Q2 REVIEW
rate is better than on occupancy — a better outcome for us and owners .”
All of this coming amid a resurgence in international markets . “ Leisure is growing at a slower pace because of the comps , but still is way over the watermarks and in business and group , we are not seeing weakness ,” Nassetta said . “ It ' s been a wildly strong summer .”
Nassetta said the only real areas of leisure softness were in South Florida , some parts of Hawaii and southern California .
DRIVING DEVELOPMENT Despite a challenging debt market , where it ' s more expensive to get development deals done , Hilton said it approved 36,000 new rooms for development during the second quarter , bringing its development pipeline to 440,900 rooms as of June 30 , 2023 , representing growth of 7 % from June 30 , 2022 . Of its total pipeline , Nassetta said that half of it is under construction , “ more than anyone else ,” he said , adding that “ once they start , they almost always finish .”
Hilton in the second quarter added its 600th Home2 Suites and the Conrad Shenzen .
New development is coming at a time when new supply is at anemic levels of growth , well below the 2 % historical average . Nassetta said it was closer to 0.8 %. “ Demand is good against historically low supply ; it will sustain performance and rate integrity ,” he said .
Nassetta said he expected openings to accelerate given the stronger international and conversion trends and forecasted net unit growth between 5 % and 6 % next year , and increasing over the next couple of years , as more projects get underway that stalled during COVID .
Net unit growth , or NUG for brevity , is a typical Wall Street gauge of performance . Nassetta said that it began to see a surge in starts in the second half of last year , but that U . S . credit conditions have made it more challenging .
WE ARE PUSHING HARD ON PRICE TO MAKE HOTEL OWNERS THE MOST MONEY
– CHRIS NASSETTA , PRESIDENT AND CEO , HILTON
Hilton , like many of its peers , has leaned into the mid-market space because , as Nassetta pointed out , that ' s where the spend is . “ The mid-market is where the people are ; that ' s the demographic trend . There are growing middle classes and that ' s what they can afford ,” he said .
In just this past year , Hilton has launched two new brands : Spark by Hilton , in the “ premium economy ” space , and Project H3 , the placeholder name for a brand in the extended-stay space , but which Nassetta referred to as leaning more “ apartmentlike ” in its style and offerings . Spark is a 100 % conversion opportunity that will open 20 this year while H3 , Nassetta said , is a high-margin and low-cost-to-build product that is already gaining institutional interest . Of Spark , Nassetta said the strategy was to take existing branded stock and convert them over . “ The quantum of money to do it is low and the ramp up is fast .”
“ Spark doesn ' t need a lot of financing , same as H3 ,” said Hilton CFO and President of Global Development Kevin Jacobs . “ We launched these brands because there is product demand .”
Half of all Spark owners are new to the Hilton system , in what Jacobs called “ diversifying the owner base ,” where “ capital follows the opportunities .”
Nassetta added that Hilton would soon take the Spark brand to Europe .
BRAND AWARENESS In the 16 years that Nassetta has been at the helm of Hilton , he ' s overseen the addition of 12 brands to a portfolio that now numbers 22 , in what he calls a “ culture of innovation ,” with a stable of brands built up organically rather than through M & A . “ It ' s a winning strategy ,” Nassetta said , “ and better from a return ; not investing capital .”
The focus at Hilton and other competitors , from Hyatt to Marriott , has shifted to lower echelons of the business , but Nassetta did note that the company had something being cooked up in the “ luxury lifestyle ” space and that it would launch something next year .
The morning earnings call gave way to an afternoon that saw the Federal Reserve lift interest rates a quarter percentage point , an increase that brings them to a 22-year high . It marks the 11th increase since March 2022 , when rates were lifted from near zero in an attempt to bring inflation down by cooling the economy . The Fed gave little guidance on future policy plans .
“ We know what the Fed is trying to do ,” Nassetta said . “ We are getting to the end of the tightening cycle . We are not seeing cracks anywhere and places that had lagged are now producing , like China . Not to be a Pollyanna , but it all feels good .”
16 hotelsmag . com September 2023 June 2023 hotelsmag . com 16