Hilton to complete rollout of customer-centric pricing model this summer

Hilton opened the Conrad Bengaluru in India last quarter. Photo credit: Hilton

A persistent, strong economy and an energized business base in the U.S were two factors in a healthy first quarter for Hilton. 

Hilton CEO Chris Nassetta said inbound travel to the U.S. was up 9 percent year over year, and new demand generators and improved conversions resulted in a 20-percent increase in Q1 bookings. Systemwide revenue per available room at grew 3.9 percent in the quarter, driven largely by growth in both the U.S. and abroad. One major surprise was the company’s food-and-beverage growth, which increased 6 percent year over year, outpacing the company’s prior forecasts.

Earlier this month, Hilton repurchased 16.5 million shares of Hilton common stock from HNA for $1.17 billion in connection with HNA's full divestiture of its investment in Hilton

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“We’re happy to report a great start of the year, and the results are better than expected,” Nassetta said during a call with analysts.

Given this performance, Nassetta said Hilton is revising its full-year RevPAR guidance to increase between 2 and 4 percent system wide, with the U.S. forecasted to come in toward the lower half of this range while Asia, the Middle East and Africa will be near the high end of the guidance. Hilton’s development goals in 2018 hinge heavily on tapping into growing RevPAR in Asia.

The company’s development pipeline currently sits at 340,000 rooms, with much of them focused in China. Currently, only 4 percent of Hilton’s rooms are located in the country, but 24 percent of its existing pipeline is there, with the majority of these hotels already under construction.

Photo credit: Hilton

Pay to Choose

A focal point of the call was Hilton's pivot to a customer-centric pricing model, which will be available at all of its properties globally later this summer. This offer will provide “added flexibility” to guests willing to pay more for it, while providing savings for those who opt out. The model is targeting guests in search of later check-out times, later booking cancellation windows and more.

“We anticipate this new pricing model will reduce last-minute cancellations and maximize the number of guestrooms available at our properties,” Nassetta said.

The customer-centric pricing model will result in the removal of the Best Available Rates program, something Nassetta said was necessary in order to allow the company to offer more choice for customers. Now, Hilton is offering a new rate that is higher than the Best Available Rate, but it is joined by what Nassetta referred to as a “semi-flex product” that Hilton plans on frequently tweaking in small ways. This second rate allows for two to three days incremental notice beyond Hilton’s existing cancellation policy, which is currently 48-hour advance notice at most of the company’s hotels. This will come with a discount, and Nassetta expects it to reduce cancellations.

“Tthe behavior we have seen in the tests we rolled out will also give us better [average daily rates],” Nassetta said. “Let’s not get ahead of ourselves; this is not the underlying reason we’ve done it. We’ve done it to give customers more choice, to manage inventory better and to further reduce cancellations beyond our typical cancellation policies, but we do believe it will give us an ADR/RevPAR boost. Modest, but let’s see how it goes.”

Hilton’s new rate system will be implemented to reduce last-minute cancellations, and maybe earn a little extra RevPAR. Pictured: Canopy by Hilton Washington D.C., The Wharf. Photo credit: Hilton

Not Sharing Today

Toward the end of the call, Nassetta was asked if Hilton had plans to join Marriott International, AccorHotels and Hyatt Hotel Corporation in entering the home-sharing space, or if the company was already working on such a project. His response was succinct: If Hilton made any moves to break into home-sharing, we would know about it already.

“We spent a huge amount of time looking into the home-sharing space from a competitive point of view,” Nassetta said. “At the moment, we believe it’s enough of a different business that it’s not something we have to focus on, and at this moment it is not something we are pursuing. We are looking at other brands and segments in the lodging space, and we are always considering our options, but we haven’t chosen to follow that path yet.”

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