Hilton Worldwide had a fairly strong third quarter in terms of financial targets, but the overall tone of the company’s earnings call on Oct. 26 was, as CEO Christopher Nassetta said, “cautiously optimistic.”
And even though there’s a bit of an industry-wide slowdown when it comes to metrics like RevPAR (revenue per available room) and plenty of uncertainty surrounding the current U.S. Presidential election, the impact of Brexit, global terrorism, and continuing weakness in the oil and energy markets, Nassetta said Hilton isn’t changing its course anytime soon.
That means Hilton will continue pursuing its efforts to get more consumers to book direct, making sure the spin-offs of its timeshare and real estate investment trust (REIT) go through, and working on building its relationship with its newest majority shareholder, China’s HNA Group.
“We’re doing just fine,” Nassetta said. “We are picking up. There are lots of reasons for why we are gaining momentum. I think the statistics sort of speak for themselves.”
And what of the pursuit of scale, now that Hilton’s competitor Marriott has now become the world’s largest hotel company after acquiring Starwood Hotels & Resorts? Nassetta thinks Hilton has more than enough.
“Scale does matter … and I think we have it,” he said. “We went from largest in the world to the second largest post Marriott-Starwood merger. If you take our pipeline and rooms together, we have 1.1 million rooms. This gives us all the scale we need.”
The HNA Deal
On Monday, Hilton announced HNA had struck a deal to purchase shares of Hilton from the company’s biggest shareholder, Blackstone, acquiring 25 percent of the company for a total of $6.5 billion.
During today’s investor call, Nassetta outlined a few of the reasons why the HNA deal represents “tremendous opportunity for the company.” Namely, this deal “is a win for all parties” because both companies leverage one another’s customer bases and various relationships.
“The idea is quite simple in a sense,” he said. “We have a big customer base. They have a big customer base. China is the fastest growing lodging market in world and the largest outbound market in the world and one of the fastest growing outbound markets in the world. While there’s some overlap, there’s not much overlap between our core customer base and theirs. There is tremendous opportunity to be able to connect our customers in various ways.”
If HNA sounds familiar to you, it’s most likely because the company has been on a buying spree of late, and not just in the hospitality space. The company also operates one of China’s largest online travel agencies and has businesses in aviation, offline travel agencies, and tour operators.
In addition to already having investments in hotel companies such as Red Lion Hotels and Spain’s NH Hotels, HNA also announced earlier this year that it would purchase Carlson Hotels and, possibly, a majority stake in Rezidor in an acquisition that has yet to close.
One potential stumbling block for HNA in this Hilton investment, however, could be how it impacts its other hotel investments worldwide. Already, earlier this year, the CEO of NH Hotel Group and four of its board members were ousted from the company over concerns that HNA’s pending acquisition of Carlson Hotels was a major “conflict of interest.” Skift reached out to NH Hotel Group and HNA for comment but they did not respond or could not provide any comment.
About Direct Bookings
He said, “Guests continue to prefer our web direct channels with share increasing to 28 percent of the distribution mix in the quarter, our highest level ever.”
Later, he added that Hilton has “had over 200 basis points of channel shift to our direct channels” and that enrollments in the Hilton HHonors loyalty program are up 60 percent year-to-date.
However, Nassetta was also careful to clarify Hilton’s current business with the online travel agencies (OTAs) too, and that while Hilton has been successful in getting some customers to stop clicking around, the company acknowledges that won’t be the case for every guest.
“It’s still important to note that we still have a healthy relationship with OTAs. We still do a lot of work with them,” Nassetta noted.
He said some customers will, for whatever reason, prefer to book with OTAs instead of booking direct, and that serving those customers through OTAs is still important to Hilton which is why the company’s relationship with OTAs will remain in place over the long term. “But we think customers are increasingly understanding of the benefits of a book direct relationship as depicted with the channel shift we have.”
When asked if he thought Hilton’s book direct pushes may have negatively impacted the company’s revPAR, Nassetta seemed to acknowledge that if it did, it may have had to do with the OTAs’ “deranking and dimming” practices.
He said, “It’s not affecting RevPAR in a material way … I think it’s really hard to say. I think, intellectually, it’s hard to debate it’s not having a little bit of an impact given the deranking and dimming that’s going on within the OTA world. But it’s not so meaningful that we can measure it in a hard way.”
Still, Nassetta, noted, Hilton’s overall net rate is higher across all categories and delivering better results for the company’s hotel owners because of the shift to lower-cost channels.
At one point during the call, Nassetta was asked if the recent Marriott-Starwood merger was having any impact on Hilton’s business and what he had to say seemed to be a pointed response to a recent interview Skift conducted with Marriott’s global chief brand officer, Tina Edmundson.
“I think the way I think about it is we are very competent in the strategy that we are pursuing and that we’ve articulated. We are very focused on having pure-bred brands that are leaders in their individual segments, that have clearly defined swim lanes, that have premium market share and, as a consequence, help us drive industry leading organic net unit growth. That’s our strategy. Others have taken different paths … As for what Marriott or anyone else is doing, I think you need to ask them about it.”
When Marriott’s Edmundson spoke to Skift last month, here’s what she told us: “But in any industry, when you have 30 brands, you’re bound to have brands that occupy the same swim lane, if you will. We are doing work as we speak to solve some of those riddles. The Ritz-Carlton and St. Regis, or Sheraton and Marriott, or Le Méridien and Renaissance. We’re very aware of what they are and some are easier to solve than others.”
The bottom line from Hilton? We’re doing just fine, thanks.