Hilton Cuts Profit Forecast as US Travelers Stay Grounded

Hilton Worldwide, the hotel operator, has projected a 2024 profit that falls below market expectations. This outlook is attributed to increased expenses and indications of a decline in demand for leisure travel in the United States. The company also said it would increase capital returns to shareholders this year, the first time in five years. The company’s shares were down 2.8% in premarket trade.

Hilton expects its 2024 revenue per available room to rise only 2% to 4%, decelerating from the second-quarter rate of nearly 12%. The company also forecast its 2024 net unit growth to be about 5%, below the 6.5% pace of expansion it enjoyed during the pre-pandemic period.

Hilton is benefiting from a recovery in business travel, but the strength of this sector may diminish as corporate spending slows. Also, demand for other forms of vacation, like cruises and elevated room rates, increases the number of hotel travelers.

While Hilton’s overall sales and profit rose in the fourth quarter, its operating expenses climbed, and it warned of a challenging outlook for its core businesses next year. Hilton’s 2024 earnings per share forecast was below analysts’ average estimates of $6.80. The company’s revenue growth and margin improvement were weighed down by higher expenses, including the impact of rising labor and marketing costs.

The company said it would continue to invest in its brand, digital infrastructure, and loyalty program. It will also focus on enhancing its distribution channels, such as its mobile app and third-party digital platforms. Hilton’s revenue and profit also benefited from an upswing in group bookings, as the company booked rooms for meetings held at its hotels.

In a new report, Hilton said its 2024 trends survey shows a renewed emphasis on experiences. The company partnered with Ipsos to conduct qualitative and quantitative online research among 1,500 U.S. consumers aged 18 to 75. Travelers across generations are increasingly reducing other aspects of their lifestyle to prioritize leisure travel, rest, and recharge, with Gen Z more intentional about winding down.

Hilton executives discussed the progress of its youngest brands, including a premium economy brand called Spark and another called Tempo. Spark is still in early development. However, the company has signed up 60 properties without setting a timeline for their openings, a fraction of the roughly 50 hotels it had initially hoped to launch by year-end. The company also outlined plans for its newer luxury brand, Tempo, which will debut at select locations starting in the spring of 2023. Its openings will accelerate in 2024. Hilton said it will use the new brand to attract younger travelers looking for a more authentic hotel experience at an affordable price. It will include a range of amenities and features, such as fitness centers and co-working spaces. The company aims to make the brand available in various locations, from downtown to suburban areas. Its prices are below its competitors’.