Hyatt and Hilton greeted the news of Marriott International’s move deeper into homesharing by commenting that they would not be following suit.
Marriott owner Host Hotels & Resorts welcomed the decision, calling it “complementary, not competitive”.
At Hilton, president & CEO Chris Nassetta told analysts on the company’s first-quarter earnings call: “It’s not something that we’re pursuing. We fundamentally think that home sharing is a different business. We’re in the business of providing high-quality, consistent, branded experiences. That means taking products at all these various price points that have exactly the functionality that customers want, the amenities they want.
“We wrap it in incredible service. We also connect it all by loyalty. And as a result, we get a big premium because of the consistent high-quality nature of all these price points. Our belief is that home sharing is just something different.
“It’s not that it’s a bad business. But our customers tell us they don’t need this from us.”
Nassetta instead pointed to the company’s asset-light growth, as Hilton opened more than 12,000 growth rooms, achieved 7% net unit growth and increased its pipeline to 371,000 rooms. For the full year, he expected the momentum to continue, delivering approximately 6.5% net unit growth.
The CEO added: “Over 90% of our pipeline does not have any capital contribution for us, a trend that has remained consistent over recent years. This supports higher net fees per room once those projects are complete. For that reason, the vast majority of new units enter our system at virtually 100% margin and with an infinite yield.”
CFO Kevin Jacobs added: “Fees generate more than 90% of our earnings with top line-driven fees accounting for more than 90% of those fees. Additionally, our incentive management fees, which account for just 10% of total fees, are less volatile, and roughly 85% of them do not stand behind any owner’s priority return.”
Commenting on the group’s change in cancellation policy, Nassetta said that the group had seen some success with what he described as its “customer-centric pricing mode”, where the company has offered flexible and semi-flexible rates. Cancellations, he said, were down by around 10% over the past couple of years.
The company reported revpar growth of 1.8%, with adjusted Ebitda up 12% to USD499m, exceeding the high end of the group’s guidance, driven by growth in fees. For the full year, the group maintained its forecast of 1% to 3% revpar growth and adjusted Ebitda of USD2.265bn to USD2.305bn, representing a year-on-year increase of approximately 9% at the midpoint.
At Hyatt Hotels Corporation, which had previously owned a stake in sharing groups Onefinestay and Oasis, Mark Hoplamazian, president & CEO, told analysts that Hyatt was participating in the residential market through branded residential developments and its timeshare and fractional business.
He told analysts that, as a result of Hyatt’s previous investments, he had learned that: “When you’re dealing with high-end properties and you try to maintain a level of quality on a consistent basis, the delivery model is expensive and hard to get to a point where you are seeing a sustainable model. That true sharing platform model is getting more challenging because of regulatory issues.
“That’s why I think you see some evolution of the model, where the practice is to really focus on more controlled inventory. We continue to evaluate whether there is a way in which we might also participate in a more B2B corporate-focused urban residential play. But it’s unlikely going to involve anything that looks like a sharing platform.”
The comments were made as the company reported a 25% increase on the year in its pipeline, to 91,000 rooms, as a result of its Two Roads acquisition. The pipeline accounted for 42% of existing portfolio.
Hoplamazian hailed the group’s loyalty programme, with members accounting for around 75% of website bookings and a third of overall bookings. He said that first quarter enrolments had increased by over 40%, on the year, commenting: “We are very focused on the experience of our most loyal customers, and I’m proud to report that our elite member customer service metrics continue to improve significantly.”
The group said that total booking through direct Hyatt channels was approaching 70% of total volume.
The company reported 1.8% growth in revpar, led by rates. Adjusted Ebitda was up 6% to USD187m, with the CEO adding that, looking to the full year: “the US market will be a little bit weaker within the lower end of the range within the 1% to 3% range and international markets will be better”.
At Host Hotels & Resorts, Jim Risoleo, president & CEO, was enthused about Marriott International’s decision to expand its homesharing offering. He told analysts: “We view it positively because it’s going to give our existing guests another place to go and to earn points or redeem points as part of the loyalty programme. It will take some pressure off some of our hotels from that perspective. And it should also over time reduce the charge out cost associated with loyalty.
“We spent a fair amount of time looking at this and talking to Marriott about it and the test programme that they ran generated 7,000 room nights from customers who went on the Marriott website to look at a Tribute Home but ended up booking a standard hotel room.
“The properties that they are contemplating putting into this programme are not going to be competitive with us, there is going to be a minimum of three-night stay whereas, our average stay is two nights.”
Risoleo said that the Reit remained acquisitive, looking at potential acquisitions of properties in key markets with “strong demand generators while divesting non-core assets, including international assets, as well as profitability challenged assets like those in New York”. Host had a total investment capacity of USD2bn to USD2.5bn.
Host reported adjusted Ebitdare up 10% to USD406m for the quarter and adjusted FFO per diluted share increasing by 11.6% to USD0.4. Revpar fell by 1%, pulled down by an occupancy decrease of 180 basis points, which was partially offset by a 1.3% increase in average rate. The group attributed the drop to renovations taking place at a number of Marriott properties, the government shutdown and a softer than expected March.
HA Perspective [by Katherine Doggrell]: Time was, the mere mention of Airbnb was enough to send most rational hotel operators directly to the screaming ad dabs and then to the bottom of the nearest high-end malt. But no more. Because, you know what, they didn’t even like it anyway, it turns out and, six million listings or not, there’s no need to compete.
So that was handy, because it was an absolute bugger to compete with anyway and even if you were, then you could deny that you were (for more details see Hilton and its flexible, affordable lifestyle brand Motto which it insisted was utterly not a result of a need to compete with Airbnb and its flexible, affordable, lifestyle offering). As Accor and Marriott have pointed out, making profits in homesharing is quite the challenge, but both like having the option.
But it’s not just the customer who likes the sharing economy, it’s the owner too, with Host’s Risoleo full of the joys of the way it helped keep loyalty members loyal and the way that it created additional stays from people who thought, hell, they may as well stay in a hotel after all. What’s the harm? Hilton and Hyatt may find themselves thinking that a little complexity is not always a bad thing after all.
Additional comment [by Andrew Sangster]: Hilton is clear on what it views as critical for success: “industry-leading market share premiums that drive premium hotel performance and attract more capital from owners, which, in turn, drives higher net unit growth”.
In other words, Hilton is saying that it is the best rather than the biggest but it can grow organically faster than anyone else thanks to the strength of its brands. To back this up, Hilton claims to have a revpar premium of 15% globally when compared to non-Hilton hotels. It also claims a net unit growth of 7% a year and a pipeline with an average contract term of 19 years.
The pipeline of 371,000 rooms, of which 193,000 are under construction, represents a capital commitment by third-party investors of USD50bn. Hilton’s share of this is USD200m. The pipeline is 54% outside the US and will add a stabilised EBITDA of USD740m when complete which is worth USD10bn in value created.
It is not surprising then that Hilton does not view Airbnb and other so-called sharing platforms as a particular threat to what it is doing. Hilton is about delivering the best brands on hotel properties and growing, organically, faster than its rivals.
So, Hilton is very clear on having the best product brands and it is also clear on wanting to sell as much of them as possible through its loyalty scheme which now numbers just under 90 million members, a growth of 20% year-on-year. In the first quarter, over 60% of occupancy was people who booked using Honors.
This focus is no bad thing and right now Hilton is probably right to view home sharing as a distraction. As CEO Chris Nassetta said: “[customers] don’t want it from us”.
In terms of system room growth, Hilton says it is outstripping its main rivals, with a growth of 86% since 2007. This compares to 66% at Marriott in the same period even accounting for the Starwood acquisition. Only Hyatt, another sharing naysayer, had higher room growth, albeit marginally, at 90%.