Maintaining rate integrity in 2022 made Hilton President and CEO Chris Nassetta happy, and he told analysts on the company’s full-year and fourth-quarter earnings call that the combination of strong rate integrity and travel demand from all segments should steer the company through any macroeconomic slowdowns later this year.
“We’re experiencing the lowest levels of supply we’ve seen in the U.S., overall. That continues to be met with very strong demand, and we have not seen any weakening in demand,” he said.
“We don’t see leisure slowing down. On the business-transient side, there’s still strong and growing demand, even pent-up demand. And on the group side, we finished the second half of last year with people getting more comfortable and planning events like crazy,” he said. “The economics of supply and demand are just really good.”
Still, Nassetta said company executives did bake a “moderate recessionary environment in the second half of the year” into its forecasting. The company anticipates 2023 systemwide revenue per available room to increase between 4% and 8% compared to 2022, according to its news release.
“Occupancy likely flattens out this year. RevPAR levels will be higher because of rate integrity … and we’re not assuming pricing power will increase in the second half of the year … but flattening or moderately lowering.”
In 2022, systemwide RevPAR was up 42.5% over 2021 levels, but lagged 2019 levels by 1.3%.
Looking at performance over the past few quarters chronologically, Nassetta said the key takeaway is that “performance is improving sequentially” for all segments of travel.
Leisure travel continues to drive rates, he said, and group business saw the biggest quarter-over-quarter improvement from the third quarter of 2022 to the fourth, with RevPAR fully recovered to 2019 levels. Group bookings now are up 23% year over year and nearly back to 2019 levels.
He also cited growing momentum in business-transient performance. According to the company’s calculations, business-transient travel had RevPAR in the fourth quarter 3% higher than the same quarter in 2019.
Hilton Chief Financial Officer and President of Global Development Kevin Jacobs said the company’s hotels around the world saw performance improvements as international travel opened up in 2022:
- In the U.S., RevPAR grew 20% in the fourth quarter compared to the same quarter in 2021 and 37% in the full year.
- In Europe, RevPAR grew 67% in the fourth quarter compared to the same quarter in 2021 and 132.5% for the year, driven by continued leisure strength and increased inbound travel from the United States.
- In the Middle East and Africa, RevPAR grew 26% in the quarter and 56% in the year, driven by gains related to the World Cup.
Performance in the company’s Asia hotels was a mixed bag, Jacobs said. Japan saw strong demand and performance after opening up to international travelers, while China still lags following 2022’s reopening and subsequent Covid surges.
Development, Spark by Hilton
China’s slow recovery dampened some of Hilton’s 2022 net unit growth goals in the fourth quarter, Jacobs said, but overall the company still added 48,300 net additional rooms to its system in 2022, representing 4.7% net unit growth over 2021.
For 2023, Hilton projects net unit growth between 5 and 5.5%.
While Nassetta acknowledged that the low-supply environment industry wide keeps supply-and-demand ratios in check, he was quick to add Hilton has “more than its share” of the pie.
“We now have more rooms under construction than any of our major competitors,” he said.
Of the company’s 416,000 pipeline rooms, he said more than half are under construction.
Conversions represented 24% of Hilton’s gross openings in 2022, Jacobs said, and that share should get even larger this year and in the future as the company rolls out its latest brand Spark by Hilton, which is strictly conversions.
“There won’t be a ton introduced this year, but by the end of the year, we’ll start delivering them and they’ll drive some conversions, say to about 30% or more [net unit growth] from conversions or more this year,” he said.
Nassetta added that while a significant number of Sparks won’t join the system this year, “it should be, over time, the biggest brand we have in terms of number of units.”
Earnings Exceed Guidance
Hilton’s adjusted earnings before interest, taxes, depreciation and amortization were $740 million for the fourth quarter and nearly $2.6 billion for the full year, exceeding the high end of the company’s previously set guidance. Diluted earnings per share in the fourth quarter was $1.21 and $4.53 for the full year, also exceeding guidance.
For 2023, the company projects adjusted EBITDA between $2.8 billion and $2.9 billion. Capital return is projected to be between $1.7 billion and $2.1 billion.
At press time, Hilton stock was trading at $150.80 per share, up 20.61% year to date. The New York Stock Exchange Composite was up 4.57% year to date.
Editor’s note: Chris Nassetta serves on the board of directors for Hotel News Now’s parent company, CoStar Group.