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 are a guide. Chris Nassetta, president and CEO, acknowledged the weakness in Europe while adding that recovery in Europe was “stalled.”
Occupancy rates in Europe fell 53 percent in the three months to Dec. 31 and 48 percent in the full year. This compares with falls of 32 percent and 34 percent across all Hilton hotels. Europe also fared worse in terms of revenue per available room. RevPAR was down 81 percent in the fourth quarter and 71 percent across 2020 as a whole.
U.S. Optimism
Nassetta was markedly upbeat about prospects in the U.S.—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.
Full year systemwide RevPAR declined 57 percent, with adjusted earnings before interest, taxes, depreciation and amortization down “modestly,” Nassetta said, arguing that this demonstrated the resiliency of the company’s fee-based model.
For the quarter, systemwide RevPAR declined 59 percent—“relatively in line with our expectations,” Nassetta said. “The positive momentum and demand that we saw through the summer and early fall was disrupted in November [and] December by rising COVID cases, tightening travel restrictions and further hotel suspensions, particularly in Europe.” Similar to the third quarter, drive-to leisure travel drove an outsized portion of demand. Business transient and group trends showed modest sequential improvement versus the prior quarter, but overall demand remained muted.
“Forget that people want to see people; they need to see people,” Nassetta said of business travel. 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.
Income and Debt
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 Dec. 31, 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 portfolio comprises 18 brands, 6,400 properties and more than 1 million rooms in 119 countries and territories. The company said 97 percent of its hotels were open as of Feb. 10, and it had added 22,900 rooms in the fourth quarter, passing the 1 million room mark in the process. Over the year as a whole there were 47,400 more rooms in Hilton's network. Net unit growth in the year was 5.1 percent, and Nassetta expects the brands to continue driving new development and conversion opportunities.
Reasons for Hope
Looking ahead, the Hilton team is optimistic that accelerating vaccine distribution will lead to easing government restrictions and unlocked pent-up travel demand, Nassetta said. For the first quarter, overall trends appear to be similar to the fourth quarter, with modest increases in demand in the U.S. offsetting stalled recoveries in Europe and Asia-Pacific. “We expect improving fundamentals heading into spring with essentially all system-wide rooms reopened by the end of the second quarter,” he said.
Nassetta expects a more pronounced recovery in the second half of the year, driven by increased leisure demand and corporate transient and group business. “Over the last year, the personal savings rate in the United States has nearly doubled, increasing by more than $1.6 trillion to $2.9 trillion with the potential to go even higher given additional stimulus,” he noted. “We expect this to drive greater leisure demand as travel restrictions ease and markets reopen to tourism.”
A version of this story originally appeared on Hotel Management's sister site Hospitality Insights.