Hilton’s CFO on scale, optimism and being No. 1

ATLANTA — Immediately after defending the big hotel brands on stage at the Hunter hotel conference last week, Hilton's Kevin Jacobs sat down with Hotel Investment Today to discuss several topics.

On stage, the CFO and president of global development addressed the criticism that while big brand companies like Hilton have massively grown over the last 20 years, they haven’t necessarily transferred the benefits of that growth and economies of scale to their owners and franchisees. He agreed with the basic premise and said Hilton is currently working on ways to “use the benefits of our scale to drive some cost savings to owners.”

During HIT’s interview with Jacobs, he repeated that premise when discussing how the company could leverage technology and AI better.

“It’s incumbent upon us to — I talked about this on stage — to use the benefits of our scale,” he said. “We are one of the biggest hotel companies in the world. We have a lot of scale. We need to use the benefits of our scale to invest in those products over time, to continue to drive performance, and create a better stay experience for the customer and better performance for the owners.”

Jacobs also expressed optimism that, even as there is a great deal of economic uncertainty in the first few months of this new U.S.presidential administration, a year from now, “things will feel a lot less chaotic and calmer.”

When HIT asked him to elaborate more on his optimism, Jacobs said while it’s fair to say that some of the things being discussed are not positive for thinking about travel or travel demand, he thinks over any medium- or long-term period the fundamentals for travel are strong.

“I do believe that cooler heads will prevail across the board. Look, we’re optimistic people by nature. [Hilton CEO] Chris [Nassetta] is one of the most optimistic people I’ve ever been around. That’s part of why he does what he does and he’s really good at it,” he said. “Everybody involved in making policy decisions is motivated to try for the right outcomes. They’re trying to drive real wage growth for the middle class. They’re trying to drive economic growth. They’re trying to benefit the interests of our country, and I think globalization will also not stop being a thing.”

We don’t guide or forecast too many years out, but we’ve said that 6% to 7% growth is sustainable for us and it’s because of all that. It’s because of the opportunity to layer in new brands and then continue to grow in emerging markets and bring these great consumer products to this rapidly growing base of customers around the world.

Kevin Jacobs

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Hotel Investment Today interviewed Jacobs on a wide range of topics, including continued net unit growth, whether being No. 1 in rooms is an important metric for Hilton and why more partnerships like AutoCamp could be on the way for the company. 

Hotel Investment Today (HIT): Hilton continued to have record net unit growth of 7.3% in full-year 2024 and CEO Chris Nassetta discussed his continued optimism for more growth in the future. Won’t it be harder to continue growing NUG each successive quarter?

Kevin Jacobs: Mathematically, the larger the denominator gets, the harder it is to grow at that rate. But there’s still just so much opportunity around the world… if you think about this middle-class formation around the world, and, by the way, none of this commentary is to say that the developed world is going to slow down. In the developed world, you think about some of the newer brands we’ve launched, whether it’s Spark or LivSmart [Studios], where we’re accessing a new customer that we hadn’t served before… There’s still an opportunity where a hotel either doesn’t have a brand on it, or that brand it has on it is sub-optimized in the eyes of the owner, and they convert to our brand.

But then, when you go around the world, India is a great example; Southeast Asia is a great example; China will continue to grow for a really long time. You have this massive middle-class formation where you’re literally creating new consumers… You’re growing the addressable market for travel and you don’t have products to serve those customers.

We don’t guide or forecast too many years out, but we’ve said that 6% to 7% growth is sustainable for us and it’s because of all that. It’s because of the opportunity to layer in new brands and then continue to grow in emerging markets and bring these great consumer products to this rapidly growing base of customers around the world.

HIT: What do you think of being the second-largest U.S. hotel company behind Marriott? Could there be a time when you could surpass them for total rooms?

Jacobs: We’re only number two in the sense that we’re the second largest in terms of the number of rooms. That’s not how we think about our performance. If you take a lot of other different metrics, whether it’s RevPAR index premiums, top-line performance, unit growth, culture… bottom line performance in the form of EBITDA, free cash flow per share, EPS growth and the ultimate, total shareholder return, we’re number one in all of those things that I just mentioned and that’s how we think about it.

Then on the financing side… it’s worth saying that lenders have more confidence that they will get paid back if the hotel is affiliated with one of our brands because our brands will perform better. So we are, by definition, easier to finance for owners than our competitors.

Kevin Jacobs

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It just so happens that mathematically, if you continue to grow at a faster rate than a competitor who’s larger than you, you might pass them someday. But that doesn’t matter. That’s not how we think about who we are in the scale business…. We have plenty of scale…. We’ll continue to use that scale to our advantage. The room count is not the objective. Premium performance in the ways that we perform for hotel owners and the ways that we perform for our team members and the way we perform for our shareholders is the objective.

HIT: Can you talk about the state of development right now, especially in the U.S., and the role Hilton plays?

Jacobs: Things are getting done, but owners say the capital is a little bit more expensive and the build cost is a little bit more expensive. It’s harder to get these projects to pencil…. That’s part of why you’re seeing, particularly in the U.S., a migration towards conversions.

Then on the financing side… it’s worth saying that lenders have more confidence that they will get paid back if the hotel is affiliated with one of our brands because our brands will perform better. So, we are, by definition, easier to finance for owners than our competitors.

HIT: Why was the AutoCamp deal the right one for Hilton at this time?

Jacobs: We do a bunch of business with the people that own and operate AutoCamp in other parts of their hotel business… and they came to us and wanted to do a partnership. It’s a great way for us — a capital-light way with no capital investment on our behalf — to connect our products with theirs… You’ll see us continue to do partnerships, broadly across what we would call adventures and experiences… It’s a way to invest a little bit outside of our core and develop that customer offering.

HIT: How can Hilton better leverage technology and AI in the future?

Jacobs: If you can use technology to deliver a great digital service experience when the customer wants a digital service experience, then you should not abandon the physical experience or the human element of hospitality but free up more resources. You might have fewer people, which makes the hotels more profitable and benefits the owners, but if those people serving the customers have better technology in their hands, they have more capacity to deliver hospitality… If you’re a customer who wants to talk to someone at the front desk, you should be able to talk to someone at the front desk. If you’re a customer who doesn’t want to talk to someone at the front desk, you want to come into the hotel. If you want to use our app to control the entire experience you can just stay away from people altogether. You should be able to do that as well… We find that most consumers want something in between. They want the efficiency of using digital tools, but they also want a little bit of human interaction and a little bit of a little bit of actual physical service.