Hilton Pricing Spineometer: 5 of 5 Vertebrae

Hilton, a global hotel, resort, and timeshare concern, had a strongly positive Q1 2024. Revenue rose 12% % to $2.6 billion and earnings before interest and taxes rose 5.6 % to $526 million over the same period last year.

A review of Hilton’s 24 April earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

Christopher Nassetta, CEO of Hilton, spoke in terms of revenue per available room (RevPar), a key hotel performance metric. On the quantity demanded side he stated, “System-wide RevPAR increased 2% year-over-year, which was at the low end of our guidance range as renovations, inclement weather and unfavorable holiday shifts weighed on results more than we anticipated.” On the price paid side he stated, “We continue to have a decent amount of pricing power.”

As a franchiser and operator in hospitality, Hilton has five major revenue streams.

1. Franchise and licensing fees are largely related to licensing rights, management services, and royalties.
2. Base management fees are a percentage of the hotel’s gross operating revenue.
3. Incentive management fees are a percentage of the hotel’s operating profit.
4. Other revenues from managed and franchised operations are related to reimbursements.
5. And, revenues related to owned and leased hotels.

Give or take on the headcount, each hotel will likely have an individual tasked with revenue management, also known as yield management. However, Hilton Holdings is not just a hotel. It is much more diverse and has much more diverse revenue streams than simply guest bookings. As such, pricing is far more challenging at Hilton than properly using the output of a yield management data and software system.

Industry benchmarks would suggest Hilton Worldwide should employ 20 to 100 pricing professionals.

Research into the investment by Hilton in pricing yielded highly encouraging results.

1. Well over 100 individuals could be identified as working in pricing or revenue management at Hilton, though we will admit our uncertainty regarding whether these individuals were working for Hilton Worldwide or a Hilton franchise operator.
2. These pricing and revenue management professionals were globally distributed aligned with the operations of Hilton.
3. For both pricing and revenue management teams, team members ranged in title from analyst and manager to director and vice president.
4. Beyond revenue management, pricing worked in analytics, pricing solutions, pricing insights, and strategy.

Given the importance and capability of pricing at Hilton as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of June 2024.

Hilton Pricing Spineometer: 5 out of 5 Vertebrae.

HLT (Hilton Worldwide Holdings Inc.) was relatively unchanged at 196 the day prior to their earnings call and 197 one week later. FY 2023 revenue of $10.2 billion with a 22% operating margin and P/E ratio near 40.

For FY 2023, a 1% improvement in price would yield a 5% improvement in operating profits holding all else constant at Hilton.