Hilton: 2017’s trajectory to continue in 2018
 
Hilton: 2017’s trajectory to continue in 2018
14 FEBRUARY 2018 4:34 PM

Revenue-per-available-room growth and a strong global pipeline dominated Hilton’s 2017 performance, and President and CEO Chris Nassetta said he expects those trends to continue this year. 

MCLEAN, Virginia—Coming off of a year in which Hilton grew revenue per available room by 3.8% in the fourth quarter and 2.5% for the full year, President and CEO Chris Nassetta said he’s “optimistic about the year ahead.”

On the company’s fourth-quarter/full-year 2017 earnings call with analysts Wednesday, Nassetta credited strong group and corporate transient business—along with the positive effects of holiday shifts and storm-related business—as performance drivers.

He said the company expects 2018 to notch similar performance levels as 2017. Hilton forecasts systemwide RevPAR in 2018 to increase between 1% and 3% for the year, though Nassetta said he expects it to come in “at the midpoint or high end” of that range.

Markets outside the United States continue to be a growth focus for the company, both in performance and pipeline.

Nassetta also called out the company’s net unit growth and pipeline as highlights. Hilton added 51,600 net rooms in 2017, representing 6.5% net unit growth over 2016. As of 31 December 2017, the company had 5,236 hotels open globally, comprised of 848,014 guestrooms, according to the company’s earnings release.

“In 2017, we opened more than one hotel a day,” Nassetta said.

At the end of 2017, Hilton’s development pipeline included 2,257 hotels consisting of approximately 345,000 rooms in 107 countries and territories, including 39 countries and territories new to the company. More than half of those pipeline rooms are located outside of the U.S., Nassetta said, and more than 174,000 are under construction.

More on RevPAR forecasts
Nassetta defended the company’s full-year RevPAR forecast, citing two possible scenarios for how the year may play out.

“If you take the bull case: We delivered 2.5% (RevPAR growth) last year in an environment where group business was relatively weak, leisure transient was relatively strong and business transient was relatively weak, and (we) had help from international markets, which were strong,” he said.

“In 2018, I think international markets are going to be strong again. … Leisure transient (business) looks to be good again. You have consumer confidence picking up. Business transient, while it’s early and a bit choppy, if the economy does what we think it will, it will lead to a better result (for business transient) than what we got last year.”

However, Nassetta said the company kept its guidance where it did because “it’s February, and there’s a lot of the year to play out.”

“We’re very optimistic and confident about group (business), but we want to see it play out,” he said. “More importantly, we want to see firming up on the business transient side. If those things happen, you’ll see us adjust our expectations.”

Nassetta said group business for 2018, particularly in corporate meetings, is showing strength “and nearly 80% of business is already on the books.”

U.S. tax-code reform is one factor increasing optimism on the travel front, he said.

“There’s reason to be optimistic (about business transient)—we’ve seen it last year, and we’ve seen it continue in this year,” he said. “It’s been a bit choppy … but I think this will continue to move GDP growth up a bit, and it’s going to help drive better corporate transient growth than we had last year, which you will recall was very anemic.”

International growth
Growth outside the United States continues to be a focus for Hilton, Nassetta said, and “40% of net unit growth (900 hotels and approximately 180,000 guestrooms) will be in international markets in 2018.”

“We’re actively pursuing additional growth opportunities by expanding into new markets and introducing new brands,” he said. “The broad diversification of our pipeline helps mitigate the impacts of development cycles around the world.”

Hilton CFO Kevin Jacobs said the company “expects international markets to continue to outperform the U.S.” in 2018 on the revenue front.

RevPAR in the Asia/Pacific grew 7.6% in the fourth quarter, led by China, which posted 9% RevPAR growth. Hilton’s hotels in the Middle East/Africa region followed with 6.1% RevPAR growth, and Europe posted 3.9% RevPAR growth. For the full year, Asia/Pacific posted 7.3% RevPAR growth, followed by Europe at 6.6%, the Americas (excluding the U.S.) at 5.3%, Middle East and Africa at 3.6% and the U.S. at 1.5%.

Brands outlook
Nassetta said the company’s Tru by Hilton brand is playing a big role in Hilton’s pipeline story.

In 2017, the company opened nine Tru hotels with 911 total guestrooms.

“We’ll open about 40 to 50 Tru hotels this year, and we should double that in 2019,” Nassetta said, adding that the first international Tru location likely would open in Canada, where the company has three signed deals.

Nassetta also hinted at a forthcoming “third soft brand, in the luxury space” for Hilton, the official announcement for which he said is “not far off.”

On the topic of individual assets, Nassetta did comment on recent media chatter pointing to a possible sale of the Waldorf Astoria New York. The iconic asset was purchased by China’s Anbang Insurance Group in 2014. Recently, media outlets have reported the Chinese government has asked Anbang to sell its foreign assets, though Nassetta said as far as he knows, that won’t include the Waldorf.

“It’s rumored that (Anbang) is going to sell (assets), but I do not, at least at this moment, believe that includes the Waldorf, at least as they’ve said it to us,” Nassetta said. “My understanding from Anbang is at the moment, the Waldorf is not one of those assets (to be sold), and they tell us they’re moving forward and work is going on.”

Loyalty program notes
Nassetta also called out the company’s Hilton Honors loyalty program on the call with analysts, noting that Hilton added more than 11 million members to the program in 2017—a 20% gain over the previous year.

“To kick off 2018, we’re enhancing Hilton Honors,” he said. “Soon we’ll roll out new perks, especially for elite members.”

He called the company’s loyalty growth strategy more than just a marketing move.

“It’s a much more complex and holistic approach,” he said, adding that the program’s product, service and technology offerings are built “not only to drive deeper engagement, but also more frequent engagement with customers. We know that once they come into the program, the vast majority … start booking directly with us.”

Specifically, Nassetta said approximately 95% of customers book direct upon joining Hilton Honors.

Hilton shares were trading at $85.97 Wednesday afternoon, up 7.7% year to date. The Baird/STR Hotel Stock Index was up 2.1% for the same time period.

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