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Overblown recession fears? Hilton’s rosy outlook makes you wonder

July 27 2022
5 min read
Waldorf Astoria Washington, D.C.
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Hilton provided the recovering hotel industry a roaring, profitable start to the second-quarter earnings season.

The hotel company posted a $367 million second-quarter profit Wednesday and also noted its global network performed only 2% off 2019 revenue per available room — the hotel industry’s key performance metric — levels for the same time period.

This is a major recovery from the second quarter of 2020 when performance during the first three full months of the pandemic was 81% off 2019 levels.

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The strong financial showing arrived as economists speculate a recession is just around the corner, but Hilton executives remain bullish about the second half of the year and even anticipate full-year profits could exceed $1.2 billion.

“We’ve been looking very carefully at our business, as you would guess, at all the segments for sort of any forward-looking trends that we can see,” Hilton CEO Christopher Nassetta said Wednesday during an investor call. “I would say what we're seeing still is very positive.”

Nassetta anticipates leisure travelers will continue to pay higher-than-normal hotel rates heading into the fall, albeit lower than the notoriously high rates seen this summer.

Additionally, business travel demand moved closer to normal levels over the second quarter, with business transient demand at 95% of 2019 levels for the quarter and weekday rates (typically how the hotel industry gauges business travel) higher than in previous peaks.

Business transient demand in the U.S. at Hilton exceeded prior highs for the month of June, Nassetta said. The overall business travel demand is led by travelers working for smaller and medium-sized businesses that typically don’t rely as much on remote work compared to larger companies.

These smaller companies accounted for 80% of Hilton’s overall business travel demand prior to the pandemic, and Nassetta previously indicated a desire to see that number grow to 90% as a result of its stronger recovery.

Even larger companies are inching back to normal, with travel demand from big corporations now at 80% of pre-pandemic booking levels.

“In the second half of the year, based on the trends we've been seeing, our expectation is business transient is going to be on a revenue basis equal to 2019 levels,” Nassetta added.

Hilton Maldives Amingiri. (Photo courtesy of Hilton)

Exciting openings

It’s a busy time at Hilton in terms of hotel openings and development. Nassetta pointed to recent additions to the company’s network which included the Waldorf Astoria Washington, D.C. (pictured above, and you can read about TPG’s first look at that property, formerly the Trump International Hotel). Also added, is the Hotel Marcel New Haven — part of Hilton’s Tapestry Collection and expected to be the first hotel in the U.S. to achieve net-zero carbon emissions.

A string of openings over the quarter, like new Conrad properties in Los Angeles and Nashville, as well as the Hilton Maldives Amingiri, helped the company surpass the 7,000-hotel mark in July.

The company’s overall development pipeline includes more than 413,000 guest rooms across nearly 2,780 hotels.

“We continue to drive a disproportionate share of global development, with nearly one in every five rooms under construction around the world slated to join our system,” Nassetta said.

“Additionally, our development market share is more than three times larger than our existing share, meaningfully higher than our peers, given our industry-leading [performance].”

The future looks a lot like the past

Industry analysts and critics often debated over the pandemic of how the hotel industry would need to change to better accommodate the future of work and travel. However, Nassetta has been one of the loudest cheerleaders about how things would recover largely from how things were before the health crisis.

Sure, things might shift a little here and there (a la the company’s growing embrace of business travelers from smaller companies), but leisure travelers, business travelers and group business would remain the three major food groups of a standard hotel.

Hilton’s current recovery trajectory appears to back that claim up. Leisure travel exceeds pre-pandemic levels, business transient demand is close to a full recovery and group business, while a little further behind, is within striking distance. Hilton’s group business performance is about 85% of 2019 levels.

“When we think about the group side, while we don't think in the second half of the year we'll get all the way back to where we were in 2019, we're going to get awfully close,” Nassetta said.

One aspect of the travel recovery that often gets discussed in industry circles is just how much of an impact vacation rental platforms like Airbnb have on the hotel industry. Millennials and members of Generation Z flock to this kind of lodging, and there is swelling sentiment hotel companies should do more to have offerings in this space.

Marriott and Accor both have smaller vacation home rental divisions. However, the experience divide between hotels and vacation rentals was felt on Wednesday’s earnings call.

“What [Airbnb does] is they serve a certain customer need, and we serve another customer need,” Nassetta explained. “There's plenty of room for us to coexist given what we're delivering is very different and it's generally for different types of stay occasions.”

Featured photo by PHOTO COURTESY OF HILTON
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
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Rewards Rate

6X6x points at hotels participating in the Marriott Bonvoy® program.
4X4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
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  • Intro Offer
    Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.

    Limited Time Offer: Earn 100,000 points
    75,000 points
  • Annual Fee

    $125
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
    Excellent/Good

Why We Chose It

The Marriott Bonvoy Business Amex is a stacked card with a rewards rate that will help you earn bonus points on everyday and business-related purchases. You'll earn 15 elite night credits each calendar year, and receive automatic Gold elite status. Finally, the free night award certificate with a redemption level of 35,000 points or less can get you hundreds of dollars in potential value each year.

Pros

  • 6x points on eligible purchases at hotels participating in the Marriott Bonvoy program
  • 4x points at restaurants worldwide, U.S. gas stations, wireless telephone services purchased directly from U.S. service providers and U.S. shipping
  • 2x points on all other eligible purchases
  • Earn a free-night award each card renewal month (up to 35,000 points)
  • Receive 15 elite night credits to jump-start status
  • Transfer Marriott points to 40+ airlines

Cons

  • Airline points transfer ratios are poor
  • Must spend $60,000 in a year for second free-night award
  • Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.
  • 6x points at hotels participating in the Marriott Bonvoy® program.
  • 4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
  • 2x points on all other eligible purchases.
  • Receive a 7% discount off standard rates for reservations of standard guest rooms at hotels that participate in the Marriott Bonvoy program when you book directly. Terms and Conditions Apply.
  • Receive 1 Free Night Award every year after your Card renewal month. Plus, earn an additional Free Night Award after you spend $60K in purchases on your Card in a calendar year. Awards can be used for one night (redemption level at or under 35,000 Marriott Bonvoy® points) at hotels participating in Marriott Bonvoy®. Certain hotels have resort fees.
  • Enjoy Complimentary Marriott Bonvoy Gold Elite Status with your Card.
  • Terms apply.
  • See Rates & Fees