Results season is back and, as ever with Q3, the proximity to Halloween is wisely noted, with jump scares not unheard of as the skeletons come leaping out of the cupboard.
Sector Golden Retriever and Hilton president & CEO Chris Nassetta got pulses racing with his comment that the group was launching a “first-of-its-kind programme that offers owners system fee reductions, many of which are tied to a hotel-specific product and service quality scores”.
The ghostly wails were immediately audible, because, really, what is a company like Hilton apart from fees laid along a backbone of pipeline?
So it came up a few times during the Q&A, in a bat-squeaky way. Nassetta repeatedly reassured analysts that it was, to be clear, “system fees, not our royalty rates and not our license fees, but the fees that owners pay us to operate the system. There’s no impact on our P&L”. That’s NO IMPACT ON P&L.
How were they doing these lower fees but same money? Science, of course. Nassetta said: “The fee reductions will share the efficiencies we have gained through scale and technology with our owners, while reinforcing the need to continue maximising the customer experience”. So, like, AI.
AI was doing a lot to support the group, as it is supporting much of the economy in the US; not through its recent swivel to subscription porn, or even its enthusiasm to take over that pesky thinking, but through infrastructure. This is good short-term news, because the infrastructure is a real thing that has to be built, whereas the trillions of dollars in productivity benefits we’ve been promised are largely getting pushed out of the AI word cloud by a large BUBBLE.
Elsewhere in the US, Nassetta didn’t want to get dragged down by tariffs and whatnot, illustrating that he’s not Swiss, commenting: “Listen, I don’t have my head in the sand, but I like to try and lift up above noise. That’s sort of what I do in my personal and professional life. When I do that, it makes me feel pretty good about the next year”.
That’s above the sand, not in the sand, for clarification. And why not, there’s not a great deal he can do about it. What he could do was focus on growth and in the third quarter the company saw a NUG of 6.5%, a number it was planning to stick with.
At the heart of this was conversions, a familiar tale since the pandemic. The CEO said: “Conversions remain integral to our growth story. We expect nearly 40% of openings in 2025 to be conversions across 12 of our brands, sourced from a mix of independent hotels and competitor brands.” And, with limited industry supply growth, conversions are pretty much the only option out there.
There were echoes of this earlier this month at Whitbread, which, as an owner, gets to keep its own AI efficiency savings, yes it does. Dominic Paul, the group’s CEO, said: “Since the pandemic, UK hotel supply has declined, driven by a shift in demand from non-branded to branded hotels and a reduction in the number of independents. Our market analysis, which is based on conservative assumptions, shows that we don’t expect hotel supply to recover to 2019 levels until at least 2027.”
So there’s a finite number of hotels, which will now be squabbled over. You can see why cutting fees BUT NOT LIKE THAT might be a thing.
Alongside fees, loyalty programmes are a key attraction for investors, with Wyndham thrilling us all by announcing a subscription offering, Wyndham Rewards Insider, where $95 per year buys automatic Gold level status, double-dip points earning and more, much more. So far, so not too dissimilar to Accor’s existing membership, but the grind towards an actual subscription continues.
Filling rooms with loyalty members is the goal for all (Whitbread gets the majority of its guests through direct booking already, but don’t tell). Nassetta told analysts that the group was “approaching a multi-year target of 75% Hilton Honors occupancy.We’re approaching 70% at a faster rate than we thought. We’re growing the programme 15% to 20% a year. Active members are increasing, are crazy healthy people”.
More people chasing the same number of hotels? Sounds crazy healthy for revpar. Will it also make the brands cheaper for owners? Or is it a load of hocus pocus?
