Hilton said that it expected to “grind, up slowly and surely” as business transient recovered to compensate for an anticipated drop off in leisure travel in the autumn.
Hilton was looking to China for growth after signing a management agreement with Country Garden to launch the Home2 Suites by Hilton properties in China for over 1,000 hotels “over time”.
Hilton said it believed the extended stay, upper midscale offering was “well positioned to capture growth opportunities resulting from the growing spending power of consumers in China's smaller cities”.
The news came as part of the group’s first-half results. As at the end of the period, all of the group’s hotels in China and the majority of US hotels were trading, with Europe opening more gradually, leaving 96% of the system now open. In China, occupancy was more than 60%, driven by leisure travel and business transient, with the US seeing 45% occupancy, aided by limited service and drive-to leisure travel.
Heading into autumn, it was hoped that an increase in business transient demand would compensate for a drop in leisure demand.
At the end of the year the group had $3.6bn in cash, with the group saying it was confident it had “ample liquidity”.
Chris Nassetta, president & CEO, told analysts: “There has been a lot of improvement over a relatively short space of time. I think we’re going to see a step change from very low levels to 40% to 50% occupancy by the end of the summer and then it’s going to be a grind up. As you deal with the health issues it’s going to move onto an economic crisis.
“What I would hope is that it will take a little longer for leisure to bleed off as some schools aren’t going back and offices aren’t reopening. We have seen signs of that already and that would be helpful. You will continue to see some movement up in business transient and as we get into the fall we will see that continue. There's a decent likelihood of not just a vaccine but a suite of different vaccines in the fall but I think it’s two or three years to get back to the demand levels seen in 2018, 2019.
“The economic impact has been significant, but it will work out.”
The company reported a 53.9% drop in revpar for the half year, with management fee and franchise and licensing fee revenues down 50%. The pandemic saw the complete or partial suspensions of operations at around 20% of Hilton's properties at some point during the period, of which over half of the properties had reopened as of 30 June.
The company reported adjusted Ebitda of $414m for the second half, down from $1.1bn from the same period last year.
The group said that, since April, all major regions had experienced month-on-month increases in occupancy and revpar, with the most notable recoveries in the US and Asia Pacific with occupancy levels up approximately 20 percentage points and 15 percentage points, respectively, from April to June.
Hilton approved 18,400 new rooms for development during the second quarter, growing Hilton's development pipeline to 414,000 rooms as of June 30, 2020, representing 11% growth on the year. Hilton opened 60 new hotels and achieved net unit growth of over 5,500 rooms.
The group forecast full-year net unit growth of 3.5% to 4.5%, with Nassetta commenting: “Conversions are going to play a role, we have a lot of momentum, discussions are up 50% on last year. A larger component of the NUG will be conversions.”
Prior to the results announcement, the company appointed Chris Carr, COO of Sweetgreen, to its board of directors, effective immediately. Carr joined Sweetgreen in May 2020 having previously served in a variety of roles at Starbucks for 13 years, most recently as EVP, chief procurement officer, where he was responsible for enhancing the enterprise-wide, global strategic sourcing and supplier relationship.
Jon Gray, chairman of Hilton's board of directors, said: “When we began our board search process last year, we were looking to add world class executive leadership in global and consumer-facing organisations. Chris brings these highly relevant skills, as well as unmatched focus on customer experience and procurement. We look forward to his insights as we navigate Hilton's continued recovery from the Covid-19 pandemic.”
Insight: “We’re not crying in our milk, this too shall pass,” said Nassetta and we can look forward to that being repeated in various forms by various CEOs over the next couple of weeks. The Q&A also followed predictable lines, as one party demanded crystal ball skills which the other couldn’t provide.
Hilton is leaning on having a broad and varied estate, with brands which can offer up what will fit circumstances. The China Home2 Suites deal was being negotiated prior to the pandemic, but the extended-stay offering was very much in line with what customers are demanding now, as they look to safety and isolation when they leave home.
What spoke more to what the futurologists would try and sell about lifestyle changes were the comments about leisure bleeding into the autumn. Our lives have become more fluid in terms of the lines between work and play; not always to the good. Work is at home, school is at home - particularly in Hilton’s domestic market - and this means that not only is there demand to get away from home, but that this happens at non-traditional times.
Hotels have seen their offering expand from the traditional hotel room, with its shirt press and club sandwich. This broad offering will be much in demand from owners and developers, which is good news for the global operators who can offer brands to match, from budget to extended stay to Motto’s flexible beds-to-sofas. How much everyone wants to pay to stay while the economy remains subdued is a less happy tale.