Hilton reported positive trends for both corporate and group travel during the first quarter. Hilton president and CEO Christopher Nassetta said during the company's earnings call that both segments outperformed expectations, continuing a trend seen during the fourth quarter of 2017.
He said conversations with Hilton's largest corporate customers reveal improved optimism from this same period last year. "[Corporate customers] are spending more," he said. "They're ultimately hiring more, and they're feeling better. I think they feel like they have more visibility in some very important areas that were hanging out there. Regulatory and tax—there was a serious lack of clarity on where those things were going over the last bunch of years. I think they're feeling good and they are definitely traveling more in a transient and a group context."
New demand and improved conversions during the first quarter drove a 20 percent increase in bookings for all future periods, Nassetta said. With that, first quarter food and beverage revenue grew 6 percent year over year, which he said points once more to corporate customers "loosening up the purse strings."
If you talk to the folks in the hotels as the big groups are coming through, people are just spending more on individual events," Nassetta said. "They're doing more individual events, they're doing coffee breaks that they might have cut out."
HNA Is Out
Hilton in early April repurchased 16.5 million shares of Hilton common stock from HNA Group for $1.17 billion. With that and HNA's sale of an additional 66 million Hilton shares in an underwritten public offering, the Chinese conglomerate has fully exited its investment in Hilton, ending a relationship that lasted only a year. HNA in March also sold its stake in Hilton's two spinoffs, Hilton Grand Vacations and Park Hotels & Resorts.
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HNA Group is also an investor in The Rezidor Hotel Group. During a recent call with investors, Rezidor president and CEO Federico Gonzalez dismissed questions relating to HNA's apparent financial instability. "Our job as management is: We work for a board of directors and for all the shareholders and in that sense it does not affect today our day-to-day operations or even the five-year plan." He added that it's not the job of management to monitor the financial situation of its shareholders.
Groups & Meetings Commissions Cuts
Hilton in March announced its plans to cut the commissions it pays to third-party groups and meetings intermediaries in the U.S. and Canada from 10 percent to 7 percent starting Oct. 1. Nassetta said Thursday that Hilton has to strike a "delicate balance" of driving business results and maintaining good relationships with intermediaries. "You've seen huge increases in the percentage of group business that has an intermediary over the last decade," he said. "In order to be responsible for the whole system and to deliver profitability to owners, we need to drive efficiencies, and this is a means to being able to continue to drive efficiencies in distribution costs."
Don't Expect Hilton Home Rentals or Experiences Anytime Soon
This week, Marriott International announced beta testing of home rentals in the London market under its Tribute Portfolio brand. This month, it also announced an expansion of its experiences platform, Marriott Moments. Other industry players, such as Hyatt Hotels Corp. and AccorHotels, also have extended their platforms beyond traditional lodging stays to broader travel experiences.
Nassetta said that there's nothing like that in the company's road map. "You can imagine that we are always looking at options in terms of what we can offer our customers. That's why we've launched five new brands in as many years and we've got four new brands that will come out over the next year or so. And we've looked at other areas in the travel space, to judge whether we should do it." Hilton has decided not to do home rentals, he said. "That's not to say that we wouldn't consider that in the future at some point. … As you've heard in my description of Airbnb in the past, at the moment we believe it is enough of a different business that it is not something that we need to or should focus on, that delivering for our customers the core experience of a very high-quality, consistent, differentiated product with amenities associated with it and with very high-quality, consistent service delivery is what they come to us for."
Q1 Earnings
Systemwide occupancy rose 1.8 percentage points year over year during the first quarter to 71.8 percent, and average daily rate increased 1.2 percent to $145.21. The company raised its full-year 2018 systemwide revenue per available room guidance to between 2 percent and 4 percent, an improvement on the 1 percent-to-3 percent outlook Hilton provided in February. As of March 31, Hilton's development pipeline stood at 355,000 rooms, a 9 percent year-over-year increase. Total net income for the first quarter reached $163 million, up from $48 million during the first quarter of 2017.
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