Hilton’s Nassetta talks macros, consumer trends

McCLEAN, Virginia – Hilton President and CEO Christopher Nassetta was upbeat during the company’s 2Q24 earnings call, suggesting while the macro environment is a little bit weaker today and could remain so through the third quarter, their development story is incrementally stronger. The net result, he said, is Hilton delivering on expectations for the year.

Throughout the presentation and the Q&A, Nassetta referenced evolving macros and drew from his many years of experience to present a confident picture of what’s ahead.

He cited ongoing robust group performance, continued recovery in business transient and easier 2Q24 holiday comparisons led to 3.5% RevPAR growth. Transient RevPAR grew 2% year over year or the quarter with increases in both business and leisure demand. RevPAR across large corporates rose 5% in the quarter, driven by strong trends across most industries, including a notable recover in technology.

Christopher Nassetta

Nassetta said leisure and transient RevPAR continued to exceed the prior peak, supported by some solid summer travel demand, particularly in international markets. Hilton CFO and President of Global Development Kevin Jacobs added that growth was largely driven by strong international performance and continued recovery in group.

Group RevPAR rose more than 10% year over year for the quarter with positions looking up in the mid-teens over the next several years, all led by strong demand for corporate and social meetings and events.

Like most major hotel companies, China was the weak link in performance with RevPAR declining 5% in the quarter with difficult year-over-year domestic travel comparisons and limited international inbound travel negatively affecting results. The good news is that accounts for less than 3% of Hilton’s overall fees.

More generally, Nassetta said that so far in the third quarter business has been “a touch softer.” As Hilton moves into the fourth quarter, he added that as the bigger business travel months of October and the first part of November kick in, particularly in the U.S., there will be a little bit of strengthening in RevPAR growth as supported by Hilton’s group position.

That said, Hilton tempered the high end of its RevPAR growth expectations versus prior guidance due to softer trends in certain international markets and normalizing leisure growth more broadly. “With continued strength in group and steady recovery in business transient we expect higher end chain scales to continue to outperform,” Nassetta added.

Nassetta’s global lens

During the Q&A, Nassetta was asked to discuss how macros and consumer trends are impacting the business. So, he took the assembled analysts and media on a trip around the world.

“Asia Pacific is sort of a tale of two cities,” he said. “In China, there is actually a very significant amount of travel going on. We do expect the year sort of down probably circa 5%... Obviously, they have economic issues, but really the travel business is still quite robust. China has opened up a lot of corridors for inter-Asia travel that is visa free. Chinese travelers love to travel and they’re going to get out of China, and there’s just not enough inbound travel yet into China. There’s not enough flights from Europe and the U.S. and other parts of the world to compensate, and that’s going to take time.”

We think we will globally see growth in all segments. It’ll be very low in leisure transient, but positive, a little bit higher on business transient side and very, very strong on meetings and events.

Christopher Nassetta

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Nassetta said the rest of Asia Pacific is quite strong, particularly led by Korea and Japan with no signs of weakness in those markets. “And I should say India, for that matter, shows no real signs of weakening,” he said.

EMEA has also been a tale of two cities, according to Nassetta, with the Middle East remaining quite strong across the board. He said Europe is still very strong in an absolute sense, but a touch weaker than what he had seen a quarter ago. “You’re still at the high end of high single digit year-over-year growth. So, it’s not like it’s a bad story. It’s just come off just a little bit.”

Coming back to the U.S., Nassetta said “group is still raging, business transient is still grinding up, not at a rapid pace, but still grinding up, and both of those segments maintaining great pricing power.” He added that leisure transient has been normalizing, whole in the lower-spend consumers have spent their COVID-related saving and back to borrowing again. “They have less available disposable income and capacity to do anything, including travel,” he said.

“We think we will globally see growth in all segments,” Nassetta continued. “It’ll be very low in leisure transient, but positive, a little bit higher on business transient side and very, very strong on meetings and events.”

High level of signings, starts

Turning to development at the end of the quarter, approximately 508,000 rooms were in Hilton’s pipeline, up 15% year-over-year, with approximately 60% of those rooms located outside the U.S. and nearly half of the total under construction.

Conversions accounted for over half of the signings, driven by additions from their acquisitions of Graduate and partnership with Small Luxury Hotels of the World. Even excluding acquisitions and partnerships, conversions accounted for 25% of signings in the quarter, largely driven by continued momentum with Curio, Tapestry and DoubleTree brands.

Key money contribution has remained in the 7% to 8% range and Nassetta said Hilton has not seen that data point move much at all.

Even better, systemwide construction starts in the quarter were up 160% versus last year, and up 37% excluding acquisitions and partnerships with meaningful growth across both the U.S. and international markets. “We remain on track to exceed prior peak levels of starts by year end,” Nassetta said.

Approximately half of Hilton’s pipeline is under construction and Nassetta said it accounts for more than 20% of industry share.

“For the for the full year, we’re going to hit historically high levels on signings,” Nassetta said. “We’re going to hit historically high levels on starts, excluding any sort of partnerships or acquisitions…We feel very good about the momentum into next year and very good about being able to deliver on our story of 6% to 7% NUG organically.”