Hilton Reports Strong Gains in Fourth Quarter

Hilton Hotels Corp. on Wednesday reported impressive fourth-quarter and annual financial results but warned of slower growth in the months ahead as a weakening economy puts the brakes on business and leisure travel.

The economic climate will dampen industrywide expansion plans and make it harder to raise nightly rates in some competitive markets, say industry analysts. While hotels will seek to boost revenue in different ways, guests may find more vacant and affordable rooms in some cities.

“Travelers will see slightly more availability and price increases will be less than they experienced in 2000,” said hotel industry consultant Bjorn Hanson.

Meeting most of Wall Street’s expectations, Beverly Hills-based Hilton, which also operates the Doubletree and Embassy Suites chains, posted fourth-quarter profit from ongoing operations of $59 million compared with $42 million in the year-ago period. For the year, operating profit rose about 12% to $249 million.

Hilton shares closed Wednesday at $11.50, down 69 cents on the New York Stock Exchange. By boosting room rates and reducing its vacancies, Hilton was able to increase its available room revenue--an important indicator of profitability--to 7.4% during the fourth quarter. The late-1999 acquisition of Promus Hotels Corp. began to pay benefits last year as Hilton generated $100 million in incremental revenue by being able to offer its customers a larger and wider variety of places to stay.

“Our major market properties had a banner year, consistent with what was an excellent year overall for the hotel industry,” said Hilton President Stephen F. Bollenbach. “And we continued to operate at the highest margins in the industry.”

Hilton said its advance bookings for this year remain solid but that room revenue will grow at a much more modest rate than in 2000. The company will add fewer hotels (about 200) than expected as its franchisees find it more difficult and expensive to borrow money to build or purchase properties.

Hilton’s results for 2000 and projections for this year are expected to be echoed by the industry’s other major players as they release their quarterly and annual results in the weeks ahead.

“With the slowing economy, . . . [industry] revenue won’t be as strong as in 2000,” said Michael Rietbrock, a lodging industry analyst at Salomon Smith Barney. “It’s slower but still quite healthy.”

The industry had been reaping benefits from the nation’s long-running economic expansion. Last year, the industry generated a record $24.2 billion in profits and the occupancy rate rose slightly for the first time since 1996, said PricewaterhouseCoopers.

While profits and revenues are projected to continue growing this year, the pace of revenue growth will slow by nearly half and occupancy is expected to slip again, according to industry estimates.

But the industry is in a better position to weather a slowdown than it was in the early 1990s, when an economic recession devastated the industry. Hotels operate more efficiently--using fewer employees and more technology--and have eliminated unprofitable services, including restaurants and room service. In recent years, they have also been able to raise prices much higher than the rate of inflation.

As a result, the hotel business is able to generate billions in profits while the nationwide occupancy rate is about 63%. In contrast, the industry lost nearly $6 billion in 1991 when the occupancy rate was about the same, said Hanson, who heads the worldwide hospitality practice of PricewaterhouseCoopers.

As growth rates tail off, hoteliers will seek to protect their profits by seeking other ways to boost efficiencies and revenues. For example, hotels will be more aggressive in collecting cancellation and early checkout penalties, Hanson said. Travelers should also expect higher menu prices as well as larger and new charges for other services.

In fact, after Hanson checked out of a resort on a recent visit, he discovered the hotel had tacked on additional charges for housekeeping and the bellman--which he didn’t use.

“They got an extra 20 bucks from me,” he said.