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Hilton (HLT) Banks on Hotel Reopenings, Dismal RevPAR Hurts

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Hilton Worldwide Holdings Inc. HLT is likely to benefit from hotel reopenings, expansion efforts, the loyalty program and the luxury development strategy. Also, focus on hotel conversion opportunities bode well. However, decline in occupancy rates and revenue per available room (RevPAR) compared with the pre-pandemic levels are a headwind.

Let’s delve deeper.

Growth Catalysts

Although pandemic-induced restrictions and reduction in travel resulted in the suspensions of operations at certain hotels for some period of time during the six months ended June 30, 2021, reopenings have significantly outpaced suspensions during the second quarter. Some of the reopened properties include Palmer House Hilton, the Chicago Hilton, and the Hilton San Francisco Union Square. With operations of 95 hotels remaining suspended (as of July 2021), the company expects the complete resumption of operations by 2021 end.

To maintain its position as the fastest-growing global hospitality company, Hilton continues to drive unit growth. During second-quarter 2021, the company opened 119 new hotels. Hilton reported net unit growth of nearly 17,800 rooms, up 7% on a year-over-year basis. For 2021, the company expects net unit growth in the range of 5-5.5%. Also, it expects the same to remain in the mid single-digit range for the upcoming years as well.

Hilton continues to progress in the luxury development strategy. During the second quarter, the company expanded its all-inclusive and luxury portfolios with the signings of three beachfront resorts in Mexico —  Hilton Vallarta Riviera, Hilton Tulum and the Conrad Tulum. Apart from this, it is focusing on hotel conversion opportunities to mitigate the impact of construction delays caused by the pandemic. During the quarter, the company recorded conversion signings of Conrad Chia Laguna Sardinia, the Conrad Shanghai and Hotel 1,000 LXR. Overall, conversion signings represented 40 hotels (or 30% of its total signings).

Hilton Honors, the company’s loyalty program, has created an extremely valuable asset. During first-quarter 2021, the company (in collaboration with American Express) launched two new co-branded credit cards in Japan to boost membership offerings through Hilton Honors bonus points. With membership levels increasing on a year-over-year basis (as of second-quarter 2021), the company continues to outline opportunities to engage Honors members through enhanced partnerships and points redemption offerings.

Concerns

Hilton — which shares space with Marriott International, Inc. MAR, Hyatt Hotels Corporation H and Choice Hotels International, Inc. CHH in the Zacks Hotels and Motels industry — has been affected by the coronavirus pandemic. Although 99% of the properties are in operation, the company is witnessing significantly lower occupancy rates compared with pre-pandemic levels. Thanks to the crisis, RevPar is still lagging behind the pre-pandemic levels. We believe that emergence of the new COVID-19 variants is likely to create volatility in demand.


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Marriott International, Inc. (MAR) : Free Stock Analysis Report
 
Hyatt Hotels Corporation (H) : Free Stock Analysis Report
 
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Hilton Worldwide Holdings Inc. (HLT) : Free Stock Analysis Report
 
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