Hilton’s U.S. Growth Returns to Normal, International Surges

Hilton reported results on Wednesday that suggested a boom in U.S. hotel bookings after the pandemic has begun to run its course. Yet surging reservations at Hilton’s international hotels appear to be compensating.

During the third quarter, Hilton’s revenue per available room — a key industry measure — rose in the U.S. by only 3%. It jumped by 39% in the Asia Pacific region.

The company reported worldwide growth in revenue per available room, including growth across all customer segments. The expansion modestly surpassed the company’s forecasts for its 7,399 hotels.

For 2024, Hilton expects growth rates to become “reasonably balanced between the U.S. and rest of world, maybe a smidge lower in the U.S. than rest of world, but not too terribly different,” said Hilton president and CEO Chris Nassetta.

Hilton to Grow Property Count

Analysts asked a half-dozen questions about Hilton’s “net rooms growth” number during an earnings call on Wednesday.

Investors care because the added fee income from each additional property outweighs, on average, the marginal cost of adding each property.

“We continue to see our license fee rates go up as we renew contracts,” Nassetta said.

The company’s decade-long average for net room expansion has been roughly 6.5% a year.

“We are confident in our ability to accelerate net unit growth to 5.5% to 6% next year,” said Nassetta. “We get questions all the time about ‘When are you going to get back to 6% to 7%?’, and — it’s possible to get to the bottom end of that range next year if a few things go our way.”

Hilton said its pipeline is at the highest in its history. Faster net property growth ought to speed up Hilton’s benefits of scale, such as by making its loyalty programs as compelling as possible by having properties in more locations where travelers want to visit.

Hilton has said approximately 1% leave the system each year for various reasons.

Hilton Bets Big on Economy Segment

Hilton this year has begun opening properties in its new Spark by Hilton — its first brand in the “premium economy” segment.

The Spark by Hilton brand promises an easy-to-maintain design for developers while offering consistent basic amenities for guests, such as free continental breakfast, free Wi-Fi, and a seasonal outdoor swimming pool.

“Hilton entering the economy space is a very big deal for the global lodging industry and for lodging investors,” wrote Truist analysts Patrick Scholes and Gregory Miller in a report before the call. “We could see Spark similar to Hilton’s Hampton Inn as a positively distinctive category-killer hotel brand that materially outperforms its direct competition in part by positioning a bit differently (“premium”) relative to the closest competitive flags.”

Yet Hilton’s push downmarket doesn’t mean it will neglect the luxury segment. It plans to debut a luxury lifestyle brand in 2024.

Key Hilton Third Quarter Numbers

• Hilton generated $1,167 billion in revenue, up 13% year-over-year — after deducting for fees it collected and passed back via services provided through its management and franchise contracts.
• The hotelier grew its net income by 10.5% year-over-year to $379 million.
• It projected that its fourth-quarter adjusted earnings before interest, taxation, depreciation, and amortization would come in between $739 million and $759 million.

Story was updated after the company’s earnings call.

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