It's all quiet for now, but what happens when the tariffs expand beyond China and into Europe?
The looming trade wars being waged by President Donald Trump against China don’t appear to be having an impact on global businesses like Hilton, CEO Christopher Nassetta said Wednesday.
When asked if the company has seen any impact from trade concerns, Nassetta said, “So far, the answer is, we are not seeing anything that we can measure,” referring to changes in booking patterns or impact on hotel development or operations in China.
“And I think things are progressing as they have been,” he continued. “And we feel good about the remainder of the year. And as I said, we feel pretty darn good about the setup all things being equal for next year.”
McLean, Virginia-based Hilton was one of the first major public hotel companies to release its second quarter earnings for 2018, and Nassetta’s remarks could potentially serve as a bellwether for how potential trade wars could impact global hospitality companies. As of June 30, the company had a total of 5,456 hotels spread across 106 countries.
And despite the “trade sabre rattling,” Nassetta noted, he said there’s plenty of reason for “optimism,” citing a more “positive psychology in the business market” thanks, in large part, to more clarification about U.S. tax policy.
A More Positive Outlook on Meetings
In fact, Nassetta expects that, out of all three of Hilton’s major business sectors — leisure transient travelers, corporate transient travelers, and meetings and events — groups “will ultimately outperform all segments” for 2018.
Strong demand for meetings and conventions, especially at Hilton’s luxury resorts, helped boost Hilton’s domestic revenue per available room (RevPAR) for the second quarter.
Nassetta said that in the last two or three quarters, Hilton has observed “a big uptick in the group space of people being willing to not only book in the moment for the moment groups but out multiple years” — an indicator of a healthy economic environment and the opportunity for Hilton to eventually raise its prices.
When asked if those commission cuts were having any impact on Hilton’s group business going forward, Nassetta said, “It’s very hard for us to track” but he said “We don’t think that there’s been any material impact from the change in commission structure.”
A Potential New Brand?
While Hilton has previously revealed it has plans to launch multiple new brands — including a “hostel on steroids,” a luxury brand, and a soft brand collection for independent luxury hotels — Nassetta mentioned the possibility of the introduction of a “sub-brand” in the all-inclusive space.
“I’m not going to make a big announcement on how we’re going to create an AI [all-inclusive] brand today,” Nassetta said, adding, “I think you should expect to see us do more in that space. We are now figuring out exactly how we’re going to do that.”
Hilton already has a handful of hotels under its Hilton and Doubletree by Hilton brands that operate on an all-inclusive model in regions that include the Caribbean, Europe, and the Middle East. But Nassetta said the company is considering whether it should continue doing what it’s been doing in the space by using its existing brands, or creating “sub-brands within those brands that are purely focused on AI [all-inclusive].”
“We don’t have an answer to that yet but you will certainly see us … doing more in that space,” he said.
Hilton isn’t alone in eyeing potential opportunities to grow its business in the all-inclusive space. Hyatt launched its own all-inclusive brands in 2013. Most recently, Marriott International’s executive vice president and global chief development officer, Tony Capuano, told Skift that Marriott also sees all-inclusive resorts as a potential new area of expansion for the company.
By the Numbers
The second quarter proved to be a fairly solid one for Hilton, bolstering Nassetta’s reasons for “feeling good” as he noted at the end of the company’s earnings call. Hilton has raised its expectations for the full year going forward, expecting a net income between $2.61 and $2.68 per share, or $804 million to $826 million, for 2018, compared to previous estimates of $2.57 to $2.66 per share.
Revenue per available room (RevPAR), a key metric in the hotel industry, rose 3.5 percent in the United States and 5.9 percent internationally during the second quarter. Global RevPAR, overall, was up 4 percent compared to the same period last year.
Hilton’s raise in guidance for the full year appeared to be “modest,” however, to some analysts, including Michael J. Bellisario, senior research analyst for Baird Equity Research. In an investor note, Bellisario noted that Hilton’s domestic RevPAR was below the industry average of 4 percent, but attributed it to the fact that Hilton has fewer luxury properties than some of its peers such as Marriott or even Hyatt.
Still, Bellisario said investors should respond to the earnings report “somewhat favorably,” although there could be some “pushback” from investors on the fact that full-year, adjusted earnings before interest, taxes, depreciation and amortization were up only $10 million on the lower end of the spectrum.
Net income in the second quarter was $217 million, up 44 percent from the same period last year. Total revenues for the second quarter were $2.29 billion, up 10.4 percent from the same period last year, but shy of average analyst estimates of $2.48 billion.
The company also noted it is on track to sign more than 110,000 rooms this year, surpassing the company’s 2017 record and indicating good growth in its global portfolio of hotels and resorts.
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Photo credit: Hilton CEO Chris Nassetta (left) at the 2017 Skift Global Forum. During the company's second quarter 2018 earnings call, Nassetta said he is not seeing any impact from a trade war between the U.S. and China. Skift / Skift