Hilton Worldwide (NYSE: HLT) is benefitting from a surge in travel and a lower interest rate environment in the U.S. as travelers are expressing a more positive sentiment.
Both leisure and business travel has increased, including consumers who are ramping up the number of trips taken each year.
Travel demand climbs higher
The global hotel operator reported that revenue rose by 8.8% to $3.12 billion during the third quarter, beating Wall Street’s estimate of $3.01 billion.
Some consumers are feeling more upbeat about traveling, taking multiple vacations in a year. The number of flights taken has risen significantly.
Demand, which is measured in revenue passenger kilometers (RPK), was up 6.6% in October compared to the same month in 2024, according to the latest data provided by the International Air Transport Association (IATA).
“October was a strong month for air travel,” said Willie Walsh, IATA’s director general.
One factor that stands out is the 4.5% increase in international traffic for airlines based in North America, “which comes after several months of basically flat performance,” he added.
The demand for travel rose exponentially during the past few years after a global pandemic shuttered both leisure and business travel, and has not fallen.
Hilton has reaped the rewards of people taking more business trips and vacation. The hotel company reported a profit of $420 million, compared with $344 million a year ago.
However, Hilton’s comparable revenue per available room, known by the industry as RevPAR, decreased by 1.1% due to various circumstances, including “unfavorable holidays and events, softer international inbound to the U.S., declines in U.S. government-related travel and portfolio renovations weighed on results,” said Hilton CEO Christopher Nassetta during its earnings call with analysts.
Hilton opens more hotels in 2025
But Nassetta remains positive about the outlook of the company, which achieved growth through opening more hotels, including the expansion of its luxury and lifestyle hotels.
Hilton opened 199 hotels totaling over 24,000 rooms, which resulted in achieving net unit growth of 6.5% during the third quarter. The hotel company’s openings increased more than 35% year-over-year on an organic basis.
While Hilton is known for owning the luxury Waldorf Astoria hotels, the company is expanding its premium brands, which charge higher room rates.
Hilton’s luxury and lifestyle brands globally consisted of approximately 20% of total openings in the third quarter. In the Asia Pacific, Hilton said it plans to invest in over 250 luxury and lifestyle hotels in the future, which represents portfolio growth of over 50%, he said.
“We remain optimistic that in the U.S., lower interest rates, a more favorable regulatory environment, certainty on tax policy, and a significant investment cycle will accelerate economic growth and travel demand,” Nassetta said.
Shares of Hilton rose by 17% this year, while its main competitor, Marriott (NASDAQ: MAR), only increased by 11%.
Hilton continues to invest in its properties and spent $6.7 billion last year on marketing, reservations, distribution, and loyalty, boosting its brand advantage.
“Demand for Hilton’s newer and more upscale hotels is drawing in more hotel guests. Hilton is estimated to reach annual room growth at 5% over the next 10 years, which is comfortably above our projection of 1%-2% U.S. industry growth,” wrote Dan Wasiolek, a Morningstar senior equity analyst.
“We believe Hilton is well-positioned for market share gains over the next decade,” he said.” We see lasting demand for Hilton’s strong upper-scale, lifestyle, and luxury presence.”
The International Air Transport Association predicts that the volume of travel in the short term will only increase – scheduled seat capacity in November is set to expand 3.6% and in December by 4.7%.
Business travel continues to climb higher while consumers remain resilient and have taken a more upbeat view of taking time off for vacations and weekend getaways, resulting in a higher volume of hotel rooms being reserved. Hilton’s growth strategy appears to be on the right path, with its record pipeline of new hotels being built and conversions from both independent and competitor hotels.
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