Hilton reported solid second quarter earnings for 2019, although an uncertain political environment continues to slow the hotel giant’s growth in the U.S. and Asia Pacific.
Net income came in at $261 million for the quarter, a 20 percent increase from a year prior, driven primarily by strong unit growth. Meanwhile, revenue-per-available-room (RevPAR) increased a modest 1.4 percent compared to the year before, as U.S. trade tensions with China dampened both corporate bookings in the U.S. and leisure travel in Asia Pacific.
The company expects this trend to continue throughout the second half of 2019, and potentially into 2020. Hilton shares stayed relatively stable in the hours after the market open.
“More people are putting their caution flags up,” said Hilton CEO Christopher Nassetta in an earnings call Wednesday. “It doesn’t mean that they’re not spending, or hiring, or traveling. It just means they’re a little bit more cautious because of what’s going on in the broader environment.”
The impact of politics was top of mind for many analysts on the call, and Hilton was clear that it did not expect tensions to resolve anytime soon.
The decline in RevPAR in China was further impacted by the anti-extradition protests in Hong Kong, according to the company. The protests started at the end of March and are ongoing. Hilton expects travel in China to remain low throughout the rest of the year.
“China is clearly going to be worse in the second half of the year than the first,” said Nassetta, explaining that this would lead to a lower international performance overall.
In the U.S., June was a particularly weak month, with RevPAR growth the lowest it has been this year, although Hilton attributes this to the way the calendar fell.
That being said, weakness in the U.S. and China was balanced out by a strong performance in Europe, where Hilton continues to outperform the market.
Hilton continues to focus heavily on unit growth as a way to drive market share. The company opened 123 hotels in the second quarter of 2019, totaling 17,100 rooms. It has roughly 373,000 rooms in its global development pipeline, with over half already under construction.
Over the past three months, the company announced several international signings, including its first Tapestry brand hotel in the Caribbean, its first Canopy brand hotel in Africa, as well as Waldorf Astoria Los Cabos Pedregal in Mexico.
By adding new rooms, the hospitality giant has seen franchise and management fees increase, which has helped boost its overall revenue. Plus, the vast majority of its deals do not require the hotel group to put down capital, which drives even higher net fees.
The company sees the biggest room for growth in the mid-scale market, and has high hopes for its new midscale brand, Tru by Hilton, which officially launched in January. Hilton plans to open its one hundredth Tru location this year, and has big plans for the future, suggesting that it may someday become its largest brand overall by number of units.
“Tru ultimately has the opportunity to be even much bigger than Hampton,” said CEO Nassetta, referring to its current largest hotel brand, Hampton by Hilton. “Some brands are mega brands, meaning they could grow to hundreds or potentially — over a long period of time – thousands. But probably none will be equivalent to Tru.”
Earlier this year, Hilton introduced its Hilton Gardens Inn prototype to China. The hotel is designed to appeal uniquely to Chinese travelers, and the hospitality group believes it will help fuel growth in Asia Pacific.
The Hilton rewards program, Hilton Honors, surpassed 94 million members this quarter. In May, the company announced a partnership with Lyft, allowing loyalty members to earn rewards points when using the ride-share company. The hotel giant plans to enter more partnerships with other companies in the future, seeing it as a way to drive engagement among its rewards members.