Hilton CEO: Spinoffs Have Freed Us Up for Organic Growth, More Direct Bookings

There’s a “new” Hilton this year.

Now that the company has successfully spun off its timeshare and real estate investment trust businesses, the “new Hilton,” as CEO Christopher Nassetta referred to during the call, can be even more aggressive in pursuing the company’s strategy going forward.

“[Having the spinoffs] frees us up to double down on our brands, including everything we’re doing on Hilton Honors and loyalty,” Nassetta said. “It allows us to double down on what we are doing with innovation to continue to make sure everything we do is through the eyes of the customer and making sure that we are ultimately driving more loyalty and more relevance with our consumers and, as a consequence, more market share and more growth. We’ve always been focused on those things. That’s not different. Obviously, it goes without saying … it gives those of us in senior management even more time to focus on those things.”

And with that focus, Hilton is entering the new year with a healthy amount of optimism, even though Nassetta admitted, repeatedly, that things could very well change at a moment’s notice.

Fourth Quarter and Full Year 2016 Earnings

Earnings were within expectations, topping those of Wall Street, even though the company reported a fourth-quarter loss of $387 million. That loss was attributed to higher costs and a tax expense related to a restructuring that took place before the spinoffs of Park Hotels & Resorts and Hilton Grand Vacations.

Fourth quarter revenue was up 2.2 percent to $2.92 billion, and Hilton also saw slight bumps in occupancy and revenue per room. For the whole year in 2016, Hilton had a profit of $348 million and revenue was $11.66 billion.

Organic Growth and New Brands

That optimism seems appropriate given Hilton’s performance last year, which was a record year for the company in terms of signings, openings, and construction starts. In 2016, the company increased its system size by 6.6 percent, opening one hotel a day and starting construction on nearly 77,000 rooms. To date, the company has about 310,000 rooms in its pipeline, more than half of which are under construction.

It’s an organic growth strategy that Nassetta said sets Hilton apart from its peers, many of whom turn to mergers and acquisitions to gain scale and growth.

The most recent example of that strategy debuted earlier last month when Hilton announced the debut of its 14th new brand, Tapestry Collection by Hilton. The soft brand collection already has 40 deals in progress and while Nassetta wouldn’t divulge exactly how many properties Hilton hopes to sign to Tapestry by year’s end, he said the opportunities for conversions, globally, are up to 15,000.

Hilton has made no secret of the fact that it plans to add at least four more new brands to its portfolio over the next two to three years. “I think that, eventually, we will do them all,” he said.

Nassetta said that it’s possible yet another soft brand — this one more luxurious and upscale than Hilton’s existing Curio Collection and Tapestry Collection brands — could possibly debut by year’s end or in the near future. The other three brands or “whitespaces” as Nassetta referred to, would “take a little bit longer” to develop.

Stop Clicking Around’s Continuing Legacy

Nassetta also delivered loyalty program statistics showing that Hilton’s biggest-ever marketing campaign, “Stop Clicking Around,” did in fact have some financial impact on how consumers are choosing to book, at least with Hilton.

In 2016, Hilton added 9 million more members to its Hilton Honors loyalty program, which now has more than 60 million members in total. For the full year in 2016, those members also drove 56 percent of occupancy, which was a year-over-year increase of more than 400 basis points. Nassetta also noted that Hilton’s digital channels, including its websites and mobile bookings, continue to outpace other channels by 200 basis points year over year. In the fourth quarter alone, web direct bookings accounted for nearly 30 percent of all bookings.

“… While this is early days and while the Stop Clicking Around campaign is done, you’re going to see us do all sorts of other things, including what you just saw with Honors to continue to build direct relationships,” Nassetta said, later adding, “I would say it’s been quite successful.”

Whether Stop Clicking Around will ever really ever done, however, is debatable. Skift spoke to Hilton CMO Geraldine Calpin at the Americas Lodging Investment Summit in January, and she said that Stop Clicking Around isn’t going to stop anytime soon.

“Everything points to it [the campaign] is working,” Calpin said. “Are we going to stop? No. It’s years and years of not just OTAs [online travel agencies] but consumer misconceptions that ‘I go over there and I get a better price.’ You can’t just do a 12-month campaign and say it’s done. We will continue that journey of book direct, join our program, and you get a better experience with Hilton than you get anywhere else.”

Calpin also told Skift that Hilton has seen the growth of bookings coming through third parties has slowed. “We’ve changed that inflection point,” she said.

Just a few weeks ago, Hilton announced some changes to its Hilton Honors program, making it easier for members to pay with a combination of points and money as well as pool points with friends and family, and also allowing members to use points to make purchases on Amazon.

Impact from the Travel Ban

Much like Nassetta has noted before, corporate transient business seems to be on an upswing that began in the fourth quarter of last year and, when asked about any material impact from Trump’s recent travel ban from seven majority-Muslim countries, Nassetta said there was very little impact.

“As it relates to the travel ban, we have been tracking it as carefully as we can,” Nassetta said. “We have not seen any material impact.”

He did however, note that international inbound travel overall last year was down 2.8 percent last year, although international business for Hilton in the U.S. is “a relatively modest component of our business.” According to Nassetta, that slowdown most likely had to do with the strength of the U.S. dollar.

Working With HNA

As we head toward the close of the first quarter of 2017, Hilton is also about to have a new major stakeholder, HNA Group, which will eventually own about 25 percent of Hilton. This is the same HNA that recently purchased Carlson Hotels and is also a major stakeholder of Spain’s NH Hotels and, possibly, soon, Rezidor Hotel Group.

Nassetta said that with regard to HNA, which is buying a $6.5 billion stake in Hilton from Blackstone Group, “Nothing is different than the commentary made on the last call. Discussions with them center around how we connect our respective travel assets.”