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New brands, pricing structure in the works for Hilton

Column: industry Tag: Hilton,third-quarter earnings Published: 2017-10-27 11:57 Source: Author:

New brands, pricing structure in the works for Hilton
MCLEAN, Virginia—New brands “under heavy development” are on their way from Hilton, along with a new systemwide pricing structure, and most if not all of those are planned to debut in 2018, according to Hilton President and CEO Chris Nassetta.

During the company’s third-quarter earnings call with analysts Thursday morning, Nassetta shared more details on Hilton’s percolating new brands, which he has hinted at for several months. He also announced a new pricing structure, in testing now, which is designed to capitalize on success the company has achieved with its new cancellation policies.

These announcements come amid a Q3 report in which systemwide revenue per available room increased 1.3% compared to the same quarter last year and the company hit a record number of rooms in its development pipeline of 335,000.

“This is our third quarter as the new, simplified Hilton, and our strong performance continues,” Nassetta said.

New brands

Nassetta had hinted at new brands the company is working on during Hilton’s Q1 earnings call?with analysts earlier this year. On Thursday’s call, he shared more details about what he called “four new brand ideas … under heavy development.”

They include what Nassetta affectionately refers to as a “Hilton plus brand,” an urban microbrand—which Nassetta has previously referred to as “very trendy in a sense, sort of like a hostel on steroids”—a luxury collection brand and a luxury lifestyle brand.

With the exception of the luxury lifestyle brand, he said, they are “way down the development path.”

“I would expect—and it’s not a hard commitment—but I would expect probably the launch of two or three of those four during 2018,” he said.

Nassetta said it’s critical for the company to allow a little time and space for its other recent launches, notably Tru by Hilton?and Tapestry Collection.

“We’ve had five new brands over a relatively short period of time,” he said. “We want to make sure … that we give them a proper berth.”

New pricing structure

More details also came out during the call about a new pricing structure for Hilton, which is in testing phase right now and expected to launch in 2018, according to Nassetta.

This goes hand in hand with the company’s new cancellation policies, instituted in the third quarter, which call for 48-hour or 72-hour cancellation windows, depending on the market.

“It’s early days, but the early returns are that those are working; those are helping stem the tide of really short-term cancellations,” Hilton EVP and CFO Kevin Jacobs said on the call.

Nassetta elaborated on the early success the company is seeing with its new cancellation times and offered details on what he said would be “changes to how we price all our products” in 2018.

We’re “taking it from 48 or 72 hours (cancellation windows) to seven days, and then seven days and beyond, with a flexible or semi-flexible pricing approach,” he said. “I think it’s going to … help us deal with this issue (of short-term cancellations) in a more meaningful way and a way that drives higher RevPAR growth.”

The company is “deep into the testing” of this pricing module “and we like what we see,” Jacobs said, adding to the analysts on the call that there would be more details next year.

“We have an opportunity to incrementally make customers happier by giving them choice (while driving) better RevPAR growth,” he said.

More Q3 highlights

For the third quarter overall, Nassetta said RevPAR trends have been in line with company expectations, excluding aberrations resulting from holiday shifts and recent global weather-related crises.

He pointed to some specific highlights of the quarter. Leisure transient growth came in at the high end of company forecasts. Group pace in the third quarter was up, improving the company’s overall position on group business for the year, and “strength in international markets continues to boost systemwide results, particularly in APAC and Europe,” he said.

Some regional performance highlights of the quarter included:

Asia/Pacific: “This represents our largest growth opportunity,” Nassetta said, pointing out that nearly a quarter of the company’s total pipeline is located in the region. RevPAR in the region grew 8.3% in Q3 compared to the same quarter in 2016, led by strength in Greater China.

Europe: “RevPAR grew a solid 8% due to transient strength in the U.K., Turkey and Spain,” Jacobs said.

Middle East/Africa: “RevPAR was up 20 basis points,” Jacobs said, noting that the company saw strong group performance in Saudi Arabia and improving leisure business in Egypt.

Americas outside the U.S.: Jacobs noted strong growth in Mexico in the quarter, driven by strong transient demand.

Development and pipeline

Hilton added 12,000 net rooms in the third quarter and approved 23,400 new rooms for development, growing the company’s development pipeline to a record 335,000 rooms.

As of the end of the third quarter, the company had 5,120 hotels open globally in its lodging portfolio, comprising 829,591 guestrooms.

As for 2018, Nassetta expects rooms growth to pace on par with 2017, at about 6.5%.

The company forecasts full-year RevPAR growth in 2017 of 1% to 3%. It also issued RevPAR growth guidance for the full year of 2018 at the same 1% to 3% range.

As of Thursday afternoon, Hilton’s stock was trading at $72.48, up 29.9% year to date. The Baird/STR Hotel Stock Index was up 31.8% for the same time period.

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