, acknowledged the weakness in Europe while adding that recovery in Europe was “stalled”.

Occupancy rates in Europe fell 53% in the three months to 31 December and 48% in the full year. This compares with falls of 32% and 34% across all Hilton hotels.  Europe also fared worse in terms of revenue per available room. RevPAR was down 81% in the fourth quarter and 71% across 2020 as a whole. Overall, RevPar fell 59% in the fourth quarter and 57% in the year as a whole.

Mr Nassetta was markedly upbeat about prospects in the US – where the company does most of its business – and for the group as a whole. He said there was: “massive” pent up demand in the leisure and business segments. Travel spending was likely to rise as health scenarios allow, he said, and nationwide personal savings ratios had risen to make it affordable for many people.

As for business travel, he said: “Forget that people want to see people, they need to see people.” He dismissed ideas that video communications on services such as Zoom would do permanent damage to the hotel industry. He said he had seen such innovations before and demand from other sources appeared to compensate.

“There is a greater opportunity for the second half of the year to be better than any of us think,” he said.

Hilton shares slipped as the results were posted because the groupwide figures were lower than had been forecast. 

Hilton’s net loss was $225 million for the fourth quarter where it made $176 million in the last three months of 2019. For the full year, the net loss was $720 million against a profit of $886 million in 2019 making the reversal for the year just over $1.6 billion.

As of 31 December 2020, Hilton said it had $10.6 billion of long-term debt outstanding, excluding deferred financing costs and discounts, with an average interest rate of 3.8 percent.

Hilton operates with 18 brands, 6,400 properties and more than one million rooms in 119 countries and territories. As well as Hilton, it has Waldorf Astoria and Doubletree brands. The company said 97 percent of its hotels were open as of 10 February 2021.

The company said it had added 22,900 rooms in the fourth quarter passing the one million room mark in the process. Over the year as a whole there were 47,400 more rooms in Hilton's network. It added that the net unit growth in the year was 5.1%.

Mr Nassetta, Hilton’s president and chief executive officer, said, "We expect our industry-leading brands to continue driving new development and conversion opportunities, enabling us to further grow our network and capture a disproportionate share of demand as travel resumes."

There is no fourth quarter dividend. It paid 15 cents for the first three months of the year but has passed on payment for the subsequent three quarters.

Insight

Fortunately for Hilton, Europe makes up a relatively small part of its business. Unfortunately for Europe, the news from Hilton is substantially worse than for its other regions.

Sadly, for Europe, moreover, Hilton is pessimistic about the future on the eastern side of the Atlantic. European authorities’ cautious approach to vaccine approvals, and doubts about the speed of inoculations, have a part to play. Ditto for the stringency of social distancing requirements. But while hospitality is one of the worst affected business sectors, Hilton’s figures give firm evidence that the ramifications of the pandemic are geographically uneven. From the European perspective, they are depressing.

That’s not to suggest European governments are making the wrong calls. It may be quite the opposite. The stricter approach may be better for the long-term fortunes of the hotels industry.

Similarly, it may be sensible to take a pinch of salt with Hilton’s unambiguously optimistic hope for its US business. Since Europe accounts for around 10% of Hilton’s footprint, and it has more than two-thirds of its rooms in the US, much more is at stake.

OK, so the base case, may be that the vaccination picture means optimism about the US is justified. If the geographic tables turn, however, Hilton’s European operations will do little to compensate if the US hotel industry gets an unpleasant reality check.