Wednesday Special Report >>> Will Business Travel Return? Hilton Remains Optimistic
Picture Credit: Tadviser Website
It is no secret that the Covid-19 pandemic has hit businesses hard. However, one of the most adversely affected industries are the travel and leisure industries. They became almost non-existent due to travel restrictions and quarantines that were imposed by governments all around the world to combat the spread of the virus.
Hilton Worldwide Holdings is the second largest hotel chain in the world, and they too have been hit hard by the pandemic. Hilton’s current CEO, Chris Nassetta, is in high hopes that as stern lockdowns and travel restrictions slowly fade, travel and tourism will also steadily pick up in pace. However, with the future of travel and the hotel industry remaining highly uncertain and volatile due to the pandemic, CEOs like Chris have to be proactive, and adapt to what the future has in store.
Conrad Hilton bought his first hotel in 1919 at the age of 31. The “Mobley Hotel” in Cisco Texas was a small 40 room hotel which he bought right after he returned from serving in World War Ⅰ. He wrote in his memoir it looked “like a convenient place to sleep. Nothing more”, little did he know that this was the start of his 600-hotel empire.
- Mobley Hotel Picture Credit: Hilton website
Since then, he was able to grow the Hilton name not just nationally in America, but also internationally by purchasing resorts and constructing hotels all around the world. The Hilton hotel chain was a pioneer in luxury experiences for its customer. Hilton was the first company to have air conditioners in their rooms and televisions back in 1947, which at the time was revolutionary. Hilton was also the first hotel chain to invest in computerised central reservation systems in 1973, a breakthrough customer service system. The Hilton Hotel chain was able to captivate customers and grow through hard times by adapting with technology whilst keeping its core competencies. An example of this was in 2014 when they first produced technology that allowed you to access your room by using smart phones as keys. Or in 2018 when they created the truly magical world’s first underwater hotel suite.
This balance of both patience and innovation is what helped make Hilton the oldest and second largest hotel chain in the world, and these are the qualities that CEO Chris Nassetta must display to steer the company through the Covid-19 pandemic.
Recovery Amongst the Pandemic?
Hotel groups were optimistic as summer approached. As the lockdowns slowly started to ease in most parts of the world, hotels finally started enjoying being fully booked and rates per room were soaring throughout July and August. “As much of the world re-opens, the pent-up demand for travel we’ve been anticipating is happening” commented Nassetta.
The second quarter of this year was the first time since the beginning of the pandemic that Hilton reported a profit. Hilton was able to accumulate almost $1.3 billion in revenue and $128 million profit over the past 3 months leading to June. They even managed to pay back $1.2 billion in outstanding debt. Chief financial officer Kevin Jacobs comments “we remain confident in our balance sheet and financial flexibility, as we move forward into recovery”.
However, as the summer season comes to an end, so did most of the momentum for the hotel and travel industry. America remains Hilton's biggest market, but it falls behind in comparison to other G7 nations like Germany, France and Canada in vaccination rates. This has caused the cancellation of many business conferences and trips which are facilitated by hotels. These business trips and gatherings were a key source of revenue through the winter season.
- The Skirvin Hilton Hotel in Oklahoma city Picture credit: Skirvin Hotel website
This was a severe blow specifically to Hilton as business trips and gatherings amounted to almost 70% of their revenue. The aggregate loss of 2020 stands at a mammoth $780 million, which is in direct contrast to the profit of almost $900 million made in 2019 alone.
Hilton, like many businesses having to deal with survival through the pandemic, has had to take some tough measures to stay afloat and wait out the pandemic. They had to sell $4.4 billion worth of bonds, used $1.75 billion in credit facilities and even pre-sold $1 billion in loyalty points. Yet they still had to lay off almost 2100 staff members to make ends meet.
Business Travel, the Savior Hilton is Banking On
Most of Hilton’s competitors have started to re-invest in the leisure market. This is because industry data has forecasted that the leisure hotels will recover to 2019 levels as soon as 2023. This has prompted hotel chains like InterContinental Hotel Group to launch a luxury hotel brand that will aim to develop 10 hotels a year. Hyatt Hotels have bought the high-end resort operator “Apple Leisure” for $2.7 billion, and Marriot, the worlds largest hotel chain, has focused on re-training their staff in their city center hotels to better understand the needs of a leisure traveler.
But CEO Chris Nassetta disagrees. Unlike his rivals, Chris doesn’t believe that investing in leisure will yield profits. “Everybody thinks leisure, leisure! I’ve been doing this too long: leisure is going to come down and [business travel] is going to come up” he commented.
David Katz, an analyst at Jefferies remains skeptical of that decision, commenting that there was a “significant question mark on what the trajectory of [Hilton’s] recovery would be”. But Nassetta is focused on the 80% recovery of short business trips in the second quarter. He believes that companies must start travelling again soon otherwise they will start losing customers. This is where Nassetta hopes to capitalise.
Whilst most remain skeptical on the approach, investors are onboard with the plan as Hilton makes the largest recovery in share prices. Hilton's share price increased by 23% whilst their competitors like Marriot only recovered 17% and Hyatt at 6%. InterContinental Hotel Group’s share price dropped by 2%.
With this strategy in mind, Hilton has started to push its “Sigma” branded hotels which are designed for group meetings. It already opened its first hotel in Orlando in July and has started construction on another in Atlanta.
- inside one of the Sigma branded hotels Picture Credit: Hilton Website
In an industry that is slow to adapt, the Hilton hotel chain has made the breakthroughs to become one of the most iconic and luxurious hotel chains in the world. They have proved time and time again that not following the traditional norms, is sometimes a good thing. Whether it was installing air conditioners in public places for customers to enjoy, or to making extravagant underwater hotel rooms, Hilton knew how to capture the excitement of customers and sustain it. This of course comes with its own degree of risk, but only time will tell if this strategy pays off in the end.
September 22nd 2021 | 10:25 AM