Hilton CEO expects China operation to grow 50% in 2018
"Our unit growth this year in China will probably be up 50%, I expect. It’s up a similar amount next year", said Chris Nassetta, CEO of Hilton.
Chris Nassetta, CEO of Hilton, projected that the world's second largest hotel group in market capitalization will see 50% unit growth for its operation in China during an interview with CNBC.
Hilton is going to celebrate its one-hundredth year next year, and Chris has pointed out two megatrends that are driving the travel and tourism industry in the next 100 years.
“One is the emerging middle classes around the world, just the huge amount of growth in middle-class all over the world with people that have more disposable income and want to travel and see the world and experience their own countries, travel outside their own borders. The other real big mega trend that is driving the golden age of travel is people want more experiences. We think about young people wanting experiences, they would rather pay for experiences more so than products. There's been a lot of research on that, but I think it's true across all age cohorts. People want experiences. They want to see their country, they want to travel outside their borders, and they want to have cultural exchange.”
After 11 long years, Blackstone sold off its remaining stake in the company early this year. "I don't think the company would be where it is without Blackstone's involvement. It really gave us a chance 11 years ago to take a company that had a great legacy of 90 years at that point in time, but that had really become complacent in so many ways...Blackstone's business model is to buy it, fix it and sell it. ...So their exit was a great day for them in the sense that they accomplished the objective, we transformed the company and they got a great return," said Chris.
Hilton is making a big push to get more direct bookings with the campaign “Stop Clicking Around”, and Chris said “it's coming along pretty well”.
“We've seen quite a bit of channel shift, from other channels into our direct channels over the last several years", " You're going to see another big push on our direct booking campaign. It may have a little bit of a different look and feel than ‘Stop Clicking Around’, but the same message. And the point of the message is this: Where we can have a direct relationship with customers, we want to have a direct relationship. We think it allows better value to our customer and a better experience for our customer.”
Chris revealed that direct channels represent about 75% of their business.
When asked about Airbnb, Chris said: "I don't see it necessarily as a threat or an ally...People come to us for a high quality and consistent experience where they get a product they can rely on and they get hospitality services connected to it...They get the amenities associated with it and all of that comes with it and they pay a premium for that. There is clearly an element of crossover that exists, but as we do the math scientifically and we talk to customers, it's really not too much difference that we see in terms of competition."
With the 100th Hilton hotel in Hangzhou, Hilton currently has 150 open and 400 hotels in the pipeline. "Our unit growth this year in China will probably be up 50%, I expect. It’s up a similar amount next year," said Chris.
Some said that oversupply has become a big issue the Chinese hospitality market, but that is not something Chris worries about. "Over the long term, essentially, the way I look at China is, it is way undersupplied in hotel rooms relative to the demand that's in place and the demand that we anticipate over the coming decades...the long-term trend is clearly that there's a need for more hotel rooms in China."
As for the escalating trade war between the U.S. and China, Chris believed that calmer heads will prevail on both sides and ultimately, accommodations will be made and a deal will ultimately be achieved. "But it's early to say, I think this is not going to happen from either side any time too soon...The travel and tourism is not sort of caught up in it in any material way."
He also talked about the relationship with HNA Group, "there are still opportunities strategically for us to do things together...They have a big travel and tourism business and they have a big loyalty program."
In terms of overall brands, Hilton has about 7 of 14 brands operating in Asia. It launched Tru in 2016, Chris called it "the most successful brand launch".
"We'll open I think 40 to 50 Tru this year. If all goes well, we'll open 100 next year. Everywhere around the world, the mid-market brands are growing at a very rapid pace. When you wake up in 5 or 10 or 20 years, the bulk of our growth will be in the mid-market."
Chris told CNBC that they are launching three new brands probably in the next two or three quarters.
The three new brands are a luxury-soft brand, which they will soon announced a name for; a premium Hilton brand, so like Hilton but a little bit higher quality than the core Hilton brand; and then an urban micro brand, it's very focused on the urban environment, very small rooms.
Another question raised during the interview was that whether Hilton would change its strategy of not being involved in the wave of consolidation that's happening in the hospitality industry.
"I don't think so," Chris said, "Assume we look at every single transaction that's out there; we always come back to being able to do it organically and giving customers more of exactly what they want, rather than buying other brands and having to fix those up. The other thing is, I always try to deliver returns for our stakeholders. So growing organically has a much higher return experience."
Though he agrees with the idea "size does matter", Chris said, "We may be number two but that's plenty of scale to accomplish what we want to accomplish. We have no desire to go out and buy our way to be bigger because ultimately we're not sure that would be the right thing to do for our customer, and we're pretty confident it would not be the right thing to do for our shareholders."