The economic flows driving the tourism sector may be fine for now, but one can’t help but feel the world’s biggest hotel companies are moving as fast as they can to prepare for the mayhem.
On Wednesday, Hilton kicked off its hotel earnings cycle by citing a first-quarter profit of $209 million and better-than-expected data showing travel demand outperforming before the pandemic in many segments. Those hoping for bargains due to the economic uncertainty were out of luck, as hotel prices at the Hilton were 11% higher than 2019 levels in the first three months of the year.
But Hilton has no eye on the more affordable segment of the hotel sector.
Hilton CEO Christopher Nassetta indicated on an investor call Wednesday morning that a “very low to mid-range” extended-stay brand is being worked on at the company and will be officially announced within the next two months. This happened a few months after the company launched sparkan economy class brand targeted at budget travel.
“My history of living through the Great Recession is that it is your lower cost products that have very high margins because people make the most money doing it and they are risky. lowest and they are the easiest source of financing. … Those are the fastest growing things,” Nassetta said of the long-stay brand, which has yet to be named publicly.
This new brand teaser comes a week after Hyatt announced a new extended stay brand, Hyatt Studios. Hyatt leaders indicated that they are targeting the “mid-luxury” segment (competitors here include Hilton’s Hampton brand) with Hyatt Studios. Nassetta notes that the new brand will park underneath the Home 2 Suites in the Hilton’s overall food chain.
Related: Your Ultimate Guide to the Hilton Hotel Brands
Long-stay brands are popular during the pandemic, as they maintain a relatively high occupancy rate during the lockdown as these hotels attract a wide range of essential workers and guests. long-stay rooms and suites as temporary accommodation.
While hotels are often more affordable to tourists, they help owners make more money because running costs aren’t as expensive as a full-service hotel like the Hilton or even the Hilton Garden Inn. Long-stay hotels don’t require a lot of workers and expensive amenities like an on-site restaurant or spa.
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Marriott’s Residence Inn’s long-stay brand is seen by many in the hotel industry as a dairy cow for hoteliers because it makes sense.
Nassetta later added that economic uncertainty was not a reason to launch the brand. Instead, he notes, it’s because “the customer wants it” and “the owner wants to build it.” The new brand, which only introduces newly built hotels, is unlikely to start opening hotels until late 2024 or into 2025.
“We think customers will love this. It’s something different. It’s at a lower price point, but the margins are much higher,” Nassetta said. “We think it’s a big brand opportunity for us.”
Hilton’s conversion to budget travel
The new extended-stay brand isn’t Hilton’s only budget darling. The company announced Spark in January, and the first hotels for the premium economy brand are expected to open later this year.
Nassetta said there are more than 300 Spark transactions in various stages of negotiation. He has previously indicated that Spark will eventually become the company’s largest brand by number of hotels, as it is driven by rapidly converting existing hotels under other brands. each other to the new Spark look.
Nassetta took it a step further Wednesday, declaring Spark “probably the most disruptive thing we’ve ever done.”
That’s a bold statement considering Hilton’s claim to culinary disruptions such as macaroons, red velvet cakes and martinis. Hilton was also the first to join the game in mass-producing digital room keys. Clearly, Spark surpasses all that in the eyes of the Hilton hotel executive floor.
Nassetta’s statement isn’t as outlandish as you first find out. Spark adds a new twist to the broader Hilton Honors loyalty program by introducing the brand to more cost-conscious travelers.
Spark and its new long-stay brand could be an early way for travelers to get a taste of Hilton. Assuming they like what they experience, they may end up switching to more expensive brands like Conrad and Waldorf Astoria.
No sign of economic turmoil…
While there was a lot of talk about economic uncertainty during the Hilton earnings call, the company didn’t notice a slowdown in booking data.
U.S. business and group travel outperformed pre-pandemic levels for a second straight quarter, and bookings for forward-looking group business were 13% higher than year-over-year levels 2019. It’s a strong indicator that hotel prices will not drop anytime soon.
Nassetta didn’t dismiss the idea of a recession and recognized that there was a chance of a recession amid efforts to reduce inflation in the US. But that didn’t mean the collapse of hotels either.
“Do I feel anything different from a quarter ago? Yes,” Nassetta said. “The economy seems to be more resilient. Inflation is under control. I have a higher degree of confidence that the Fed will reasonably land the plane.”
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