Skift Take

Here's hoping that new "hostel on steroids" brand is more than just a beefed-up Tru by Hilton. And that the technology powering Hilton's Connected Room actually works.

Hilton CEO Christopher Nassetta is already looking toward a busy 2018. Nassetta said the company’s plans for 2018 include two to three new brand launches, the global rollout of an Internet of Things “connected room,” a new room rate structure, and high hopes for corporate tax reform.

“We’re always working on new ideas,” Nassetta said during Hilton’s third quarter 2017 earnings call, when asked to elaborate on the new brands he mentioned recently at the Skift Global Forum.

Hilton’s Next New Brands

Those ideas include four new brands that he noted were currently in “heavy development”: a Hilton Plus (a slightly more upscale version of the Hilton brand as it is now); an urban micro hotel brand (which he described as a “hostel on steroids” at the Skift Global Forum); a luxury soft brand collection, and a luxury lifestyle brand.

Of those four, Nassetta said it’s likely that the Hilton Plus, urban micro, and luxury soft brand collection would debut in 2018. And in launching those brands, he also said the company wants to ensure “proper berths” for its other relatively new brands like Tru by Hilton and Home2Suites by Hilton.

Hilton Plus sounds similar to what Starwood did with its Sheraton brand, adding a new tier called Sheraton Grand as part of its Sheraton 20/20 brand revival project. The urban micro hotel trend is also something many brands are experimenting with, including Marriott’s Moxy, AccorHotels’ Jo&Joe, and Pod Hotels. The luxury soft brand collection will round out Hilton’s soft brands, which currently occupy the three- to four-star range. And the luxury lifestyle brand will occupy the void left by the demise of Hilton’s W-inspired Denizen brand.

Hilton’s Connected Room

Another Hilton initiative Nassetta mentioned was the eventual global rollout of what he called “the connected room,” something he also noted at the Skift Global Forum in September.

“Coming soon is Connected Room, the first truly mobile-centric hotel room,” he said. “Through the app, members will be able to seamlessly control their room’s lighting, HVAC [heating, ventilation, and air conditioning], and entertainment options including pre-loaded and streaming content.”

This smart room concept has increasingly become an area of focus not only for Hilton but for many of its peers, some of whom are also in the process of piloting connected rooms and voice-activated rooms. Last year, for instance, Wynn Resorts added Amazon Echo devices to all of the guest rooms in one of its Las Vegas properties. However, no major U.S. hotel company has, to date, said it would roll out smart rooms of the scale that Hilton is currently proposing.

Hilton is also touting the benefits of smart rooms to its owners. “Owners will also benefit from room and energy use that will support environmental and operational improvement,” Nassetta said. “We’re in beta testing at select hotels now and expect to formally launch Connected Room next year.”

A New Rate Structure

Following the implementation of Hilton’s new 48- and 72-hour cancellation policies earlier this summer, Hilton has more plans for restructuring what customers pay for their hotel rooms.

Echoing comments Nassetta made during the company’s second quarter earnings call about “creating fully flexible pricing structures and semi-flexible pricing structures that would require, potentially, even cancel[lation] within seven days,” Hilton chief financial officer Kevin Jacobs said: “We’re working on, and testing a new way to price where customers pay a little bit more or less in advance for different levels of flexibility.”

Nassetta added, “We’re deep into the testing [of the new flexible pricing structure] … and will complete it in the next 30 to 45 days. We will be rolling it out next year.”

He also said that while it’s still “early days” to determine the success of Hilton’s new cancellation policies, “it’s definitely working” and “we like what we see.”

High Hopes for Corporate Tax Reform

Like his fellow hotel CEO peer, Marriott CEO Arne Sorenson, Nassetta has high hopes for meaningful corporate tax reform that will change the “psychology of the business community” and give “businesses more free cash flow to play with.”

He said that a change in business community perspective, “to feeling better about where the economy is going,” as well as more cash flow for companies will ultimately “trickle” down into other businesses, hotels included.

Nassetta noted that he’s been “personally very engaged” with the hotel industry and “very directly with Congress and the administration as they figure out what path they will take” with regard to corporate tax reform. He said, “In the next week or so you’ll see more tax reform with more specificity.”

“Everything I’ve seen that’s on the table right now would be beneficial to us and a lot of other businesses,” he said. “It’s getting more cash in the hands of businesses to make more investments and hire more people.”

Solid Earnings for the Third Quarter

Hilton had a very positive third quarter, reporting earnings that beat Wall Street estimates.

In its third quarter, Hilton had a net income of $181 million, compared to $122 million for the same period last year. System-wide revenue per available room (RevPAR) rose 1.3 percent in the third quarter, compared to last year and the company added a net of 12,000 rooms in the third quarter. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $524 million, up 11 percent from 2016.

The strong third quarter earnings have also prompted Hilton to raise its outlook for the rest of the year. The company increased its expectations for adjusted EBITDA for the full year to be anywhere from $1.92 billion to $1.94 billion, an addition of $30 million at the midpoint.

The company also said it expects to see full-year system-wide RevPAR in 2018 to rise anywhere from 1 to 3 percent in comparison to 2017.

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Tags: earnings, hilton

Photo credit: Hilton CEO Chris Nassetta (left) appeared at the Skift Global Forum in New York City September 26, 2017, with Skift co-founder Jason Clampet. Skift / Skift

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