Hilton's extended stay portfolio hoping to tap into traveling workforce
Before travelers accelerate full-speed into the summer season, Hilton unveils its latest extended stay brands to cater to traveling workers and price-sensitive consumers. Hilton CFO Kevin Jacobs joins Yahoo Finance Live to discuss the banking impact on loan conditions and hotel development, 4th of July travel demand, luxury brands, and how the hotel industry is considering AI adoption.
Video transcript
RACHELLE AKUFFO: With hospitality brands facing a more cost conscious consumer this summer, Hilton is doubling down on the value traveler. The hotel chain recently announced its first budget-friendly option with rooms ranging from $85 to $100 a night. Hilton CFO Kevin Jacobs joins us now alongside Yahoo Finance's Executive Editor Brian Sozzi. Thank you for joining us this morning. So talk about this move and what kind of travel you're trying to cater to right now.
KEVIN JACOBS: Yeah, sure, Rachelle. First of all, thanks for having me here. It's great to be here in the studio with you all. Yeah, this travelers-- we're really trying to access this $300 billion workforce traveler market, you know, along with other customers, of course, who want extended stay hotels. And we're really thinking of this brand more as a short-term apartment than a traditional extended stay hotel. So think average length of stay of 20 plus nights and a customer that's still looking for value, but, you know, at the mid-- in the mid-scale chain scale category.
So a little bit lower price than our other extended stay brands, but really just trying to tap into this workforce traveler, whether it's traveling doctors or-- doctors and nurses, or construction workers, or anybody who really this trend that's sort of been accelerated during COVID of people moving around a lot and working more remotely. We think these people can come in and they can stay, you know, whether it's 30, 60, 90 days or more. And they can come in and have some of the conveniences of a hotel and not really needing to do all the things you have to do to set up your apartment when you move into a new apartment. So a little bit more convenient, a little bit more like a hotel, but really tapping into this market of people that want to stay a little longer.
BRIAN SOZZI: Staying on this theme, Kevin. How has the pandemic changed your company overall? Of course, now we see a position-- a brand being positioned like this. But it has to have impacts throughout your organization, right?
KEVIN JACOBS: Yeah. I think it's-- all at once, it's changed it sort of not at all meaning in terms of the core strategy of the business. If you think about, you know, these great now 22 brands that-- you know, great products and services, reliable and friendly experiences, and people that want to move around. And then you sort of filter through all of the trends that got accelerated during COVID, whether that's people valuing experiences more than hard goods. I think that's something that was going on before COVID and just got accelerated a little bit more during COVID. I think blended stay occasions and trips, you know, whether it's a work trip that then blends into a leisure trip on the weekends.
You know, that's-- COVID didn't invent that, just like COVID didn't invent most of the reasons why people sort of move around, and travel, and need to stay in hotels. But I think that some-- what we try to do is respond to some of these consumer trends, you know, at any time, you know, basically on any changes in consumer behavior. But I think COVID sort of accelerated some of those.
RACHELLE AKUFFO: And, Kevin, when we look at some of these tighter lending conditions that have come-- I mean, there were sort of in the works, but we really saw those accelerated with the downfall of SVB and others. With that, when you talk to some of these hotel operators, what sort of momentum are you still seeing for the funding investment there?
KEVIN JACOBS: Yeah. I think what's going on is like anything else. It's not absolutes, it's not-- you know, SVB and what's going on with some regional banks and the like, it hasn't sort of shut off financing for hotel projects. I think what you have is, you know, banks, whether they be money center banks or regional banks, thinking about their capital requirements a little bit differently. And so financing is a little-- a bit more constrained. It would be sort silly for me to sit here and say that isn't affecting us or our developers. But what you're seeing is that-- and by the way, that's good for fundamentals.
I think capacity additions in the United States for hotels is going to be close to zero this year, right? So that's great for fundamentals and great for existing hotels in terms of what they can drive, in terms of accommodating demand and driving pricing. But I think what you see is, you know, like anything else is, there's a flight to quality. Good projects with good sponsorship, and good locations, and good brands can still get financed, you know, whether it's by regional banks or whether it's by big banks. And then the other thing to remember, it's-- you know, it's a big business in a global world.
And so nearly, you know, 60% of our development pipeline is outside of the US, so not at all affected by what's going on with regional banks in the United States. Although, you know, capital is constrained in Europe and other places around the world. But I think what-- just what you see is if you've got a good project with good sponsorship. And, you know, of course, a good brand like ours associated with it, you know, projects can still get done, but it's a little bit more expensive to get that financing and the banks are being a little bit more selective.
BRIAN SOZZI: Moments ago, Kevin, Marriott team, they said, "Brian, demand is strong in China and July 4th is strong." Do you see the same thing?
KEVIN JACOBS: Absolutely. I think demand is strong across the board. I don't care where you are in the world or what segment, leisure, business, transient. Group is recovering faster maybe than anything we've ever seen. If you think about what the airlines are saying about their demand for plane tickets over the summer, if you look at our demand, you know, through 4th of July and beyond, you know, we don't have months and months of visibility in our business, but from what we can see it's going to be another record summer for us.
BRIAN SOZZI: Does that surprise you?
KEVIN JACOBS: Not at all. I mean, I think if you just look at, you know, the unemployment rate, if you look at consumer spending, if you look at excess savings that's still there for the US consumer, if you look at what the economies of the world are doing more broadly, what people have been talking about is sort of a fear of a slowdown. But they keep sort of saying, well, that's, you know, back half of the year, or now it's sort of the fourth quarter. And, you know, we don't have our heads in the sand. We think, you know, if the economy slows, we think we'll slow on a lag. But it doesn't surprise me at all that demand is going to be still really strong through this-- through at least the summer and maybe beyond.
RACHELLE AKUFFO: And, Kevin, you mentioned a lot of the exposure overseas. I'm thinking, you know, that the Conrad resorts and hotels, especially in Asia. Talk about some of the strategic partnerships that are going to be key or really building on that demand if you do have some of that uncertainty that we're seeing on China's rebound at the moment.
KEVIN JACOBS: Well, I think, you know, in terms of all of our brands are growing really strongly around the world. And so, look, our luxury brands are doing great. They're really important. And we've got 22 brands now that really can serve any traveler for any need-- stay need they have around the world. And so, you know, strategic partnerships-- we've got a lot of different partnerships that we have throughout our loyalty program. They're still really important. But I think the core of it is with have these great brands that provide reliable and friendly experiences to our customers, we're very broad up and down the chain skills. We have distribution across the world.
And so if you want to be loyal to us as a Hilton customer, you know, you can generally find us wherever you want to be in the world. And we've got products, again, whether it's luxury all the way down to these extended stay brands that we've been talking about and everywhere in between. We've got products that can serve you for any travel, any stay occasion that you need or virtually anywhere you want to be on the world.
BRIAN SOZZI: As the guy controlling the numbers, the finances at Hilton, are you-- have you allocated more money to anything related to AI? Do You see this at all changing how we interact with the hotel?
KEVIN JACOBS: I mean, that's something we're looking really closely at. And so I think, you know, allocating more money. Look, we have a lot of resources. And we do a lot of different things with those resources. And so I wouldn't say we're allocating an outsized amount of capital or money to AI yet. I think that the way we think about AI is it's just going to be another way to enhance the experience that we can provide to a customer, right? The way you dream about and search for a hotel stay, the way we might be able to know more about you, not in a creepy way, but--
BRIAN SOZZI: I'll take more free drinks, Kevin.
KEVIN JACOBS: Yeah, more--
BRIAN SOZZI: If you can get me free drinks right to my phone, that'd be great.
KEVIN JACOBS: We can do that. We'll find a way to get-- have the drink come right out of your phone, Brian. So I think the more we know about you and the more we know about what you like and don't like, we can provide a better experience to you. So it's definitely something we're looking really closely at. You know, not yet spending, you know, huge amounts of money on it. But by the way that said, certain things-- I mean, it's interesting. It depends on sort of how you define AI, right?
If you think about computer algorithms that can learn, we've been doing that in Revenue Management for a long time, right? We've been doing that in accounting and HR and things where you have transactional activity that can be done by computers, you know, versus humans. And so a lot of that's been going on for a while, and it just keeps getting better and more powerful, and, I guess, you know, smarter if you will to bring the intelligence--
BRIAN SOZZI: Or if I just get an alert on my phone within the next week for a free drink from Hilton, I'm going to thank you.
KEVIN JACOBS: Absolutely.