Skift Take

If Hilton sees reason to be optimistic around a faster-than-expected travel recovery, that’s a major boost to all hotel companies, especially ones with less exposure to convention and business-transient customers.

The corporate travel comeback may not be as far off as some may think. That’s at least the chatter at Hilton.

The company’s spring turnaround from a winter drop in an already uncertain pandemic recovery is due to more than leisure travel, Hilton CEO Christopher Nassetta reported on a first quarter investor call Wednesday. Hilton’s business transient traveler revenue was roughly 75 percent of 2019 levels over the first quarter in China and U.S. states with eased travel restrictions.

Emerging recovery trends have Nassetta expecting leisure travel will be back to 2019 levels, on a room nights basis, by the end of the year. Business transient could be at 70 percent while group business — generally expected to be the industry laggard — at half of pre-pandemic levels.

“Certainly, since we had our last call, the slope of the recovery is a lot steeper than we would have thought,” he said. “Our view is we’re on a solid road to recovery.”

Leaders at Hilton, like most hotel companies, expect this summer to be a record year for domestic leisure travel. But the company is bullish on the corporate and convention travel rebound thanks to accelerated vaccine distribution in major markets like the U.S. putting many companies on track to calling back workers to the office.

Goldman Sachs and JPMorgan Chase both have plans to bring workers back into traditional offices over the summer. Other financial firms like Bank of America, Wells Fargo, and Citigroup have more gradual office comeback plans, but this is still a major burst of light on the horizon for hotels. Financial institutions are some of the industry’s leading corporate clients.

While group business will take longer to recover, bookings for the second half of 2021 are generally at 2019 levels, he added. Associations and trade shows are once again showing interest in reserving spots for future events, but that segment of the market will still take time given the planning process involved.

“To get those room nights and rates and the compression we need requires the bigger groups to be back, and, while I think they’re coming back and they certainly want to be back, the planning and all of that is on a lag,” Nassetta said. “So I think that takes some time next year.”

The spring turnaround does have Hilton teams debating earlier recovery forecasts, which generally expected a return to pre-pandemic performance sometime in 2023 or 2024.

“There are varying opinions on it, even inside our own shop,” Nassetta said. “I’ve been saying [2023] and [2024]. I still believe that. With the slope of the recovery, I think it’d be on earlier end of that than the latter, as we have more visibility.”

The Numbers

Hilton isn’t entirely out of the financial woods yet from the pandemic, but its $109 million first quarter loss was actually an improvement over the $225 million loss seen in the fourth quarter of last year. Nassetta indicated a turnaround began in March and continued into April.

The company had a robust level of nearly 6 percent rooms growth since the same time last year. Hilton added a net 13,100 rooms to its portfolio in the first quarter and approved nearly 22,000 rooms for development — bringing the company’s pipeline to 399,000 rooms. That’s a slight increase from the 397,000-room pipeline seen at the end of 2020.

By comparison, Paris-based Accor had a very slight loss in its development pipeline, contracting by about 1,000 rooms and five hotels in the last three months.

While Hilton’s earnings came in short of analyst expectations, the net rooms growth is still seen as a win for the company, according a Truist Securities report released just before the earnings call.

Development Headwinds and Shifting Geographies

The bullishness on development still has obstacles to clear in the U.S., where Hilton does a bulk of its business. A swelling labor crisis as well as rapid increase in the cost of building materials could drive some developers away, at least in the near-term.

Nassetta pointed to ongoing initiatives to find labor efficiencies at hotels as well as development opportunities in less-expensive markets outside the U.S. as ways to overcome some of the worker and construction barriers.

A construction cool-off in the U.S. would be a boon for hotel operators to regain pricing power without so much new supply always flooding the market.

It could also mean a further push into markets like China, where Hilton has a development agreement with property developer Country Garden to build more than 1,000 Home 2 Suites properties across the country.

“I suspect you will see a cycle where, particularly in the U.S., the new construction numbers are going to be much, much lower,” he said. “That’s obviously long-term healthy for the for the industry. But the good news for us is the world’s a big place, and the pressures are not the same in all places in the world, particularly recognizing that the place where we have the second-biggest chunk of our growth is Asia.”

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Tags: coronavirus, coronavirus recovery, hilton

Photo Credit: Leisure travel still leads the recovery at Hilton, but business and group travelers are signaling a return to booking rooms. Matti Blume / Wikimedia