The end of COVID-19 restrictions in China boosted Hilton’s overall performance in the first quarter, along with sustained demand for leisure travel and still-growing demand from business-transient and group travelers.
Hilton President and CEO Chris Nassetta said on the company's first-quarter earnings conference call that despite largely U.S.-centric banking concerns earlier this year and still-high inflation around the world, the company only assumes “some slowdown in the back half of the year due to macroeconomic uncertainty, particularly in the U.S.”
With travel restrictions lifted in China, Nassetta said revenue per available room in March exceeded 2019 levels in all regions and segments for the first time since the pandemic began.
Hilton Chief Financial Officer Kevin Jacobs said Hilton's systemwide RevPAR grew 8% in the first quarter compared to the same quarter in 2019, “driven by strong demand in Asia-Pacific as well as continued strength in leisure and steady recovery in business transient and group travel.”
China, which had lagged 2019 performance levels significantly in the past three years because of pandemic restrictions, notched RevPAR 32 points higher than the prior quarter, now down only 5% from the same period in 2019.
Finishing the first quarter at the top end of expectations, Hilton raised its top- and bottom-line guidance for the year. For 2023, the company expects RevPAR growth between 8% and 11% and adjusted earnings before interest, taxes, depreciation and amortization between $2.875 billion and $2.95 billion, according to its earnings release.
Nassetta acknowledged “macroeconomic uncertainty,” but he said he has a higher degree of confidence today than he did last quarter that “the economy appears to be more resilient.”
“Inflation is being tamed … and the Fed will land the plane reasonably well and we’re not going to have a deep, dark kind of recession. We’re going to have a slowdown,” he said.
As for performance in the first quarter and beginning the second quarter, Nassetta said “we’re not seeing any cracks in terms of demand patterns. There is a lot of momentum.”
However, Nassetta did acknowledge that cracks may come in the latter half of the year, despite strong first-quarter performance and good visibility into the second quarter.
“We still think there’s a lot of uncertainty, and we’ve tried to factor that into our guidance in the second half of the year,” he said.
Segmentation
So far this year, leisure and group travel demand remains strong, and business-transient demand — which had been the laggard — continues to improve, Nassetta said. Business-transient RevPAR growth in the quarter was up 4% compared to the same quarter in 2019.
“It reflects the resiliency of business travel, particularly for small- and medium-sized businesses, which remained roughly 85% of our segment mix,” he said.
Group RevPAR finished in line with 2019 levels, and demand for future bookings is up 28% year over year, and 3% versus 2019.
Development
Hilton's signings and openings in the first quarter were not affected by issues affecting regional banks in the U.S., though it’s still early to tell longer-term affects, Nassetta said.
“The Fed seems to be managing through this reasonably well,” he said, “but I think that the net result is for a period of time, there’ll be less credit available. I still think we’ll get more than our fair share of it … but it’s hard to believe that in the short to intermediate term, there’s not going to be some impact.”
More conversion activity will help offset lending slowdowns, he said, as will a pickup in development activity in China.
Nassetta cited the company’s latest launch, Spark by Hilton, as a good example of the kind of brand that can take off at this point in the cycle. Spark’s contributions to unit growth this year may not be “meaningful,” he said, but the effect of the new conversion-only economy brand will be more evident next year.
“The timing of it is convenient and helpful because it depends very little on financing,” he said. “Most of the other conversions still depend on financing.”
In the first quarter, Hilton opened 64 hotels comprising more than 9,000 rooms. The company signed 25,000 rooms during the quarter, growing its pipeline to 428,000 rooms, more than half of which are under construction and 60% of which are outside the United States.
Conversion signings were 24% higher than at the same time last year, driven by Spark by Hilton. Nassetta said that brand now has more than 300 deals in various stages of negotiation, with the first expected to open this year.
Construction starts for the quarter totaled more than 19,000 rooms, up 20% from the prior year, and starts in the U.S. were up more than 50% compared to this time last year.
Nassetta said this activity makes Hilton confident in its ability to build back to 6% to 7% net unit growth in coming years.
Looking ahead, Nassetta also teased a yet-unnamed new extended-stay brand in the works from Hilton, which will be new-construction and will sit below Home2 Suites by Hilton segment-wise.
He called the still-unofficial brand one "that can deliver just astronomical margins on a very efficient per unit build cost."
At press time, Hilton's stock was trading at $140.76 per share, up 11.4% year to date. The New York Stock Exchange Composite was up 0.2% year to date.
Editor’s note: Chris Nassetta serves on the board of directors for Hotel News Now’s parent company, CoStar Group.