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Hilton (HLT) Banks on Unit Expansion, Dismal RevPAR Hurts

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Hilton Worldwide Holdings Inc. (HLT - Free Report) is likely to benefit from expansion efforts, luxury development strategy and digital efforts. Also, focus on conversion opportunities bodes well. However, a decline in revenue per available room (RevPAR) from the pre-pandemic levels is a headwind.

Let’s delve deeper.

Growth Catalysts

To maintain its position as the fastest-growing global hospitality company, Hilton continues to drive unit growth. During fourth-quarter 2021, Hilton opened 94 new hotels. It achieved net unit growth of nearly 13,100 rooms. During the quarter, the company opened the 400th hotel and its first Home2 Suites in China. It also announced the opening of Motto New York City Chelsea. For 2022, the company expects net unit growth of 5%. Also, the metric is projected to remain in the mid-single-digit range for the upcoming years as well.

Hilton continues to progress in the luxury development strategy. During fourth-quarter 2021, the company made solid progress with respect to the Canopy brands. The company expanded the brand’s presence in Chicago and the U.K. with the openings of Canopy Chicago Central Loop and Canopy London City. The company opened Canopy hotels in Paris, Madrid and São Paulo. Backed by the openings, the company stated that the Canopy portfolio had grown 1/3 on a year-over-year basis. Going forward, the company stated that it has 408,000 rooms in its development pipeline, suggesting an increase of 3% on a year-over-year basis. Apart from this, the company announced the openings of Conrad Tulum Riviera Maya and Hilton Cancun in Mexico. The company boosted its presence in China with the opening of Conrad Jiuzhaigou. Meanwhile, Hilton is focusing on hotel conversion opportunities to mitigate the impact of construction delays caused by the pandemic. In 2021, conversions represented roughly 20% of the openings. During the year, the company signed almost half of the conversion deals covering the Americas. Going forward, the company expects positive development trends to continue on the back of new development and conversion opportunities.

Although pandemic-induced restrictions and a reduction in travel resulted in the suspensions of operations at certain hotels throughout 2020, reopenings outpaced new suspensions and resuspensions during 2021. The company stated that approximately 360 hotels, primarily located in the United States and Europe, were suspended for some period of time in 2021 compared with approximately 1,280 hotels in 2020. As of Dec 31, 2021, the company stated that nearly all of the hotels had reopened that suspended operations at some point since the start of the pandemic.

Hilton Honors, the company’s loyalty program, created an extremely valuable asset. With membership levels increasing 13% on a year-over-year basis (as of fourth-quarter 2021), the company continues to outline opportunities to engage its Honors members through enhanced partnerships and points redemption offerings. The company initiated several new commercial programs and loyalty extensions. During fourth-quarter 2021, the company announced the launch of Digital Key Share, which allows the room’s digital key access to more than one guest. The company rolled out automatic room upgrades (for elite members) along with the option of selecting upgraded rooms prior to arrival (for Gold and Diamond members). Going forward, the company intends to focus on new opportunities to drive customer engagement to reach pre-pandemic levels.

Concerns

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

A Brief Review of the Other Stocks

Marriott is benefiting from its focus on expansion initiatives, digital innovation and the loyalty program. The company is gaining from the reopening of the international borders and leniency in travel restrictions. Marriott is consistently trying to expand its worldwide presence and capitalize on the demand for hotels in the international markets. Given a rebound in global travel scenario, the company is focused on fostering engagement with its members. During third-quarter 2021, the company implemented several loyalty program updates, including status, award and point extensions. Also, it rolled out special promotions, including its second annual Week of Wonders and the relaunch of Marriott Bonvoy Moments. As bookings from digital channel continue to increase, we believe that the roll-out of such offerings are appropriate initiatives.  

Hyatt is benefitting from a gradual increase in demand, new hotel openings and acquisition initiatives. Also, increased focus on loyalty programs bodes well. Despite the negative impact of the Omicron variant, the company noted resilience in demand from both leisure and business travelers alike. Going forward, the company is optimistic with respect to the Apple Leisure Group acquisition on account of robust business and technological optimization.

Choice Hotels is benefiting from continual expansion strategies through acquisitions and franchise agreements. Also, focus on the loyalty program bodes well. In 2021, the company awarded 528 domestic franchise agreements, up 24% year over year. During the year, demand for conversion hotels increased 17% year over year, backed by a strong value proposition and solid RevPAR performance. The company reported sequential increases in its business and group travel demand, driven by a rise in extended vacations, household relocations and temporary remote work assignments. The transition of leisure travel into mainstream business added to the positives. Backed by the positive trends coupled with the segment-specific tailwinds, the company stated that RevPAR and adjusted EBITDA had surpassed 2019 levels.