Accor chairman and CEO Sébastien Bazin on Tuesday said he
expects business travel levels in the medium to longer term to be down 10 to 15
per cent. Hilton Worldwide president and CEO Christopher Nassetta essentially
disagreed with that assessment when asked about it during Hilton's Thursday
second-quarter earnings call.
"When you wake up in two to three years, we'll have a
raging debate that business travel will never be the same, and it will look
like that because businesses have been hobbled, and it will be lower for a
while," Nassetta said. "But I think we'll find in three years it will
be more like it was in '18 and '19 than it is now… One way or another, we will
have similar levels of demand both for business transient and group. People
will want to congregate. People will have to meet and will have to build
relationships. If anything, Zoom and Webex have taught us that it's really hard
to build a relationship this way… For the short to intermediate term, we
absolutely have scrambled every jet we got to think about a weaker business
transient demand environment to fill those gaps. I believe, longer-term, it
will recover to similar levels."
Regarding the upcoming request-for-proposals season,
Nassetta said about one-third of the company's "big corporate customers
get it and want to be supportive" and will continue with the negotiated
rates they had in place prior to the pandemic. Another one-third are saying:
" 'It's a crazy world we're in, and we have to get a better deal,' "
he said, while the remaining one-third don't know what to do yet. That last
group is split as to how to address 2021 hotel rates, Nassetta said, citing
conversations with Hilton's sales team. "We will see how it plays
out," he said.
Though business travel levels are low, they are not non-existent,
and Hilton saw upward movement during the quarter. The managed business
transient segment represented about 20 per cent of business in June 2019, and
in June 2020 it was 18 per cent, Nassetta said. "We are starting to see
that come back, not rapidly, but slowly," he added. "It's a little
bit different makeup of business traveller than it was last year or for the
last decade or two or three, but nonetheless it was
business-travel-related," he said, explaining that many such stays were at
lower price points than the traditional corporate travel that Hilton typically
sees. "Not to be judgmental… Owners are really hurting. Whatever business
is out there to help them, we need to go after it."
During the second quarter, Hilton brought in about 10 per cent
of its group volume compared with the prior year, Nassetta said.
"Traditional bigger group meetings that are kind of a bread and butter in
the fall, those will keep getting kicked out. A bunch of them are still on the
books for the rest of the year, but I think a lot of that will wash out. People
are kicking the can into next year." He added that starting in the second
quarter of next year, it starts to pick up. "We are booking tens of
millions of dollars a week for periods in the future, most of which is starting
in the second quarter next year," he said.
Still, he cautioned that companies are nervous about
spending time and money planning for meetings they might have to cancel.
"All segments will continue to grind up, but group will be the longest lag
because it requires spending and planning, and right now most people don't want
to do that," he said.
Key Indicators
Hilton's second-quarter revenue per available room declined 81 per cent year
over year to US$21.67. For the first half of the year, it was down 53.9 per cent
to $49.06. Occupancy dropped 56.1 percentage points to 22.3 per cent for the
quarter, and 35.1 percentage points to 39.3 per cent for the half-year. Average
daily rate slid 33.2 per cent to $97.18 for the quarter and 12.6 per cent to
$124.94 for the half-year. The company also reported a net loss of $432 million
compared with a net gain of $261 million the prior year.
All regions and chain scales were negatively affected,
Nassetta said, adding that there have been improvements from the low point in
April, with monthly sequential increases into July. Occupancy went from a low
of roughly 13 per cent to about 45 per cent currently, with all major regions
showing improvements, he said. As of 31 July, 96 per cent of the global
portfolio was open. All closed hotels in China have reopened, and the country
recently reported 60 per cent occupancy, driven by rebounds in both leisure and
business transient.
During the quarter, Hilton opened 60 hotels representing
6,800 rooms, with a net growth of more than 5,500, for 4.8 per cent
year-over-year growth. The pipeline includes 414,000 rooms in 121 countries and
territories, an 11 per cent growth rate from 30 June 2019. The company also
announced a partnership during the quarter with Country Garden to develop 1,000
Home2 Suites by Hilton properties in China. It's the first major extension of
the upper-midscale extended-stay brand outside of North America.
Nassetta said monthly room openings increased sequentially
throughout the quarter, with June openings nearly 15 per cent higher than last
year. He's also encouraged by conversion activity –especially for the brands
DoubleTree, Curio and Tapestry – which is up 50 per cent from where Hilton was
last year at this time. For the full year, he expects unit growth to be in the
3.5 per cent to 4 per cent range.
Also in the second quarter, Hilton launched its CleanStay
and EventReady sanitisation and safety initiatives, and began requiring face
coverings for all guests at indoor public spaces for all hotels in the US. The
company also laid off approximately 22 per cent of its global corporate staff,
or 2,100 people.