Hilton Worldwide president and CEO Christopher Nassetta sounded very optimistic about his company's recovery and future demand prospects during a third-quarter earnings call Wednesday. "The laws of economics are alive and well," he said at three points during the call. Hilton seems to be applying supply-and-demand laws to its group business prospects by potentially holding back on finalizing agreements, particularly for the second through fourth quarters of 2022, when some analysts expect group demand to accelerate.
"We do believe there's going to be a lot of group potential, particularly in the second, third and fourth quarters," Nassetta said. "And we don't want to commit. There's a level of lack of desire on our part to commit too much space when we know that there'll be a lot of pricing power. So it's sort of a bit of a delicate balancing act."
That tactic may motivate some meeting managers and planners to lock in their agreements as soon as they have a chance, especially since Nassetta added that the company already is pricing over 2019 levels because there is so much pent-up demand.
"There's one segment that books well in advance, and there's a limited amount of meeting space in the world and in the United States," he said. "We happen to have a lot of it. I mean, there are a few of us that are very big players in that space. So the reality is, again, the laws of economics are alive and well. People want it. There's not enough of it. So even though at the moment group revenues aren't what they were, on a forward-looking basis there is a good amount of pricing power."
For the third quarter of 2021, group revenue per available room was approximately 60 percent of 2019 levels, improving 21 percentage points from the second quarter, Nassetta added, though sports and social generated much of the group business that occurred in the quarter.
Business Transient Demand, Pricing
Nassetta said nearly 70 percent of U.S. businesses were back on the road, up 28 points from the end of the second quarter. In the third quarter, business transient room nights were roughly 75 percent of prior peak levels, he said, adding that 80 percent of Hilton's typical corporate mix comes from small and midsize enterprises, and the company is increasing its focus on that segment.
"This demand is higher-rated, more resilient, which has helped us to recover more quickly in business transient and should drive rate compression in the future as larger corporate travel picks up," Nassetta said.
Hilton expects business transient business in the fourth quarter to mirror that of the third quarter and anticipates SMEs to lead it. That segment is off by about 5 percent to 10 percent of 2019 levels, Nassetta said. Large corporate bookings are still off about 40 percent. But he thinks the latter will start to rebound and drive an increase in overall business transient levels.
As for pricing, he projected that the biggest corporate customers could end up with about 10 percent to 20 percent off the best available rate, while SMEs might end up at 5 percent or 7 percent off.
"In business transient combined, [rates are] already at 90 percent of 2019 levels, even though we still have a ways to go to build back demand," Nassetta said. "I feel pretty good about where that's going because we're going to keep pushing on small and medium. "That's almost back. My guess is that will exceed prior levels. And then the corporates are going to come in. And that's going to allow us to put more on the top of the funnel to price—have more demand, allow us to price more aggressively."
Q3 Earnings Metrics
Hilton reported third-quarter net income of $240 million, up from a loss of $81 million one year ago. Systemwide RevPAR at $90.39 for the quarter decreased 18.8 percent compared with 2019. Occupancy was 64.3 percent, which was down from a third-quarter 2019 level of approximately 79 percent. Average daily rate was $140.57, off by about 3 percent.
The company added 14,700 new rooms for a net addition of 11,200 for the quarter, or 6.6 percent growth year over year. Hilton approved 23,600 new rooms for development during the quarter, bringing its pipeline to 404,000. Of that number, 249,000 are for outside the United States, and 204,000 are under construction. Hilton anticipates full-year 2021 room growth to range between 5 percent to 5.5 percent.
During 2020, Hilton had 1,270 hotels closed at some point through Sept. 30. This year, through Sept. 30, about 335 had suspended operations for part of the year. All but 88, or about 1 percent of the company's portfolio, are expected to be open by the end of 2021, according to Hilton.
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