NASHVILLE, Tenn. — He’s one of the most powerful people in travel and hospitality. He is also one of the most accommodating and approachable.
Chris Nassetta is president and CEO of Hilton, a position he has held since 2007, handpicked by Blackstone to lead the company when it was acquired. (Blackstone has since divested.) He sat next to then President Donald Trump during a roundtable of travel executives at the White House discussing the devastation caused by COVID-19; he makes the rounds on CNBC and other news outlets talking up travel’s good; and has been a regular at Davos for the World Economic Forum.
It’s fair to say Nassetta lives a very busy life, each minute craftily calculated and crammed. He’s a hard man to pin down, especially by a throng of travel media, which had recently descended upon Nashville to hear about and see first hand “The Art of the Hilton Brand.”
Imagine, then, the surprise—whether through providence or coordination (does it matter?)—when Nassetta held court during an impromptu press session at the Tempo by Hilton Nashville, extemporaneously answering any and all questions. Broadly speaking, Nassetta touched on a current economy that has presented a sort of dichotomy for the hotel industry, particularly for owners and developers. On one hand, higher inflation has caused prices to spike, which “continues to drive very strong economics for owners,” he said, alluding to the ability to keep average daily rates at heady levels. On the flip side, higher interest rates have made it more difficult to secure financing at digestible levels to build new hotels. Furthermore, Nassetta predicted that rates would come down eventually, but not to the levels they were prior to the pandemic. “We went through an extended period of time where fiscal and monetary policy was too stimulative,” he said. “It’s harder to get money now.”
Harder capital markets aside, Hilton, he said, is on track this year to sign more deals than it ever has in its history. One caveat: many more deals are coming through conversions, at around a 30% clip, Nassetta and Hilton have noted. (Some franchisors, like Choice Hotels International, comparably have conversion percentages as high as 70%.) “We are continuing to find ways to be able to grow because not all places in the world are created equal,” Nassetta said.
Balancing Brands
Spark by Hilton is one of Hilton’s newest brands—it’s a pure conversion play for what the company refers to as the “premium economy” space. “In a world where it’s harder to get money, conversions are easier because generally people already own [the asset]. They’re already at a point where they’re going to go through a renovation cycle,” Nassetta said.
Remember the bed wars? This is the conversions wars and heavyweights like Hilton and Marriott International are gunning for market share in what is both a fragmented and more homogeneous brand environment. In the battle for conversion supremacy, it is the fittest, Nassetta argued, that will win the day. “Our commercial infrastructure and our ability to drive revenues at a at a better pace than our competitors means that we attract more capital,” he said.
Hotel development over the past several years has concentrated in the midscale and lower spaces, which makes sense since luxury developments are much more expensive to build and take longer to develop. Many lodging companies have pivoted and pushed firmly into the space. For Hilton, that means leaning hard on its Hampton by Hilton brand (a noted category killer, Tyler Morse, the chairman and CEO of owner/operator MCR, once said that Hamptons and Residence Inns were the two best-producing brands in the market), Home2 Suites, an upper-midscale extended-stay brand, Tru by Hilton, a midscale new-build option and the newly launched Spark.
It’s also added another brand to its quiver. In January, Hilton gave a formal name to a lower-midscale, extended-stay brand it had been incubating, LivSmart Studios by Hilton. Longer-stay hotels and brands became the darlings of the hotel industry in the wake of the pandemic, a trend that is not losing steam, especially in the stalwart work-from-anywhere methodology. Though Nassetta suggested that travel and work patterns are getting back to pre-pandemic ways, the way people live, work and travel has likely forever changed. “We’re in a new normal. We were we were doing a lot of remote well before the pandemic. Now there’ll be a larger percentage,” he said, which has affected Hilton’s approach to brands and product.
Of LivSmart, Nassetta said: “We didn’t do it because of the remote work thing, but there is certainly accelerating demand for that type of product. LivSmart is definitely addressing a more mobile workforce and people working remote and having more mobility means that they need what we do more than ever.”
These trends are even impacting how hotel companies cater to their own workforce. Hilton is based in the Washington, D.C., suburb of McLean, Va., where it occupies what on the outside looks like a normal office building. Hilton’s lease was coming up post-pandemic and changes were to be made, partly because of workforce trends. Chiefly, Hilton reduced about a third of its overall square footage, while updating the space “to make it more fun,” Nassetta said. “Every CEO I talk to is doing the same thing.”
A more mobile workforce is a net positive for the hotel industry, Nassetta, and most others, contend. “It means more leisure, more weekend, more ‘bleisure’ business and more core business travel, because more people are moving around and they used to just go to the home office,” he said. “It’s very good for business and, product wise, extended stay is directly tied into it.”
M&A v. Partnership
One of the other major trends settling into the hotel industry is lodging companies growing via a mix of traditional M&A and what can now be referred to as en-vogue partnerships. Hilton is into both. Beginning in February, and in rapid succession, it announced four new deals. A partnership with Small Luxury Hotels of the World, which allows Hilton Honors members the ability to book, accrue points and burn points at the some 560 SLH hotels worldwide (if the hotels elects to participate); the same month, Hilton collaborated with AutoCamp to offer enhanced outdoor lodging experiences, like use of Airstreams, cabins and luxury tents; more traditional M&A came in March, when Hilton announced it agreed to pay $210 million to Chicago-based AJ Capital Partners for the rights to Graduate Hotels, a brand with more than 30 hotels situated in and around college markets; a mere weeks later, Hilton said it had acquired a controlling interest in Sydell Group that will allow it to expand the NoMad Hotels brand with an expectation to grow it to as many as 100 hotels.
“We bought a couple of things,” Nassetta said with a toothy smile. It’s a bit of an about-face for Hilton, which typically has grown from within, organically, building out its own brands instead of acquiring others. In Graduate, Hilton saw a brand with tremendous upside that already had a footprint but needed the extra engine of a Hilton to effectively grow it to scale. In NoMad, Hilton had the rights to an already built-out luxury/lifestyle brand that it had always coveted. And with only one hotel in London, Hilton will be able to grow it globally with its existing and new development partners.
Nassetta called AutoCamp “a really cool product” and “something our customers love.” The SLH deal allows current properties to opt in our out to the Hilton linkage, but Nassetta said it was “off to a roaring start” and that the company would communicate more news on it in the coming weeks.
Bottom line: Hilton is not just a hotel company; it’s a travel company and wants to be where its guests want to go (and do). Nassetta makes that clear. “We have a whole bunch of other fun things that we’re doing and experiences we are working on that we’re not going to announce today, but that you can imagine like, ‘What else would you like to do that sort of pairs nicely with your other travels?’ You don’t stay in a hotel 100% of time. There are other things that you do that are symbiotic with what we do that we think afford our customers more ways to stay with us and more ways to keep them engaged.”