Please ensure Javascript is enabled for purposes of website accessibility

How Hilton Is Adapting to the Changing Traveler

By Scott Jones - Jan 17, 2020 at 8:09AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The hotel company’s strategy involves new brands and new experiences.

After closing out 2019 with its stock price soaring over 50%, Hilton Worldwide Holdings (HLT -1.43%) is looking to build upon its strong year and continue its financial success into 2020. The hotel company finished the third quarter of 2019 with 17 brands, almost 6,000 total hotels, and a pipeline of 2,530 more hotels. What should we be looking for from Hilton over the coming year?

Overhead view of resort surrounded by palm trees and ocean.

Hilton La Romana resort, Dominican Republic. Image source: Hilton Worldwide.

2019 wrap-up 

While surely benefiting from a booming travel industry -- the World Travel & Tourism Council estimates that the industry's contribution to global GDP will have risen by 3.6% in 2019 -- Hilton has made strategic decisions over the last few years that not only have been a boost to stock performance but also strengthened the company's fundamentals. 

In the hotel industry, a key performance measure is RevPAR (revenue per available room). Hilton saw year-over-year growth in RevPAR for the first three quarters of the year,  posting 1.2% growth. Hilton's biggest competitor, Marriott International, announced  1.3% RevPAR growth over the same three quarters. During the same period, Hilton saw a systemwide occupancy increase of 0.6 percentage points, compared to just 0.2 percentage-point growth for Marriott.

Hilton's ability to stay competitive with and grow at a similar pace to Marriott over the last few years has been critical since the 2016 merger between Marriott and Starwood Hotels. As its Q3 earnings showed, Hilton's EBIDTA (earnings before income, depreciation, taxes, and amortization) was up 9% year over year, while Marriott's was flat. Hilton's total debt was $7.9 billion while Marriott's debt was almost $10.8 billion. 

While Hilton is the smaller company, it holds significantly more cash on reserve, with total debt being a little over 9 times cash. Compare that to Marriott, where debt is almost 40 times its cash. This shows that Hilton has been able to keep up with the growth of its largest competitor while not needing to leverage itself nearly as much, ultimately decreasing some of its risk if its cash flows were to start slowing down. 

New trends in the industry 

Hilton CEO Christopher Nassetta has made it clear that a key part of Hilton's strategy is to expand in the luxury market, where the entire segment is expected to grow at a compound annual growth rate of 4.3% from 2017 to 2024, according to a study from global firm Kenneth Research. Hilton's RevPAR growth at its two major luxury brands, Waldorf Astoria and Conrad, was 3.5% and 4.1% globally during the first three quarters of 2019. 

In addition to the trend of luxury hotels, many travelers are increasingly looking at other lodging options such as home-sharing. The two major players in this space are Airbnb and VRBO, the latter owned by Expedia Group.

Airbnb -- which may be planning to go public sometime in 2020, its CEO, Brian Chesky, told CNBC in November -- continues to be a major threat to the traditional hotel business model. According to analytics provider Second Measure, Airbnb had already surpassed Hilton in U.S. sales in 2018 and was on its way to catching up to Marriott when 2019 began. In 2018, Airbnb accounted for 19% of the total U.S. hotel industry market share, leaving hotel brands at 70% market share -- a far cry from the 94% they held in 2013. It's not just millennials switching to home-sharing while traveling, either: In 2019, baby boomers planned on staying in Airbnbs or other home-share situations 10% of the time on domestic trips and 13% of the time on international trips, up from 6% and 4%, respectively,  in 2016, according to AARP.

Another trend that has become more and more important over the past few years is travelers' fascination with experiences. According to Trip Advisor's 2019 Experiences Trends Report, bookings of five types of experiences were up over 50% globally from 2017 to 2018, with family friendly experiences leading the way. Travelers are not just looking for hotels anymore, and it's something Hilton has had to respond to. 

How Hilton is responding

In response to the changing landscape of the hotel industry, in October 2018, Hilton announced a new hotel brand, Motto by Hilton, and in 2020 will start to see the effects. With Motto, Hilton is looking to bring affordable rooms in highly sought-after locations, giving its guests an "authentic" experience in the given location. Its first Motto opens in Washington D.C. in early 2020, and it plans to open New York City and Indianapolis locations in 2021. 

This is a clear sign of Hilton's desire to attract travelers looking to spend less on hotels and use that money for experiencing their destination. Nassetta sees Airbnb as a different value proposition, so rather than create a home-sharing offering, Hilton has chosen to adapt to trends that are within its business model. As Nassetta told ABC News in an interview last year, "There's plenty of room for both of us to do really well." 

On the other side, Hilton is also targeting experience-driven traveling by offering a new luxury brand, LXR, which was announced in December 2018. The brand is attempting to sway wealthy travelers with exclusive access to immersive experiences. Each hotel will be unique in its features and offerings. With a shift toward luxury and experienced-based traveling, Hilton proved in 2019 that it can adapt to changing demands from travelers while also giving investors something to cheer for. By listening to its customers, Hilton is in a strong position to lead the hotel industry into the new decade.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Hilton Worldwide Holdings Inc. Stock Quote
Hilton Worldwide Holdings Inc.
$111.44 (-1.43%) $-1.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.