Hilton's monumental hopes

Canopy-Hilton
Canopy - Hilton

Hilton's top executive, Chris Nassetta, described potential demand as “gargantuan” and said that he was surprised by the speed at which room rates were bouncing back.

The company revealed that overall occupancy jumped from 39% in the first half of 2020 to 51% in the more recent comparable period. In the second quarter of this year, system-wide occupancy rose further to 59%.

The much-improved occupancy numbers are still some way below the 76% figure from the first half of pre-pandemic 2019. However, they are well up on the 22% occupancy seen when the Covid-19 lockdown strictures were at their most stringent in April, May and June of 2020.

Mr Nassetta, Hilton’s president and CEO, said he was “very bullish” and that he was confident there would be a “continued very strong recovery later this year and into next”.

“We are very optimistic,” he said. “We are not oblivious to the dangers posed by the delta variant [of Covid-19] but we think we will power through it.”

Mr Nassetta was speaking on a conference call to analysts after the company published second quarter and first half earnings on 29 July 2021.

He echoed recent observations from peers that leisure travellers are leading the recovery. But said there was evidence of “significant pick-up in corporate and group business.”

“The broader distribution of vaccinations and the easing of travel and other restrictions have allowed for renewed interest in travel and tourism, with families embarking on long-delayed trips, and businesses scheduling in-person meetings again,” he said: “While the pace of recovery varies by region, particularly with the uncertainty surrounding coronavirus variants, we expect continued strength in leisure demand and further upticks in business travel to drive continued resurgence in the back half of the year,” he added.

He said he wanted Hilton to take full advantage of the bounce back by being “smart” about pricing the recovery in bookings. “There will be a monumental amount of demand and we don’t want to give it away,” he said.

He said that what he called the “the rapid return of rate” is one of the big surprises about the recovery from pandemic-hit trading. Room prices usually took time to regain lost ground after periods of generalised economic difficulty, he said, but that the current experience bucked historical norms.

Latest figures, for the second quarter of this year, show Hilton’s average daily rate (ADR) running at $124.75. That’s up from $97.18 in the second quarter of 2020 though still below the $148.93 seen in the comparable pre-pandemic period.

Hilton acknowledged the part played by staffing issues. Said Mr Nassetta: “Labour shortage is the single biggest issue we have, not just at Hilton but also for the industry and other service sector companies.”

However, he said the squeeze was likely to be temporary. Three factors would bring more people into the jobs market, he said. Fewer people would be ill or having to self-isolate; the ending of Covid-related unemployment benefits meant more would have to work for a living; and as children returned to schools, parents would have fewer childcare duties and more time for paid work.

Hilton Hotels’ occupancy rates in the United States are running at twice the levels of Europe.

The company had guests in 64% of its US rooms in the second quarter of 2021 against 32% in Europe. Occupancy in the Americas outside the US was also weak while it was only just below the company-wide average in Asia Pacific.

Revenue per available room (RevPAR) was $73.03 in the second quarter, three times the 2020 figure. It was $118.27 in the second three months of 2019.

Hilton also demonstrated confidence by way of its expansion programme. It approved 25,900 new rooms for development during the second quarter, bringing the development pipeline to 401,000 rooms at 30 June 2021.

It added 19,800 rooms to its system in the second quarter, contributing to 17,800 net additional rooms. Full year 2021 net unit growth is expected to be between 5 and 5.5%.

It has a total of around 6,600 properties and more than one million rooms in 119 countries and territories. It is one of the world’s largest and most diversified hotel companies. As of 21 July 2021, 99% of Hilton's system-wide hotels were open.

Further signs of confidence came as Mr Nassetta said the company was hoping to reinstate capital returns to shareholders in the first half of next year.

Insight

It is not just that Hilton is optimistic, it is the no-holds-barred language it is using to describe the bounce back in demand for rooms and the price at which they are being sold. For the most part, at least in the short term, it is impossible to be anything other than enthused. The downside angle, however, is that the trends described by Hilton may fuel fears about resurgent US inflation.