Hilton RevPAR to Decline Sharply in Q1 on Coronavirus Woes
Hilton Worldwide Holdings Inc. HLT reported preliminary first-quarter 2020 numbers. The company’s occupancy and RevPAR have impacted significantly by the coronavirus pandemic. In the past three months, the company’s shares have fallen 38.4%, compared with the industry’s decline of 41.6%.
In first-quarter 2020, the company anticipates system-wide RevPAR to decline in the range of 22% to 24% owing to the coronavirus crisis. RevPAR in Americas and Europe, Middle East and Africa ("EMEA") are expected to decline in the range of 20% to 22%, each. Moreover, Asia Pacific is likely to witness RevPAR decrease in the band of 43% to 45%.
The company announced that currently occupancy rates are nearly 17% and 13% in Americas and EMEA regions, respectively. The company is witnessing early signs of recovery in the Asia Pacific region, primarily in China, with occupancy of nearly 22%.
Given that the pandemic is showing no signs of abating, the company anticipates further erosion in RevPAR performance. It does not anticipate material improvement until the deadly virus is contained.
As of Apr 14, 2020, the company has closed operations at nearly 1,000 hotels, which is nearly 16% of its global hotel properties. In Americas, EMEA and Asia Pacific the company has suspended nearly 12%, 60% and 15% of its hotels, respectively.
As of Mar 31, 2020, the company had cash, restricted cash and cash equivalents of $1.8 billion. Adjusted for the Hilton Honors points pre-sale, the company estimates that it would have had approximately $2.8 billion of cash, restricted cash and cash equivalents, as of Mar 31, 2020.
Earlier, Hilton announced certain strategic measures to protect business from this crisis scenario. The company decided to suspend dividend and stock buyback programs. The decision is in line with its motive to preserve cash and maintain ample liquidity to avoid a possible recession due to the coronavirus outbreak.
Moreover, in an effort to reduce costs, Hilton president and CEO Christopher J. Nassetta decided to forgo his salary for the remaining 2020 while the company’s executive committee is ready to accept a 50% pay cut. The company also decided to furlough part of its corporate workforce. However, members who are not laid off can expect a pay cut of up to 20% during the crunch. The company has also withdrawn its guidance citing the coronavirus-induced crisis.
Despite the virus triggering a catastrophe in terms of lives lost and financial impact, the company appears resilient enough to navigate through these uncertain times. We believe that it will continue to monitor the COVID-19 crisis and adjust its contingency plans in accordance to it.
Hilton carries a Zacks Rank #5 (Strong Sell).
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