With Hilton’s new 48-hour
cancellation terms set to take effect next week in the U.S. and Canada,
Hilton CEO Christopher Nassetta explained the logic behind the policy and
hinted at more pricing initiatives to come.
“The reasons, I think, are obvious for why we're doing
that,” Nassetta said during the company’s second-quarter earnings call. “It’s
not just because of new technologies but because customers, many of them
ultimately have been trained to do multiple bookings and do things that have
created a scenario where cancellations have, in some markets, skyrocketed.” He
said last-minute cancellations make it difficult for hotels to manage
inventory. That difficulty ultimately costs the consumer, he added, because it
means the hotels are not appropriately pricing rooms.
Hilton’s policy comes on the heels of a similar 48-hour
cancellation mandate launched in June by Marriott International. However,
Hilton’s policy goes a step farther than Marriott’s; Hilton is also
implementing 72-hour cancellation policies in select markets where
“appropriate.” Nassetta said he's spoken with corporate customers about the
policy and the reception has been "perfectly fine."
Hilton is also in the process of testing other initiatives
that could be deployed later this year, such as fully flexible and
semi-flexible pricing structures that would potentially require cancellation
within seven days, Nassetta said, to manage inventory more intelligently. Those
familiar with the airline industry may recognize what Nassetta’s describing as
rate fencing, a key practice in airline revenue management that, if Hilton’s
strategy takes off and others follow suit, could become a new standard for the
hotel industry.
Second-Quarter Performance
Hilton maintained its prior full-year revenue per available
room guidance, pegging it at 1 percent to 3 percent growth over 2016.
Systemwide occupancy rose 0.4 percentage points year over year to 78.8 percent,
while average daily rate increased 1.2 percent to $147.37. Net income for the
quarter was $167 million.
Business transient demand continues to be good, not great,
according to Nassetta. He characterized corporate customers as "cautiously
optimistic," pointing to policy uncertainty hindering business travel demand since President Donald Trump's
election.
"I think everybody would like to see a little bit more
clarity on public policy on some of the things they care about the most to
unleash a little more optimism in the hiring, spending and, consequently,
demand for hotel room nights," Nassetta said. "The single biggest
thing that might help change the psychology with our corporate customers is
some positive movement in the area of tax reform."
Hilton added 13,400 net rooms to its portfolio during the
second quarter, a 30 percent gain year over year. Its development pipeline as
of June 30 totaled 332,000 rooms across 2,153 hotels in 104 countries and
territories. More than half of its pipeline is for rooms outside the U.S.
The company opened its first three Tru by Hilton properties
during the quarter and as of July there were 48 more in the pipeline. Hilton
also opened its first Tapestry Collection by Hilton hotel in Syracuse and 78
more hotels are in the pipeline. Separate from Wednesday’s earnings call,
Hilton also announced a refresh of its Hilton Garden Inn brand that will focus
on “food and beverage updates, new hotel prototypes for each region of the
world and brand culture enhancements across Hilton Garden Inn’s fast-growing
portfolio of 720 plus hotels in 33 countries and territories.”