Stemming losses, Hilton sets sights on office workers instead of tourists

Hotel giant reported a net loss of $81M andRevPAR was down 60%

Hilton CEO Chris Nassetta (Getty; iStock)
Hilton CEO Chris Nassetta (Getty; iStock)

Hilton Worldwide Holdings is still bleeding cash, but its CEO is confident the troubles are just temporary.

“We’ll see what happens with all of these crazy elections here in the U.S.,” Chris Nasetta said on the hotel giant’s third-quarter earnings call Wednesday. “Obviously, a lot going on in the world, a lot going on with the business.”

But when it comes to Hilton’s future, Nassetta said he is feeling “really good about the progress” despite posting a net loss of $81 million for the quarter, a steep fall from $290 million a year earlier. The company’s total revenues are down more than 60 percent year-over-year to $933 million from about $2.4 billion in the third quarter of 2019.

It’s an improvement from last quarter, when the company posted a net loss of $432 million and its revenues down 77 percent year over year.

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The optimism comes from Nassetta’s belief that a significant change in attitudes toward travel is around the corner.

The CEO said he believes movement on a vaccine will be coming by the end of the year or early 2021, and once that and winter flu season is in the rearview mirror, “there’s a real opportunity for a step change.”

Hilton is noticing a pick up in business travel, albeit not from the company’s traditional business traveller. Instead, the hotel company has begun experimenting with a new offering, namely office space.

The pilot program, dubbed WorkSpaces by Hilton, where the company rents out hotel rooms as office space rolled out last month.

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“A lot of people aren’t back in offices, so they need to have places to congregate, to have meetings,” Nassetta said. “Particularly for people that need to get out of their house and need Wi-Fi and need some space and privacy.”

Though Nassetta noted that the hotel-cum-office space is just temporary, he said it was a good stop-gap measure until typical demand for hotel rooms returns.

“The trick is this isn’t going to last forever,” he admitted. “[But] when we get to the other side of this … we won’t have let those muscles atrophy.”

Hilton is also continuing to construct and convert hotels into Hilton-branded properties. The company opened 133 hotels in the last quarter with a net growth of nearly 15,000 new rooms, or 4.7 percent.

The company’s development pipeline totalled more than 408,000 rooms at the end of September, an 8 percent increase year-over-year. Nassetta said net unit growth for the entirety of 2020 could be as high as 5 percent.

“The construction trades around the world, particularly here in the U.S., were ready to go,” said Nassetta. “Ninety-plus percent of what was under construction when we went into the crisis is back under construction.”

System-wide revenue per available room was down 60 percent for the quarter at about $45 per night with occupancy hovering around 42.5 percent and an average daily rate of $105.87. The uptick compared to last quarter was thanks to a combination of loosening travel and operating restrictions, and an uptick in demand from leisure travellers in the U.S. and China, per Hilton.

During the quarter, Hilton also brought back its furloughed corporate staff and plans on making other cost-cutting measures permanent until demand for events, business and leisure travel bounces back years from now. The company said 97 percent of its hotels were open as of Nov. 2.

“I do believe in my heart of hearts that when we get to the other side of this, we’re a bigger, better, stronger, more efficient higher margin business,” Nassetta said.