Hilton CEO’s 2023 outlook: Don’t expect any hotel bargains, even in a recession
If you think a recession might usher in a wave of hotel bargains, don’t check out the Hilton reservations system over the next year or so.
Hilton early Wednesday morning reported a $346 million profit for the third quarter. However, there was a recurring theme on an investor call later in the day: Will this be as good as it gets in terms of profitability? There is debate on whether a recession is just around the corner, after all.
Investor call details
Hilton CEO Christopher Nassetta indicated there is still plenty of growth and recovery momentum at his company. International travel is still flickering back to life in parts of the world, like Asia, and there is a revival in corporate and group travel demand. That means hotel rates are likely to continue their ascent — great news for hotel owners but not exactly music to travelers' wallets.
“Despite near-term macro headwinds, we're not seeing any signs that fundamentals are weakening,” Nassetta said on the investor call. “Rising demand, coupled with historically low industry supply growth, should continue to drive strong pricing power.”
While the pandemic may have sparked higher-than-normal levels of domestic leisure travel demand, it also reduced the willingness of lenders to sign off on financing new hotel projects. That reduction in the supply of new hotel rooms hitting the market means less competition and a greater ability for hotel owners of existing properties to raise rates.
Even with extraordinary levels of travel demand over the summer, there isn’t some major wave of new hotels being built. Blame part of that on supply chain woes that have slowed down the construction timelines, even on projects that did manage to pull together bank approval. Don’t expect any of that to change next year.
“The laws of economics are alive and well,” Nassetta said. “Supply is at historically low levels, and it's going to stay there for a while given everything that's going on from COVID and now into the macro concerns.”
Welcome back, business travelers
It’s more than just a slower rate of hotel openings keeping nightly rates high in the face of a recession.
Nassetta, as well as Hilton’s chief financial officer Kevin Jacobs, noted a strong revival in business and group travel demand over the summer and into fall. It’s unlikely that will dissipate heading into next year. More demand streams on top of leisure travelers should lead to even higher hotel rates.
However, the company doesn’t appear too concerned about the idea of going too high with nightly rates. Hilton still estimates consumers have $2.4 trillion in excess savings accrued during the pandemic. Theoretically, that’s a major tailwind for a hotel company like Hilton.
“Demand is picking up,” Nassetta said. “Why is it picking up? It's picking up because the segments remain strong…People still have the desire and a lot of disposable income and savings to spend [as well as] more flexibility and time. [With] business transient, you have a huge amount of pent-up demand that's accrued as well as in the meetings and events segment. You [also] have the international markets opening up.”
The Hilton CEO sees additional growth opportunities in this area because consumer behavior shows more people are willing to pay extra for experiences rather than physical goods. That, coupled with recent-to-recover demand sources like corporate travel, should give the company and the broader hotel industry more durability amid economic uncertainty.
Nassetta isn’t ignoring signs of the global economy slowing down, though. Governments around the world are raising interest rates in an effort to bring down inflation. Still, he sees reason to be optimistic about Hilton's position in 2023.
“We have these tailwinds like spending more on experiences, [revived] international travel, pent-up demand and then just incremental demand associated with people having to run their businesses [and] gather [for] meetings and events of all sorts — whether it's social or business,” he said. “At the moment, those tailwinds are stronger than the headwinds, and I would say meaningfully stronger, which is why we would continue to recover. We continue to have pricing power.”
How long can it last? Maybe longer than people expect in the face of a global recession.
“My own belief is we have enough wind in our sails to go for a while,” Nassetta added.
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- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
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- Annual Fee is $325.
- Terms Apply.
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| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 3X | Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com. |
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You may be eligible for as high as 100,000 Membership Rewards® Points after spending $6,000 in eligible purchases on your new Card in your first 6 months of Membership. Welcome offers vary and you may not be eligible for an offer.As High As 100,000 points. Find Out Your Offer.Annual Fee
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Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.