Accor chairman and CEO Sébastien Bazin on Tuesday said he expects business travel levels in the medium to longer term to be down 10 percent to 15 percent. Hilton Worldwide president and CEO Christopher Nassetta essentially disagreed with that assessment when asked about it during Hilton's Thursday second-quarter earnings call.
"When you wake up in two to three years, we'll have a raging debate that business travel will never be the same, and it will look like that because businesses have been hobbled, and it will be lower for a while," Nassetta said. "But I think we'll find in three years it will be more like it was in '18 and '19 than it is now. … One way or another, we will have similar levels of demand both for business transient and group. People will want to congregate. People will have to meet and will have to build relationships. If anything, Zoom and Webex have taught us that it's really hard to build a relationship this way. … For the short to intermediate term, we absolutely have scrambled every jet we got to think about a weaker business transient demand environment to fill those gaps. I believe, longer-term, it will recover to similar levels."
Regarding the upcoming request-for-proposals season, Nassetta said about one-third of the company's "big corporate customers get it and want to be supportive" and will continue with the negotiated rates they had in place prior to the pandemic. Another one-third are saying, " 'It's a crazy world we're in, and we have to get a better deal,' " he said, while the remaining one-third don't know what to do yet. That last group is split as to how to address 2021 hotel rates, Nassetta said, citing conversations with Hilton's sales team. "We will see how it plays out," he said.
Though business travel levels are low, they are not nonexistent, and Hilton saw upward movement during the quarter. The managed business transient segment represented about 20 percent of business in June 2019, and in June 2020 it was 18 percent, Nassetta said. "We are starting to see that come back, not rapidly, but slowly," he added. "It's a little bit different makeup of business traveler that it was last year or for the last decade or two or three, but nonetheless it was business-travel-related," he said, explaining that many such stays were at lower price points than the traditional corporate travel that Hilton typically sees. "Not to be judgmental. … Owners are really hurting. Whatever business is out there to help them, we need to go after it."
During the second quarter, Hilton brought in about 10 percent of its group volume compared with the prior year, Nassetta said. "Traditional bigger group meetings that are kind of a bread and butter in the fall, those will keep getting kicked out. A bunch of them are still on the books for the rest of the year, but I think a lot of that will wash out. People are kicking the can into next year." He added that starting in the second quarter of next year, it starts to pick up. "We are booking tens of millions of dollars a week for periods in the future, most of which is starting in the second quarter next year," he said.
Still, he cautioned that companies are nervous about spending time and money planning for meetings they might have to cancel. "All segments will continue to grind up, but group will be the longest lag because it requires spending and planning, and right now most people don't want to do that," he said.
Key Indicators
Hilton's second-quarter revenue per available room declined 81 percent year over year to $21.67. For the first half of the year, it was down 53.9 percent to $49.06. Occupancy dropped 56.1 percentage points to 22.3 percent for the quarter, and 35.1 percentage points to 39.3 percent for the half-year. Average daily rate slid 33.2 percent to $97.18 for the quarter and 12.6 percent to $124.94 for the half-year. The company also reported a net loss of $432 million compared with a net gain of $261 million the prior year.
All regions and chain scales were negatively affected, Nassetta said, adding that there have been improvements from the low point in April, with monthly sequential increases into July. Occupancy went from a low of roughly 13 percent to about 45 percent currently, with all major regions showing improvements, he said. As of July 31, 96 percent of the global portfolio was open. All closed hotels in China have reopened, and the country recently reported 60 percent occupancy, driven by rebounds in both leisure and business transient.
During the quarter, Hilton opened 60 hotels representing 6,800 rooms, with a net growth of more than 5,500, for 4.8 percent year-over-year growth. The pipeline includes 414,000 rooms in 121 countries and territories, an 11 percent growth rate from June 30, 2019. The company also announced a partnership during the quarter with Country Garden to develop 1,000 Home2 Suites by Hilton properties in China. It's the first major extension of the upper-midscale extended-stay brand outside of North America.
Nassetta said monthly room openings increased sequentially throughout the quarter, with June openings nearly 15 percent higher than last year. He's also encouraged by conversion activity—especially for the brands DoubleTree, Curio and Tapestry—which is up 50 percent from where Hilton was last year at this time. For the full year, he expects unit growth to be in the 3.5 percent to 4 percent range.
Also in the second quarter, Hilton launched its CleanStay and EventReady sanitization and safety initiatives, and began requiring face coverings for all guests at indoor public spaces for all hotels in the United States. The company also laid off approximately 22 percent of its global corporate staff, or 2,100 people.
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