During Hilton’s fourth-quarter and full-year 2022 earnings call with investors, a sizable portion of the conversation focused on a development only announced in January of this year: Hilton’s new premium economy Spark brand.
“Premium economy represents a large and growing segment of travelers totaling nearly nearly 70 million annually in the U.S. alone, for which we have not had a tailored brand to serve,” President and CEO Chris Nassetta said during the call. The brand, then, will focus on “core guest elements” and will help owners leverage the company’s commercial engines and network.
The conversion-only brand had more than 200 hotels in various stages of negotiation as of Feb. 3, almost all of which are conversions from third parties, Nassetta said.
Spark presents “a huge opportunity” to not only serve Hilton’s existing customers but also to acquire new ones. “More than half of that customer base are customers that are early in their travel lives, that are going to grow up and do other things—and the sooner you get them into the system and build loyalty with them, the better off you are.”
Nassetta acknowledged that a new economy brand might not generate the same kind of buzz among travelers as something higher up on the chain scale. “It's not sexy, OK?” he said. “It's not as sexy as lifestyle and luxury, but in terms of an opportunity to be a value contributor in the billions of dollars for this company and its shareholders, I'm as excited about this as anything else we've done.” The brand, he added, will be “the most disruptive thing we've done in terms of brand space,” because the space “is very ripe for disruption.” Nassetta expects Spark to ultimately become Hilton’s biggest brand in terms of units.
By the Numbers
For the final three months and full year of 2022, Hilton’s systemwide comparable revenue per available room increased 24.8 percent and 42.5 percent, respectively, compared to the same periods in 2021, due to increases in both occupancy and average daily rate. For comparison to pre-pandemic results, systemwide comparable RevPAR increased 7.5 percent and decreased 1.3 percent, respectively, compared to the same periods in 2019.
For the fourth quarter, net income and adjusted earnings before interest, taxes, depreciation and amortization were $333 million and $740 million, respectively, compared to $148 million and $512 million, respectively, for Q4 2021. CFO Kevin Jacobs noted that EBITDA was up 45 percent year over year in the quarter, exceeding the company’s previous guidance.
“We saw continued progression across all segments with leisure, business transient and group RevPAR all exceeding 2019 levels,” Nassetta said, noting that leisure trends remained strong throughout the quarter with RevPAR surpassing 2019 levels by approximately 12 percent. Similarly, ADR was up 13 percent from 2019.
For the year, net income and adjusted EBITDA were $1.26 billion and $2.6 billion, respectively, compared to $407 million and $1.63 billion, respectively, for 2021.
Development
Nassetta noted that over the past 15 years, Hilton’s system size has more than doubled. “Our rooms in the U.S. are up nearly 100 percent and our international portfolio is now three and a half times larger,” he said. In that time, the company has more than doubled its brand portfolio with 10 new flags—“all of this without any acquisitions,” Nassetta emphasized. “And more than 90 percent of the deals in our current pipeline did not have any key money or other financial support.”
In the fourth quarter of 2022, Hilton opened 108 new hotels contributing 17,700 additional rooms to its system and achieved net unit growth of 15,100 rooms. Over the course of 2022, Hilton opened 355 new hotels—nearly a hotel per day, Nassetta noted—with 58,200 rooms and achieved net unit growth of 48,300 rooms. In Q4, the company opened the 60,000th room under the Home2 Suites by Hilton brand and the 150,000th room under the DoubleTree by Hilton brand. Hilton also opened the Waldorf Astoria Cancun in Mexico, marking the company's 200th hotel in the Caribbean and Latin America region.
As of Dec. 31, Hilton's development pipeline totaled more than 2,820 hotels representing 416,400 rooms throughout 118 countries and territories, including 30 countries and territories where Hilton does not currently have any existing hotels. Additionally, of the rooms in the development pipeline, 205,400 of the rooms were under construction and 243,500 of the rooms were located outside the U.S.
Outlook
For the first quarter of 2023, Hilton expects its systemwide comparable RevPAR, on a currency-neutral basis, to increase between 23 percent and 27 percent compared to the first quarter of 2022. Net income is projected to be between $271 million and $287 million, and adjusted EBITDA is projected to be between $590 million and $610 million.
For the full year, systemwide comparable RevPAR is expected to increase between 4 percent and 8 percent compared to 2022, while net income is projected to be between $1.382 billion and $1.454 billion and adjusted EBITDA is projected to be between $2.8 billion and $2.9 billion. “We expect performance to be driven by continued growth in all segments and aided by easy first quarter [comparisons] due to omicron, meaningful recovery across Asia and solid growth and U.S. urban markets as group business continues to recover,” Nassetta said.
The company has a “record pipeline” of more than 416,000 rooms, half of which are under construction, Nassetta told the investors on the call. “We expect net unit growth of 5 to 5.5 percent for the year and remain confident in our ability to return to 6 to 7 percent net unit growth over the next couple of years.”
For the second half of the year, Nassetta is assuming “a plateauing related to what we think will be a moderate recessionary environment” as macroeconomic conditions slow. In terms of occupancy, “we've assumed not a crash landing [but] sort of a soft to bumpy landing in the U.S.,” he said.