Q3 2024 Earnings Summary
- Hilton achieved record net unit growth of 7.8%, opening more hotel rooms than any other quarter in the company's history, driven by strong international expansion, particularly in China where approvals, starts, and opens are expected to be up this year .
- The company's brands are performing exceptionally well, leading to an outsized amount of conversions and increased market share, which is now significantly higher than competitors. Owners are confident in Hilton's ability to deliver strong returns over long-term relationships .
- Recent strategic acquisitions, such as the Graduate Hotels and the integration of Small Luxury Hotels of the World properties, have been immediately accretive to earnings and are enhancing customer engagement, providing unique luxury experiences, and expanding Hilton's offerings globally .
- RevPAR growth is slowing and has underperformed expectations: In the third quarter, system-wide RevPAR increased only 1.4% year-over-year, below Hilton's guidance range due to factors like slower ramp in September, weather impacts, and ongoing labor disputes in the U.S. Adjusted RevPAR growth was 2.3%, slightly softer than the second quarter.
- Significant decline in RevPAR in China impacting Asia Pacific performance: Third quarter RevPAR in Asia Pacific decreased by 3% year-over-year, with China's RevPAR declining 9% due to difficult domestic travel comparisons and disruptions.
- Leisure demand is normalizing with potential downward pressure on rates and occupancy: Leisure trends continued to normalize, with RevPAR declining modestly from post-pandemic peaks. There may be less pricing pressure in leisure segments, particularly on weekends, as demand might be flat or decreasing.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
EBITDA targets and growth | Consistently emphasized ~10% YoY growth, margin expansion, and confidence in hitting 2025 EBITDA goal. | Exceeded guidance with $904M in Adjusted EBITDA (+8% YoY) and reaffirmed 2025 target of $3.69B, citing resilience and strong macro support. | Stable outlook; remains a core focus. |
RevPAR growth | Previously ranged from +2% to +3% (Q2) and slightly higher in earlier quarters, with strong international offsetting softer US leisure. | System-wide RevPAR +1.4% YoY (below guidance). Adjusted for calendar shifts, +2.3%. Regional variations: US +1%, Europe +7%, Asia-Pac (ex-China) +4%, China -9%. | Softening in certain markets but still positive overall. |
Leisure demand | Leisure demand was very strong post-COVID; now moderating but still positive, with continued rate power in prior quarters. | Described as normalizing off peak; modest RevPAR growth of +2% in leisure transient, driven by Europe. Future leisure rates expected to remain slightly up. | Moderating from peak levels. |
Group bookings | Prior quarters also showed robust group bookings with longer booking windows and mid-teens growth in forward years. | Group RevPAR +5% YoY; position up +10% for 2024; strong momentum into 2025/2026, driven by corporate and social events. | Consistently strong segment with long-term growth. |
Market share gains | Previously mentioned Hilton’s outperformance in capturing a high share of conversions, with ongoing brand advantages. | Highlighted 18-year streak of share growth; strong brand recognition supports more deals in tight credit markets. | Sustained gains, leveraging brand and financing advantages. |
Net unit growth, pipeline, and conversions | Strong pipeline growth (400k–500k rooms), high share of conversions, and up to 7.5% NUG in previous quarters. | Achieved record NUG of 7.8%; full-year target 7%–7.5%. Pipeline >492k rooms (+8% YoY), 60% of Q3 openings via conversions (Spark brand a key contributor). | Robust expansion; conversions remain a major driver. |
Financing environment and interest rates | Financing remained relatively costly but showed gradual improvement; Hilton consistently benefits from brand strength in each prior call. | Noted slight easing in rates; more transaction activity as bid-ask narrows. Hilton benefits because its brands are more financeable in tighter credit markets. | Gradual improvement; Hilton leverages brand advantage in constrained lending. |
Foreign exchange headwinds | Previously cited minor FX headwinds affecting RevPAR and EBITDA guidance in Q1 and Q2 calls. | No explicit mention in Q3 2024. | Not discussed this quarter. |
Hilton Honors loyalty engagement | Emphasized growing Honors occupancy (up to 64% in Q1) and adding members through new brands and partnerships in earlier calls. | Reached 200M members; SLH integration performing well, driving redemption engagement. | Continues to expand, strong member growth. |
International and China performance | Sustained recovery outside China; China’s performance varied across quarters, hampered by travel restrictions but expected to improve over time. | Americas ex-US +4%; Europe +7%; MEA +3%; APAC ex-China +4%; China -9% on weaker domestic travel and typhoon impacts. Long-term view remains positive. | Mixed results; China lags, but other regions growing. |
Industry supply constraints | Called out low industry supply growth (~1%) vs. historical average; tight financing and high costs limit new supply. | Not specifically discussed; focus was on Hilton’s outperformance in pipeline and construction starts. | No direct update for Q3 2024. |
Potential future increase in supply | Previously highlighted that supply growth likely remains below long-term averages; full pipeline will take years to materialize. | Discussed record pipeline and robust starts but no explicit mention of broader industry supply ramp-up. Emphasis on new brands/conversions. | Pipeline remains strong; no near-term surge industry-wide. |
Owned and leased properties | Minor updates in Q4 2023 related to RevPAR vs. revenue deltas, but minimal discussion in Q1–Q2. | No information provided during Q3 2024. | Not discussed in most recent call. |
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2025 EBITDA Target and RevPAR Outlook
Q: Is the $3.69B 2025 EBITDA target still achievable?
A: Yes, Hilton's CEO, Christopher Nassetta, expressed confidence that the $3.69 billion EBITDA target for 2025 is achievable despite industry RevPAR growth estimates of 1–2%. He believes that 2025 will look a lot like 2024, with solid economic growth and resilient macro conditions leading to similar RevPAR growth. He expects a balance of same-store growth and unit growth to drive results, stating, "I am very confident that algorithm will be alive and well for 2025." -
Net Unit Growth Guidance and Assumptions
Q: Can you walk us through the assumptions behind the 6–7% NUG guidance?
A: Hilton expects 6–7% net unit growth for next year, driven organically with about one-third from conversions. They feel good about this range as they have significant visibility into projects under construction and conversions in the pipeline. Any variation would likely come from the conversion space, depending on the number of additional conversion opportunities they secure. -
Visibility on Business Transient and Leisure Demand
Q: How does your visibility on business and leisure demand compare to 2019?
A: Hilton's visibility on business transient and leisure demand remains limited to 60–90 days out, similar to 2019 levels. While they have better listening posts and data from customers, actual booking visibility hasn't materially changed. Their outlook relies on macroeconomic consensus and anecdotal evidence from customers, with group bookings providing the most visibility due to their stickiness. -
Outsized Conversion Growth
Q: How is Hilton achieving an outsized amount of conversions?
A: Hilton attributes its success in conversions to being scrappy and gritty, building strong relationships, and most importantly, delivering superior performance. Their brands are performing well, and market share is at its highest, which instills confidence in owners investing in long-term relationships. They focus on generating returns for owners, which drives their outsized share of conversions. -
Impact of Macro Environment on Development and RevPAR Index
Q: Is a slower RevPAR backdrop better for your business?
A: While Hilton prefers higher RevPAR, a slower RevPAR environment has benefits. In challenging conditions with less financing available, Hilton disproportionately gains more conversions and new construction due to its strong brands. They continue to deliver better market share and resilience, expecting to achieve circa 10% EBITDA growth even in the current environment. This resilience is a testament to their model's strength. -
International Unit Growth and China
Q: Where are the key opportunities for international expansion, especially in China?
A: Hilton's pipeline is about 55% outside the U.S., with around 80% of projects under construction internationally. They see significant growth opportunities in Asia Pacific, particularly in China, India, and the Middle East. In China, despite macroeconomic slowdowns, Hilton expects approvals, starts, and openings to be up, leveraging adaptive reuse projects. They adapt their brands to local markets while maintaining their essence and positioning. -
Group Business Dynamics
Q: What's driving the continued strength in group bookings?
A: The strength in group bookings is broad-based, including increased citywide conventions, strong social group business, and robust corporate meetings demand. Big citywide events are picking up after a period of limited activity, and companies are scheduling more meetings to foster innovation and culture in a post-remote work environment. This diverse demand supports sustained group booking growth. -
SLH Partnership Impact
Q: How is the SLH partnership performing?
A: Though still early, the SLH partnership is showing promising results. Customers are engaging with the new luxury properties added to Hilton's system, with strong interest and healthy redemption usage. As many SLH properties are resorts booking well in advance, Hilton expects to see more significant benefits in the upcoming spring and summer seasons, enhancing offerings for high-end leisure customers. -
Key Money Guidance
Q: Has there been a change in key money usage or guidance?
A: There is no change in Hilton's approach to key money. They continue to use it on less than 10% of deals, primarily when necessary due to competition. The reduction in key money guidance this quarter is due to timing, with some projects likely shifting to next year. Last year was heavier due to strategic projects, and this year's spend will be lighter. -
Occupancy and Rate Strategy
Q: Has your approach to pushing rate over occupancy shifted recently?
A: Hilton's approach has not materially changed in recent months. Despite inflation moderating, it remains above target levels, providing continued pricing power. Hilton expects to maintain strong rate integrity across most segments, leveraging their revenue management systems to optimize pricing. They anticipate solid pricing pressure to persist due to macroeconomic conditions. -
Fees per Room Mix Stability
Q: Has the fee per room mix changed with the development pipeline?
A: Hilton is not seeing any change in fees per room. The overall mix remains consistent, with the majority of development occurring in brands that command the highest fees. They continue to see strong long-term growth in fees per room, supported by RevPAR growth, contract renewals, and licensing fee increases. -
ROI Targets for Brand Development vs. Acquisitions
Q: What are your ROI targets for developing brands internally versus acquiring them?
A: Hilton typically achieves near-infinite ROI when developing brands internally, making it the preferred approach. However, recent tuck-in acquisitions were strategically targeted and acquired under favorable conditions, making them immediately accretive to earnings. These acquisitions were specific to Hilton's strategic needs and allowed them to capitalize on market opportunities.