• Hilton goes customer-centric 

Hilton used its first-quarter results to announce the rollout of its “customer-centric pricing” model in the US, aimed at cutting cancellations.

The company also raised its full-year revpar guidance, citing sustained economic growth and a likely drop off in supply.

The group’s customer-centric pricing model will introduce a fully flexible rate higher than the previous Best Available Rate by, president & CEO Chris Nassetta said: “a few percentage points” and a semi-flexible rate that allows for two to three days incremental notice beyond Hilton’s existing cancellation policy, including a discount.

Nassetta said that the policy would provide “added flexibility for those who want it and cost savings for those who don’t. We anticipate this new pricing model will reduce the number of last minute cancellations and maximise the number of guest rooms available”.

Customer-centric pricing will be available at all properties globally later this summer. The CEO said he expected to see a “modest” boost in ADR and revpar from the new strategy.

Nassetta was confident looking to the rest of the year, raising full-year revpar guidance 100 basis points to 2% to 4%, with the likely result in the 3% to 4% range. The group reported revpar growth of 3.9% for the first quarter, nearly 200 basis points above the midpoint of guidance. Full-year adjusted Ebitda was expected to be between USD2.06bn and USD2.1bn, representing a year-on-year increase of 9% at the midpoint

Nassetta attributed the growth to “broader macro strength. If you look at all of the data out there, consumer confidence is at very high levels. In a post-tax reform world, you have more money in consumer’s pockets, a lot more money in business’s pockets. You have a regulatory environment that is more stable. The question is, for how long.

“It feels like we have a decent sort of foundation for a reasonable period of time of sustained economic growth, which will support the business. So I think you could have a period of at least a couple of years of good same-store results.”

Looking to expansion, the company ended the first quarter with 355,000 rooms in its pipeline, representing 41% of its existing base. For the full year, it forecast net unit growth of approximately 6.5%. With nearly 45% of estimated openings located in international markets, international room supply was felt likely to be more than 10% by year-end, led by the Asia Pacific region where Hilton estimated portfolio growth in the high teens.

When asked to address the luxury segment, where rivals such as Marriott International and AccorHotels have been active in recent months, Nassetta said: “We have an urgency on increasing our presence in luxury and resorts, of course we do. We have had that urgency for the better part of the last decade and I think we’re making tremendous progress both in luxury and in our resort portfolio. But that’s an effort that will continue for many, many years to come.”

Hilton has so far declined to follow Marriott International and AccorHotels into the home sharing segment, with the group unlikely to shift strategy soon. Nassetta said: “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.”

Looking at the wider supply in the hotel market, the CEO said that he expected this year to be the peak year in the US for supply, peaking at the long-term average, which, he said, was “lower than any peak I can remember in my history. And when you look at like 2019 numbers you’re going to see most forecasts suggest that for the full year 2019, supply is going to go down back below the long-term average.”

Ahead of the results the company repurchased 16.5 million shares from HNA Group in connection with its secondary offering. With HNA Group now having sold its 60 million shares in Hilton, the China-based group has completed its exit. Blackstone Group owns a 5.48% stake in the group, having been selling down its holding since selling 25% to HNA in a deal first agreed in 2016.

Hilton is set to continue this trend. At the end of the quarter it had returned over USD1.3bn to  shareholders through buybacks and dividends. The group used its result to increase its full-year capital return guidance range to USD1.7bn to USD1.9bn, or approximately 7% of its market cap.

HA Perspective [by Katherine Doggrell]: It’s all come up Trump for Hilton, with the president’s tax cuts not only funding increased corporate travel, but also fuelling the company’s share buyback programme. Having said last year that the tax cut was likely to be used by the hotel sector to hire more staff and invest in real estate, the group is now committing itself to share buybacks. Nassetta reiterated that he did still expect to see more investors buying hotels.  As the French would say, it’s le win-win.

Nassetta certainly sounded a lot happier about the regime in the US than he did at last year’s IHIF, although he stopped short of praising the president by name. Now that the company has sorted out its HNA problem, speculation is growing as to whether it will buy something other than shares to continue to bolster its position.

It won’t be buying Airbnb, that much is clear, and it has more home-grown brands waiting in the wings. But, while Nassetta has always been happy to talk about the cost benefits of organic growth, the time required to build a brand and gain traction can be very dull indeed for shareholders, however much they are distracted by buybacks. With Belmond being repeatedly named in connection with IHG – and IHG still not signing on the line – it might be just the luxury pick-me-up to remind the sector that it’s back.

Additional comment [by Andrew Sangster]: It is possible to look at Hilton and think the company has reverted to the bad old days of snail pace growth. That would be entirely wrong.

Whereas the old Hilton International, the formerly Ladbroke’s owned enterprise that covered the globe outside of North America, could manage to add barely a hotel a year, the current Hilton is growing organically at an impressive clip. Net Unit Growth in 2017 was a phenomenal 6.5% and this is on a room count of 856,000 at the end of 2017. And to further reinforce the achievement, Hilton points out that its global system room growth since 2007 stands at 73%, ahead of Hyatt’s 67% and Marriott’s 56%, the next two nearest rivals.

Despite all this fantastic organic growth, the fact is that Hilton’s global major peers are using M&A to drive their expansion and this has helped growth outside of the US. Despite the pipeline in the rest of the world being bigger, Hilton continues to open more rooms inside the US, this year it is expecting 61% of the 55,000 rooms scheduled to open to be in the US.

For how much longer will Hilton sit on the sidelines while its global major peers snap up the overseas buying opportunities? Probably not that long.

The decision by HNA to sell its shares (it had 26% of the total and it will retain 3.1%) and Blackstone’s more gradual exit from the share register (this is already down to just 5.4% as at early April) means Hilton no longer has shareholders who are likely to hold it back from major M&A.

There is no question that Hilton has been a value creating machine. Its current pipeline of 345,000 rooms will generate a stabilised EBITDA of USD700m which is worth USD9.5bn. To deliver these rooms there is an investment by owners of USD50bn but just USD200m by Hilton.

Hilton talks about having white space in “urban affordable”, “luxury collection”, “luxury lifestyle” and the somewhat enigmatic “Hilton+”. It is into these four areas that Hilton will launch four new brands, following the five new brands it has launched in the last five years.

It is possible that rather than keep organically launching brands, Hilton will start acquiring. Or maybe it will launch a brand and take out a chain it believes can be repositioned. Right now, the M&A window is wide open: there is unlikely to be a better time in this business cycle in which to buy. All Hilton’s main rivals have opened their cheque books and now looks the right time for Hilton to do the same.

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