Recovery Happening 'More Quickly,' Says Hilton's Nassetta
US Leisure Average Daily Rate Nears Peak in Second Quarter
By Stephanie Ricca Hotel News Now July 29, 2021 | 1:47 P.M.
Performance at Hilton’s hotels in the second quarter of 2021 "demonstrates we continue to make significant progress toward recovery," said President and CEO Chris Nassetta on the company’s earnings call with analysts today. He also hinted at changes designed to make the hotel industry a higher-margin business in the future. Hilton’s performance continues to be driven by leisure demand around the world and most significantly in the United States, he said, where leisure average daily rates were “90% of prior peak” in the second quarter of this year, and exceeding 2019 ADR in July.
Overall, systemwide revenue per available room in the quarter was 73%, a 233.8% increase from the same period in 2020, according to the company's earnings release. Systemwide occupancy in the quarter was 58.5%, a 36.1% increase over the same quarter in 2020; and average daily rate in the quarter was $124.75, a 28% increase over the same quarter last year.
In the U.S., RevPAR was $82.32 in the quarter, largely balanced between occupancy and rate growth, said Chief Financial Officer and President of Global Development Kevin Jacobs.
Factors including regional restrictions and lockdowns, virus surges and shifts in domestic demand had an impact in non-U.S. regions in the quarter as expected, Jacobs said, and he pointed out that RevPAR in China in the quarter was down less than 9% compared to 2019 values. Business Transient and Group Tick UpBusiness transient performance “increased meaningfully” in the quarter, Nassetta said, with June RevPAR for the segment up 20 percentage points over the first quarter of 2021. Also in June, business transient demand was 70% of 2019 levels, “with rate over 80% of 2019 levels,” he said.
On the group business side, Nassetta said bookings for next year are at rates above 2019 peaks, though it’s difficult to have a lot of visibility.
“My own view is that as we get into August, we’ll continue to see surges in leisure travel, notwithstanding impacts from the Delta variant — we haven’t seen impact in consumer behavior from that,” Nassetta said. “In August, as you always do, you’ll see business transient fall off a little. After Labor Day, I believe we will have powered through the Delta [variant] … and my belief is that leisure will be elevated for a while, but I think business transient will come back. Group will have a longer gestation but will come back. Booking trends into the third and particularly fourth quarters are much better than they’ve been.”
While Hilton still is not offering formal guidance on full-year performance, Nassetta said the company does forecast internally that global RevPAR and demand levels are coming back faster than anticipated. “Recovery has been much steeper than we thought,” he said. “Things are coming back more quickly than we would have thought.
“When we look back on this recovery, the most unusual thing … will be the rapid return of rate,” he said. DevelopmentOn the development side, Hilton continues to focus on net unit growth.
Hilton added 19,800 rooms to the system in the second quarter, contributing to 17,800 net additional rooms and approximately 7% annualized net unit growth from June 30, 2020. Highlights included the June opening of Resorts World Las Vegas, which contributed three hotels and 3,506 rooms. In the quarter, the company also opened its 200th Tru by Hilton hotel.
Conversions were at “record” levels, Jacobs said, and the 40 conversions in the quarter represented approximately 30% of the company’s total signings.
In 2021, the company expects net unit growth of 5% to 5.5%, “above prior expectations,” Nassetta said.
In July, Hilton opened the Signia Orlando Bonnet Creek, which is owned by Park Hotels & Resorts and is set to undergo a multiphase renovation and addition of meeting space. The company also broke ground on a Signia property in Atlanta, scheduled to open in 2023; and signed three all-inclusive beachfront resorts in Mexico.
The company approved 25,900 new rooms for development in the quarter, bringing Hilton’s development pipeline to 401,000 rooms as of June 30. Jacobs said 62% of the company’s pipeline rooms are located outside of the U.S., with “development appetite strong across the globe.” Labor Shortages and Operational EfficiencyNassetta called the global labor shortages in hotels “the single biggest issue we’re all dealing with,” though he said some larger factors including moving past current virus surges, people getting more comfortable returning to work and some government assistance programs expiring should lead to “a significant easing of issues on the labor side.”
He said the staffing shortage is “temporary,” and across the board hotels will need to add more employees, adding that Hilton has done a lot of “testing and learning of ways to change the hotel operating model, particularly for housekeeping and [food and beverage], where we think we can deliver a great experience for customers and do it more efficiently.”
“When we’re on the other side of this and through the stresses and strains … I think we have developed a plan to have higher-margin businesses across all the major brands,” he said.
As of press time, Hilton's stock was trading at $135.31, up 21.6% year to date. The NYSE Composite Index was up 15.2% for the same period.
Editor's Note: Chris Nassetta serves on CoStar Group's board of directors.