If you thought the first quarter was bad, brace yourself for even uglier second-quarter results, Hilton Worldwide Holdings President and CEO Christopher Nassetta warned during an earnings call on Thursday.
Through February, occupancy in the Americas and Europe, Middle East and Africa regions remained roughly flat. But with travel demand quickly sinking to record lows, Hilton suspended operations at 950 hotels, or about 16% of its total.
Comparable RevPAR slipped 22.6% from 2019 on a currency-neutral basis. Net income and adjusted EBITDA for the quarter were also off — US$18 million (versus US$159 million in 2019) and US$363 million (versus US$499 million in 2019) during the quarter ended March 31.
But those results “are not indicative of future results and the material negative impact that the COVID-10 pandemic is expected to have on Hilton’s business for an indeterminate length of time,” the first-quarter results press release noted. April alone proved that: Nassetta estimated the Hilton system posted a 90% decline in revenue.
At the corporate level, Hilton took a variety of steps to shore up cash reserves, including furloughs for nearly two-thirds of the staff, elimination of expenses, borrowing the remaining amount available under a US$1.75 billion senior secured credit facility, a US$1 billion presale of Hilton Honors points to American Express, and issuing US$1 billion in senior notes. The net result is US$3.8 billion in liquidity.
There are signs of recovery, particularly in hard-hit China, where nearly all the shuttered Hilton properties have reopened. Occupancy over the recent five-day May Holiday in China soared to 50% percent, up from 9% at its low point during the crisis there, Nassetta said. And booking traffic has been steadily growing. Barring another spike in COVID-19 cases, he thinks business will rebound by the third quarter.
In addition, projects in the pipeline that had been suspended are back on track. About a third of them ground to a halt earlier this year, but Nassetta said about half of those are already under construction again. Hilton added 67 new hotels with 8,800 rooms during the first quarter and signed deals for 29,500 new rooms during the quarter, pushing its development pipeline to 405,000 rooms. Among them was the largest deal in company history, an agreement with Resorts World Las Vegas for a 3,500-room resort that will combine Hilton, LXR and Conrad.
Meanwhile, Hilton is working with its owner advisory council on the right operating model for a post-pandemic era; one key concern, cleanliness, has already been addressed through a partnership with the manufacturer of Lysol and the Mayo Clinic. Hilton CleanStay with Lysol protection, launching in June, will be a rigorous system of cleaning practices and product offerings overseen by Mayo Clinic experts.
Other potential tweaks to Hilton products will be tested while demand is soft and guests are more accepting of different standards. “What we learn in that time frame we’ll institute as longer-range standards,” Nassetta said.
Nassetta, a self-described born optimist, observed that travel is “an unstoppable force” and that demand will resume sooner rather than later. He is confident leisure guests will return to the road, followed by transient business travelers and eventually group events.
“They just need to feel safe,” he said. “It’s hard to see it now, but in three or four years the world is going to look an awful lot like it did 90 days ago.”