Hilton expects to “grind, up slowly and surely” as the business transient segment recovers to compensate for an anticipated drop-off in leisure travel in the autumn.
Hilton is 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.” The extended-stay, upper-midscale offering is “well positioned to capture growth opportunities resulting from the growing spending power of consumers in China's smaller cities,” according to the company.
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 U.S. hotels were trading, with Europe opening more gradually, leaving 96 percent of the system now open. In China, occupancy was more than 60 percent, driven by leisure travel and business transient, with the U.S. seeing 45 percent occupancy, aided by limited-service and drive-to leisure travel.
Reasons for Hope
Heading into autumn, the company’s leadership expressed hope that an increase in business transient demand would compensate for a drop in leisure demand.
At the end of the year the group had $3.6 billion in cash, with the group saying it was confident it had “ample liquidity.”
Chris Nassetta, president and 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 percent to 50 percent 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 percent drop in revenue per available room for the half year, with management fee and franchise and licensing fee revenues down 50 percent. The pandemic saw the complete or partial suspensions of operations at around 20 percent of Hilton's properties at some point during the period, of which more than half of the properties had reopened as of June 30.
The company reported adjusted earnings before interest, taxes, depreciation or amortization of $414 million for the second half, down from $1.1 billion 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 U.S. 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 percent 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 percent to 4.5 percent, with Nassetta commenting: “Conversions are going to play a role, we have a lot of momentum, discussions are up 50 percent on last year. A larger component of the NUG will be conversions.”
Before 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 organizations. 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.”
This article originally appeared on Hospitality Insights.