Hilton Worldwide revised its revenue-growth projections for
the full year 2016 following a softer-than-expected performance during the
third quarter. It's a bit of déjà vu, as the company similarly reigned
in expectations during its second quarter earnings report.
Hilton's previous expectation for full-year revenue per
available room growth was between 2 percent and 4 percent. Now, following third-quarter
RevPAR growth of 1.3 percent, driven entirely by average daily rate growth, the
company's guidance for 2016 has shifted down to between 1.5 percent and 2
percent.
A major driver of Hilton's soft results is its dependence on
business transient demand, which makes up half its revenue mix and has been
underperforming for most of 2016. Beyond corporate travel, CEO Christopher
Nassetta said on a call with investors that a handful of other factors affected
results, including continued weakness in oil and gas markets; a soft
international performance with political instability and terrorism in Turkey,
Belgium and France; a strengthening currency in Japan; and China's recent introduction
of a nationwide value-added tax.
Nassetta said the hotel industry's cycle in the United States
should continue to track closely with GDP growth and the end of the election
should alleviate the uncertainty felt by corporates. "There's just a great
deal of broad uncertainty. Companies and CEOs, when they have a little more
certainty, do want to start to make decisions again to start investing and
hiring and traveling and doing all the things they need to do to drive the growth
in their business. It's been an unusual [election] cycle, and as a consequence,
it has slowed down the economy probably more dramatically than I've seen [an
election do] certainly in my adult life."
Discussing 2017 corporate rate negotiations, Nassetta said
Hilton expects to grow rates 3 percent to 4 percent. That figure is on par with
other forecasts made by industry experts.
Third-quarter occupancy fell 0.2 percentage points year over
year to 79.5 percent, while ADR increased 1.5 percent to $145.43. Hilton grew
its development pipeline 15 percent year
over year to 1,898 hotels, or 300,000 rooms.
Hilton's HNA
Relationship
Earlier this week, it was announced that China's HNA Group,
which largely focuses on tourism and aviation, will acquire
a 25 percent stake in Hilton from Blackstone for approximately $6.5 billion. Nassetta
said Hilton hopes to connect its hotel system to HNA's customers through HNA's online
and offline travel agencies, airline network and loyalty program, which boasts "tens
of millions of loyalty members."
"While
obviously there is some overlap in our current businesses, there's not much
overlap between our core customer base and theirs," Nassetta said. "It's
a tremendous opportunity to be able to connect those customer bases in ways
that are going to help feed our system throughout the world and particularly in
China. It's also going to help feed their system."
Fitch Ratings senior director Stephen Boyd cast
a skeptical view of the transaction and said HNA's investment likely hinges on
more than tourism synergies. "The
track record of cross-selling synergies between travel and lodging companies is
poor," he said. "Hilton and other hotel brands have been down
a similar road before, and ultimately transportation and accommodation
synergies failed to materialize, resulting in the airlines divesting their
holdings. Examples of airline/hotel combinations from the mid-20th century
include Pan Am/InterContinental, Trans World Airlines/Hilton International and
UAL/Westin."