US hotel discounts can be as much as a thing of the past — if you can believe the CEO of one of the largest hotel companies in the world.
On Thursday, Hilton reported a $333 million profit for the fourth quarter of 2022 and nearly $1.3 billion in profit for the full year. This is the company’s second consecutive quarter that overall performance exceeded pre-pandemic levels. But the data shows that Hilton didn’t quite get this power by filling hotel rooms.
The company ended 2019 with a slightly more than 76% occupancy rate at its US hotels. Last year, Hilton hotels in the US were just under 70% full. But the average price is closer to $158 a night compared with $148.70 back in 2019, according to the company’s filing with the US Securities and Exchange Commission.
Don’t rely on discount rates to close that occupancy gap just for the sake of filling a hotel room.
“We can come back [to 2019 occupancy levels] tomorrow if we want to,” Hilton CEO Christopher Nassetta said on the company’s earnings call Thursday. “We could lower our rates and dominate ourselves, but we don’t want to do that. We are trying to manage, in this cycle, especially with the environment [of] inflationary [and] everything else, really works to give the best end result for [our hotel] owners.”
If there used to be a travel-related lucky spot for economic downturns, it’s that you can often find a hotel room theft as the owners try to do as much business as possible.
That’s great for tourists but not so much for hoteliers, as it can take years to be as profitable as it was before the economy started to decline. The pandemic has changed the playbook and the industry is unlikely to return to its old strategy anytime soon.
Past discounts will create more demand and get people to start thinking about booking a hotel.
However, no discount will help people get out in the first months of the pandemic when so much is unknown about the coronavirus. Hotel companies are encouraging owners to keep rates generally at pre-pandemic levels to avoid a financial recovery in another year.
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Given Hilton’s profit of nearly $1.3 billion last year, even amid omicron spikes in the first half of 2022, it looks like that strategy is paying off. While Hilton’s average U.S. hotel price increased only 0.3% from 2018 to 2019, a whopping 19.3% increase from 2021 to 2022.
Inflation may be easing, and despite a better-than-expected January jobs report last week (led by leisure and hospitality hiring), there are still signs of an economic slowdown. going to happen.
“We consider this to be not an emergency landing but rather a gentle to bumpy landing in the US with a moderately degraded environment in the second half of the year,” Nassetta said.
The company predicts prices will stabilize by the end of the year rather than continue to spike. But don’t count on that leading to any bargains at your favorite Hilton.
“There is more recovery and more pent-up demand, especially [with] business trips and group segments,” says Nassetta.
But the rate is also likely to remain high. This is because it is unlikely that many new hotel rooms will enter the US market anytime soon due to the economic environment.
Nassetta added: “We continue to believe we will have good pricing capabilities, at least this year, simply because no capacity additions have actually come to market. “We have these, both cyclical and secular, that are giving us increased demand that we think will allow us to continue to have pricing power.”
Delicate Exploitation of Hilton at Marriott and Hyatt
Blink, and you may have missed a bit of information about a hotel executive talking about a Hilton earnings call.
Hilton added nearly 17,000 new hotel rooms to its network of more than 1.1 million rooms in the last three months of 2022, and the company’s overall growth is 416,400 rooms. By comparison, Marriott’s development system typically hovers around the 500,000-room mark.
But Nassetta is not upset about being in second place.
Instead, he noted that Hilton’s size has more than doubled in the past 15 years. The company’s U.S. presence has nearly doubled in that time, while its international presence has more than tripled.
Unlike its competitors Marriott, Hyatt and Accor, Hilton focuses on building its own brand rather than acquiring others. In my opinion, it makes a lot more sense to build it yourself than to buy another company.
Nassetta boasted: “We achieved all of this without any acquisition and over 90% of the transactions in our current system do not have any primary funds or financial backing. any other”.
Just in the last few months, Hyatt acquires Dream Hotel Groupwhile Marriott revealed plans to buy Hoteles City Express is based in Mexico.
Spark is not ‘sexy’ but can be a dairy cow
Hilton’s latest branding effort is sparka chain of premium economy hotels that the company announced last month.
Spark is expected to grow by transforming existing hotels into new brands. However, it also created a bit of skepticism in the industry and mocked the move into a segment in which major industry players like Hilton and Marriott are typically not involved.
Nassetta went head-to-head with critics.
“I mean, it’s not sexy, OK? It’s not as sexy as lifestyle and luxury,” he says with a laugh. “But in terms of the opportunity to be a multibillion-dollar contributor to this company and its shareholders, I am more excited about this than anything else.”
Spark is expected to become Hilton’s biggest brand, with thousands of hotels across the US and Europe.
Nassetta says 70 million travelers frequent premium economy hotels in the US each year. Hilton didn’t have a brand in this space until Spark was first announced. The first hotels will open later this year.
“If you look at that customer base, I think it would be safe to assume that more than half of those customers are customers just starting out in their travel lives who will grow up and do new things,” says Nassetta. other. “The sooner you get them into the system and [start] Build loyalty with them, the more you benefit.”
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