Hilton ticked an important box this year in the economy segment with the launch of Spark by Hilton, and a new luxury lifestyle brand may be next.
Hilton CEO and President Chris Nassetta today teased a new brand in the works on the company’s third-quarter earnings call with analysts, saying a high-end luxury lifestyle brand not only would appeal to loyal customers increasingly looking for points redemption, but also to developers.
“We’re just giving away development opportunities,” he said. “Many of our owners want to build luxury lifestyle hotels and we don’t really have a product for them, so they’re doing it with other people because we don’t have a product and that makes me crazy.”
Brand growth has been a focus for the company in recent years, and Hilton’s latest brands made their opening debuts in the third quarter. The first Spark by Hilton opened last month in Mystic, Connecticut, and the first Tempo by Hilton opened in Times Square in early August. The first location of the company’s most recent brand launch — the extended-stay H3 by Hilton, announced in May — breaks ground this week in Kokomo, Indiana.
These moves are all part of the Hilton’s net-unit-growth strategy. In the past few years, the company has been inching back to its pre-pandemic growth levels, and Nassetta said 2024 possibly will be the year Hilton gets back to 6% to 7% net unit growth.*
For 2023, however, Hilton projects net unit growth of approximately 5% over 2022 levels, according to its earnings release.
Performance
System-wide RevPAR growth “exceeded expectations” in the quarter, Nassetta said. It grew 6.8% for the third quarter compared to the same period last year, and 11.4% compared to the same quarter in 2019.
“Strong international performance and continued recovery in business-transient and group demand” drove that growth, Nassetta said, highlighting group RevPAR was up 8% year over year, and business-transient and leisure RevPAR were each up 5% for the same time period.
Group demand was particularly rosy in the quarter; RevPAR exceeded 2019 peak levels for the first quarter since the pandemic.
Asia-Pacific was the standout region in the quarter, delivering 39% RevPAR growth year over year, driven by continued demand growth in China, said Hilton Chief Financial Officer and President of Global Development Kevin Jacobs.
Other regional performance highlights include:
- U.S. RevPAR grew 3% year over year, driven by growth in business transient and leisure demand.
- RevPAR in the Americas outside the U.S. grew 11% year over year, driven by strong group demand in urban locations.
- RevPAR at the company's hotels in Europe grew 11% year over year thanks to leisure and business-transient strength.
- Hilton's hotels in the Middle East and Africa posted 10% RevPAR growth year over year driven by rate gains and strong summer demand.
Development
Hilton added 14,300 net new rooms to its system in the third quarter and approved 35,500 new rooms for development during the third quarter, bringing the company's total development pipeline to a record 457,300 rooms, representing 4% growth year over year.
Hilton’s total development pipeline now includes 223,000 rooms under construction and 257,200 rooms located outside of the United States.
The company’s newest brands show strong momentum, Nassetta said. Spark has more than 400 deals in negotiation, and H3 has more than 350.
Conversions account for about 35% of Hilton’s signings in the quarter, an increase of 10% year over year, and will account for about 30% of all openings in 2023.
Nassetta also celebrated “another strong quarter of construction starts,” saying the U.S. in particular delivered its strongest quarter of starts since early 2020, up 18% year over year.
Outlook
Nassetta said Hilton projects 2023 system-wide RevPAR growth of between 12% and 12.5% higher than 2022.
Full-year net income is projected to be between $1.375 million and $1.389 million, and adjusted earnings before interest, taxes, depreciation and amortization is projected to be between $3.025 million and $3.045 million.
As of press time, Hilton's stock was trading at $152.41 a share, up 21.9% year to date. The NYSE Composite was down 1.6% for the same period.
* Clarification: The story has been updated to more accurately represent commentary from Hilton's third-quarter earnings call.
Editor’s note: Chris Nassetta serves on the board of directors for Hotel News Now’s parent company, CoStar Group.