Hilton Sees Positives in Q2 2021 with Return of Travel Business, Room Rates & Loyalty
During its Q2 2021 conference call, Hilton revealed that in the second quarter, systemwide RevPAR grew 234% year-over-year. Compared to 2019, RevPAR was down 36%, improving 17 percentage points versus the first quarter with June RevPAR improving 24 percentage points versus the first quarter, and down only 29 points versus 2019.Additionally, 30% of systemwide comparable hotels exceeded 2019 RevPAR levels in June. Adjusted EBITDA was $400 million, up 684% year-over-year.
“Performance was driven by strong leisure demand and rate growth,” noted Chris Nassetta, president and CEO. “For the second quarter, U.S. leisure demand exceeded prior peak levels, with rates at 90% of prior peaks. This positive momentum continued into July with systemwide and US leisure room nights and rate exceeding 2019 levels.”
Business Travel Returns
Even more encouraging for the hotel industry was the fact that meeting and event business increased meaningfully throughout Q2. June RevPAR for the segment increased 20 percentage points from the first quarter. Nassetta specifically called out small and medium-sized businesses as the first ones to return to hotels. However, he noted that there was “positive momentum across larger accounts.”
“In June, business transient room night demand was 70 percent of 2019 levels with rate over 80 percent of 2019 levels,” Nassetta added. “We continue to see progress in July, with similar room night demand and rates at 90 percent of 2019 levels. Group performance in the quarter also improved sequentially driven primarily by social groups, given seasonally higher leisure demand. Overall, group demand increased nearly 20 percentage points sequentially from the first quarter, ending June at more than half of 2019 levels. Additionally, group bookings for next year are at rates above 2019 peaks.”
Nassetta noted that at the time of the conference call, Hilton’s systemwide U.S. occupancy was 74 percent for the trailing seven days.
“If we're running 74%, that's not leisure. Mid-week occupancies at that level are definitely reflective of business travel being back,” Nassetta said.
After Memorial Day, in particular, Hilton’s mid-week occupancies really shifted with a lift of 10 or 20 percent on any given night due to business travel.
Loyalty Membership Grows
Hilton currently has about 120 million Honors members in its loyalty program. The brand has been working hard to create value with enhanced partnerships and points’ redemption offerings.
[In 2019, the brand made excellent progress with its loyalty membership.]
“Over the next several years, our objective is to continue to enhance the value proposition for Honors such that -- as I've been saying for a long time -- you're sort of crazy not to be a member of Honors… because you're effectively giving away value,” Nassetta explained.
For example, members get access to technology, a discounted rate, and points that can be used to shop on Amazon, buy a concert ticket at Live Nation, book hotel rooms, or order food and beverage or a spa treatment while on property.
This seems to be resonating with customers as Q2 2021 membership grew 10 percent year-over-year.
“On average, our premium members are staying with us even more frequently than in 2019,” Nassetta explained. “For the quarter, Honors members accounted for 58% of occupancy, reaching a high of 61% in May, only 2% below May of 2019.”
Nassetta, in particular, points out that the brand has worked really hard to make its loyalty program relevant not just to its most frequent travelers but also to the infrequent ones – those who might only travel two or three days a year.
“We worked really hard in how we sort of shifted our upper funnel and lower funnel strategies for marketing to attract customers into the system that were traveling during COVID that weren't our core customers,” Nassetta said. “We were able to get a bunch of those folks to say, gosh, I would like to be an Honors member and sign up and then realize this is a really good value proposition. So, the whole thing during COVID has been to basically say, let's go really hard after the customer that maybe wasn't our core, wasn't an Honors member, to make sure they really understand the value proposition and then keep them in the system.”
Rate Recovers Quickly
Another area where Nassetta shared positive news with shareholders was the fast recovery the hotels are seeing in RevPAR and room rates.
“Things have been coming back much more quickly than we would have thought,” he noted. “I’ve been optimistic about the recovery, but it’s even better than I would have thought. The most surprising thing is how quickly rate comes back. When we look back on this recovery the most unusual thing relative to any other period of my almost 40 years of doing this will be just a rapid return of rate.”
Interestingly, Nassetta indicated that low staffing levels at some hotels was a factor for driving up rates at those hotels – rates that guests were willing to pay for. Apparently, these hotels have been finding success in moderating occupancy levels down while charging a higher room rate and “net-net they’re making more money than if they had the incremental labor and they opened up the capacity. Their profitability is higher,” Nassetta explained.