Hilton’s CEO expects to return to pre-pandemic hotel performance later this year

The sold-out summer might give way to a faster-than-anticipated hotel recovery at Hilton.

The U.S.-based hotel company behind a variety of brands, from Waldorf Astoria to Home2 Suites, reported Tuesday a $211 million profit for the first three months of this year. That’s a hefty acceleration in recovery from the same time last year, when Hilton reported a $109 million loss.

However, the real bragging rights for Hilton likely stem from how company executives predict the rest of the year will go. Recovery will ramp up on the returning wave of business and group travel, Hilton’s CEO Christopher Nassetta forecasted on the company’s first quarter earnings call.

“We'll probably have the biggest leisure summer we've ever had — only to surpass last summer, which was the biggest leisure summer we'd ever seen,” he said on the investor call Tuesday. “As we get into the fall, as people are back more in the office, which we certainly are seeing now and expect to see more of, we're seeing a very nice uptick in return to business transient [travel] and return on the group side.”

The numbers show this isn’t blind optimism at Hilton, which cynics may have thought was the case last year when Nassetta estimated business travel demand at the company would eclipse 2019 levels by the end of 2024. Looking at Hilton’s latest figures, some might argue that timeline is playing it a little safe.

Business travel demand is back to representing 45% of the room night business at Hilton. By comparison, it used to represent 55% of business pre-pandemic. Business travel demand in the U.S. alone for Hilton was down only 9% from 2019 levels in March.

Some of this rapid recovery stems from the kind of business travel Hilton courts.

Nassetta previously indicated 80% of Hilton’s pre-pandemic business traffic came from small- and medium-sized companies that generally need people on the road and aren’t as able to fully rely on remote work. The remaining 20% came from larger companies from sectors like finance, consulting and law.

The plan mentioned on several recent earnings calls was to boost that to a 90-10 split when it came to smaller companies versus the larger corporate behemoths. However, even larger companies are showing signs of a travel rebound, with Hilton reporting revenue from that sector is down only 12% below 2019 levels.

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“We expect business transient to be roughly back to 2019 levels by year end, with expectations supported by rising corporate profits, rebounding demand from big businesses and loosening travel restrictions,” Nassetta said.

Leisure travel has been the life raft of hotel companies during most of the pandemic, and there has been a rallying consensus that group and convention travel would return to pre-pandemic levels. Business travel has been the giant question mark, though, with many analysts veering to talk of “if” demand returns to 2019 levels rather than “when.”

Hilton’s outlook has the company building estimated business travel demand levels into quite an optimistic take for later this year.

“We think there is a good likelihood that we'll reach 2019 systemwide [performance] levels during the third quarter,” shared Nassetta.

Cheap hotel rooms, we hardly knew ye

Signs of business getting back to normal at Hilton doesn’t mean room rates are going to dip back to pre-pandemic levels, however.

Much of the industry’s recovery so far stemmed from the fact that hotel companies maintained higher rates rather than filled up entire hotels. While demand was softer in more business-oriented cities like San Francisco or Atlanta, it soared in leisure destinations and ushered in sky-high prices.

Even in markets with softer performance, hotel companies advised owners to maintain pre-pandemic rate levels, as discounts were unlikely to shore up demand in the pandemic. People were staying away from hotels because they simply didn't want to travel during the health crisis — not because they felt rates were too high, the thinking went. Hilton reported Tuesday that average rates across its global network were 3% above 2019 levels for the month of March. It’s likely to go higher.

The return of group, convention and business travel means even more competition for rooms. With occupancy rates expected to go up, rates should rise in lockstep. That’s good news for hotel owners — and a sour one for traveler wallets and corporate expense accounts.

“I think we’ll have meaningful pricing power just as the laws of supply and demand suggest we should,” Nassetta said.

No inflation burden

Nassetta echoed remarks made last week from Wyndham CEO Geoffrey Ballotti regarding there not being any evidence of negative impact from rising gas prices on hotel bookings.

There has been some speculation budget-minded travelers would be more vulnerable to rising gas prices, hotel rates and other inflated costs amid the current economic climate. However, Nassetta explained history shows otherwise at Hilton.

“The reality is if you go back over long periods of history, there is not a very high correlation – in fact a low correlation – with what’s going on with fuel prices and demand with our business,” he added. “There are certainly lots of fears and uncertainty of where the world goes, but the consumer has an abundant amount of savings — as do businesses — and there’s a burning desire to get out there.”