Hilton foresees two years of strong growth
 
Hilton foresees two years of strong growth
26 APRIL 2018 3:54 PM

A healthy first quarter has left Hilton executives with an abundance of confidence, and President and CEO Chris Nassetta predicts consistent growth through the end of 2019.

MCLEAN, Virginia—On the heels of a first quarter that exceeded expectations, executives with Hilton said there is plenty of reason for optimism not just for the balance of 2018 but through the end of 2019.

On the company’s first-quarter earnings call with analysts and investors Thursday morning, President and CEO Chris Nassetta said the macroeconomic picture supports the idea that both his company and the wider hotel industry have plenty of runway left.

“I know the cycle is a lot longer than usual, which worries everybody, but I’m not sure it should, necessarily,” he said. “It’s been a longer cycle but with lower growth.”

Nassetta noted ongoing conversations with CEOs of various companies have indicated that much of corporate America is feeling more comfortable following the December passage of new tax rules with a lower corporate tax rate, and many are indicating that means more corporate travel.

“It’s only a quarter, but it’s the beginning of a good trend in (corporate) confidence translating to higher spending,” he said.

Nassetta listed various reasons for his line of thinking, stating he was “reasonably optimistic” following the end of the fourth quarter of 2017, but there is only more reason for optimism now, especially with a rebound in business-transient travel.

“Leisure transient remains strong,” he said. “And it had been choppy but business transient is showing signs of life with group pace starting to pick up. These are all trends from Q4 that continued in to Q1 and strengthened.”

Beyond the high confidence among corporate executives, Nassetta said he’s reassured that a high level of consumer confidence will continue to bolster ongoing leisure travel demand. An increase in both leisure and business demand, coupled with his expectation that supply growth will peak at a reasonable level in 2018 before tapering off in 2019, means the supply-demand dynamics will remain positive for the industry.

As a result, Hilton revised its full-year revenue-per-available-room guidance up to between 2% and 4%, and Nassetta noted he expects the final number to be in the higher end of that range.

“We’re pretty optimistic in the trends we see,” he said. “And short of anything significant, it should continue for a period of time.”

Growth in China
Hilton saw some of its strongest growth numbers in China, where the company expects full-year RevPAR growth in excess of 10%.

Nassetta noted the company’s efforts to grow the Hampton Inn brand in China, which is being done through a partnership with Plateno.

Nassetta said his company is “in talks to expand that relationship” with Plateno but didn’t provide further details.

“They’re doing a wonderful job in terms of what the product is and delivering service and helping build our network out (in China),” he said. “We’ve had great success, and we’re very optimistic with where things are going with Plateno and (Jinjiang International).”

Q1 performance
For the quarter, Hilton saw systemwide comparable RevPAR grow 3.9%, which company officials said in their Q1 news release was “driven by increases in both (average daily rate) and occupancy.”

The company saw particularly strong results in Europe and the Asia/Pacific region.

During the quarter, Hilton had net income of $163 million with adjusted earnings before interest, taxes, depreciation and amortization up 9% to $445 million.

In terms of unit growth, 10,600 rooms opened in the quarter, up 7% year over year, with 25,700 more approved for development. That brings the company’s pipeline up to 355,000 rooms as of the end of the quarter.

As of press time, Hilton’s stock was trading at $81.93 per share, up 2.6% year to date. The Baird/STR Hotel Stock Index was down 1.7% for the same period.

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