Hilton bets on the return of business travel

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Conrad Hilton is in his 50s, and he ran a hotel for more than 20 years before purchasing his first property outside of Texas in 1939. in the world.

The same patience is necessary for the current CEO Chris Nasetta A century after Hilton was founded during the 1918 influenza pandemic, he led the company through the coronavirus crisis.

The Delta coronavirus variant may have delayed the recovery of the Hilton Hotel by a month or more, but Nassetta told the Financial Times, “This is a 102-year-old company…. Three to four weeks does not matter.”

At the beginning of summer, the hotel group was optimistic. With the easing of the lockdown, pent-up demand was manifested in hotel bookings and soaring room rates during July and August.

“With the reopening of most parts of the world, the pent-up travel demand we have always expected is happening,” Nasetta told investors in July.

The second quarter of this year is the first time Hilton has not suffered a loss since the epidemic. In the three months ending June, total revenue exceeded US$1.3 billion, and net income was US$128 million, which was higher than the loss of US$564 million and US$432 million in the same period in 2020.

During the Labor Day weekend in September, the total occupancy rate at Hilton Americas reached 85.7%, which was one of the best performances since the pandemic began.

In the second quarter, the group repaid $1.2 billion in outstanding debt. “As we move towards recovery, we remain confident in our balance sheet and financial flexibility,” Chief Financial Officer Kevin Jacobs told investors.

However, as the company emerges from the calm period of the summer, hopes for a rapid recovery have faded, and the tourism industry-one of the industries hardest hit by the pandemic-has been wondering when the business will return to its pre-Covid-19 state .

The United States is Hilton’s largest market and lags behind other G7 countries in terms of vaccination rates. Many companies have now delayed the large-scale return of employees to the office. Business trips and conferences that the hotel traditionally relies on in winter have been cancelled.

Before the pandemic, business travel and group meetings accounted for approximately 70% of Hilton’s revenue.

Nasetta said the organization has been “hit” by the pandemic. Its overall loss last year was US$720 million, which is in sharp contrast to the US$886 million profit reported in 2019.

Old Mobley Hotel in Cisco, Texas

Old Mobley Hotel in Cisco, Texas

To avoid a crisis, Hilton announced in June last year that it would lay off approximately 2,100 employees. It withdrew the entire $1.75 billion revolving credit line and pre-sold $1 billion worth of loyalty points. It also issued US$4.4 billion in bonds between April 2020 and January this year.

Some of its competitors have invested more in leisure hotels to cushion the long-term decline in business travel expectations. Industry data provider STR predicts that leisure tourism will return to 2019 levels in 2023, but business will not fully recover until 2025.

InterContinental Hotels Group launched Luxury resort brand Last month’s goal was to add 10 hotels a year, and Hyatt Hotels acquired high-end resort operators Apple leisure US$2.7 billion.

Marriott is the world’s largest hotel chain and Hilton’s closest competitor. Its chief executive, Tony Capuano, told the Financial Times this month that it is working on its employees in downtown business hotels. Retraining to “better understand the needs of leisure travelers.” Hilton franchisees said that throughout the industry, hotel groups are providing unusual preferential terms to have their own brands on “iconic leisure hotels.”

But Nasetta said he didn’t want to follow suit.

A source close to Hilton’s senior management said the company had considered a deal with Apple Leisure but did not think it was “strategic” [or] Economically meaningful value-added”.

Nasetta said: “The philosophy of my life… Hold your hands firmly on the steering wheel.”

He added: “Everyone thinks leisure, leisure! I have been doing this for too long: leisure will decrease [business travel] Coming up soon. “

Jefferies analyst David Katz said, “There is a major question mark regarding the future development trajectory. [Hilton’s] Recovery will be”, adding that Nasetta “admits himself to have been optimistic.”

Due to the Delta variant, the group has cancelled or postponed several major events at its hotels.

But Nassetta pointed out that short-distance business travel in the second quarter will return to 80% of 2019 levels. “You have to realize that you are reading a newspaper and filtering through the lens of a big company, when most business trips are not like this [small and medium] Businesses must travel or they will die,” he said.

He also believes that business travel will quickly return when white-collar executives realize that they have lost their contracts because their competitors decide to visit customers in person.

Investors seem to be definitely on his side. So far this year, Hilton’s stock price has risen 23%, while Marriott’s stock price is 17%, Hyatt’s stock price is 6%, and InterContinental Hotels Group’s stock price has fallen 2%.

The chart shows that Hilton's stock price has risen compared to its competitors

With business travel in mind, Hilton is promoting the development of its Signia branded hotels, which focus on group meetings. In July, it opened its first Signia in Orlando and another Signia in Atlanta. According to media reports, the Fairmont Hotel in San Jose will reopen as Signia.

The organization said it has booked seven of its own meetings for next year, each with thousands of delegates.

Signia Hotel in Orlando, Florida

Hilton opens its first Signia hotel in Orlando, Florida

Bernstein analyst Richard Clarke said that in a world where telecommuting is increasing, hotels may benefit: “There is a view that people may live further away from the city, and the company will decide not to open a physical store, but People still need to get together, and hotels will play a role in relocating these people.”

But Amar Lalvani, the CEO of The Standard hotel group and a former executive at Marriott’s Starwood, said that large hotel companies will have a harder time adapting to this change in demand: strict standards. “

Hilton has done more than many large groups to adapt to the changing needs of its business customers. For example, it launched a service that allows groups of representatives from different locations to connect, and speeds up the registration process through an app that allows guests to unlock rooms via their phones without having to go to the reception desk.

In Nasetta’s view, technology is a pandemic “great change” in an industry that is sometimes slow to adapt.

He hopes that this may help solve the industry’s “single biggest problem in the world right now,” which is a severe shortage of employees, especially in the United States and Europe. Daily housekeeping has become an on-demand service, and Hilton is hiring nearly 3,000 positions in the UK and the US.

Unlike Marriott, the group is also cautious about mergers and acquisitions. Marriott told the Financial Times that it is keen to conduct transactions.

Nasetta said: “We don’t have real greed right now. Don’t ever say nothing. [but] To run a large company, many are just about discipline. What you did not do to a certain extent is more important than what you did. “

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