UPDATE 3-Hilton signals travel demand recovery may hit inflation wall soon

(Recasts, adds analyst comment, estimates)

By Priyamvada C and Doyinsola Oladipo

April 26 (Reuters) -

The pent-up travel demand that helped Hilton Worldwide Holdings Inc boost its annual profit outlook may run out of steam in the second half of 2023 as rising risks of a recession threaten consumer spending, the company signaled on Wednesday.

Hilton's comments marked a somber start to first-quarter earnings for hotel operators, dousing optimism around its estimate-beating results and dragging the company's shares down nearly 5%. Rivals Marriott International and Hyatt Hotels also lost more than 4%.

"We know here in the U.S. and in many other places around the world, there's an inflation issue," said Hilton CEO Christopher Nassetta in a post-earnings call with analysts, adding that a slowdown in the broader economic environment will have an impact on the company.

The travel industry, unlike several others in the discretionary space, had

so far

largely evaded the effects of higher interest rates on consumer spending. It was set for a full recovery after major market China reopened from COVID curbs.

While lockdowns had forced construction of some luxury properties to halt, "lifting of COVID restrictions in China drove significant recovery in demand across Asia Pacific throughout the quarter", Nassetta said.

Executives still remained confident about the momentum in demand continuing in the near-term, including in international travel, led by U.S. travelers and China's reopening.

Hilton now expects full-year adjusted profit per share between $5.68 and $5.88, compared with a prior forecast of $5.42 to $5.68.

The company's net unit growth - which reflects room additions - fell 32% to 5,300 rooms in the first quarter. The company reaffirmed its full-year forecast of between 5% and 5.5%.

"We predicted this air pocket (fall in net unit growth), and expect it to be short-term... but this will play to key investor concern on financing risk," Bernstein analyst Richard Clarke said, adding that investor focus was more on unit growth than demand.

Hilton reported an adjusted profit of $1.24 per share, compared with analysts' average estimates of $1.13, according to Refinitiv data.

(Reporting by Priyamvada C in Bengaluru and Doyinsola Oladipo in New York; Editing by Devika Syamnath)