Hilton’s Profit Soars on Business Travel Boom

Hilton Hotels Corp. posted a 73% increase in first-quarter earnings Tuesday and boosted its profit outlook for the year as the country’s third-largest lodging chain benefited from a nationwide surge in business travel.

The results beat Wall Street forecasts and followed a disappointing fourth quarter that saw Hilton report a year-over-year decline in quarterly profit and cut its 2005 earnings guidance.

A rebound in business travel has allowed Hilton and other hotels to charge more for their rooms, fueling greater profits, said Jan Freitag of Smith Travel Research. Nationwide, he said, average room rates increased 4.2% to $90.25 in the first quarter compared with a year ago, while occupancy rates climbed to 58.4% from 56.8% a year ago.

“The business traveler is back in full force,” Freitag said. “There’s a lot of new demand, and a lot of hotels can [now] say, ‘We can be more choosy and only allow the people who want to pay more.’

“That’s not to say there are no bargains out there,” he added. “But if you’re looking for a four- or five-star hotel on a Wednesday night, you’re paying full fare.”

For the three months ended March 31, Beverly Hills-based Hilton reported net income of $64 million, or 16 cents a share, compared with $37 million, or 10 cents, for the first quarter of 2004. Excluding one-time items, the company’s earnings were 17 cents a share. On that basis, analysts were expecting earnings of 13 cents, according to Reuters Estimates.

The company, which owns or manages almost 2,300 hotels under such names as Hampton Inn, Doubletree and Embassy Suites, as well as its flagship brand, said revenue increased 8% in the quarter to $1.08 billion.

The hotel industry suffered after the Sept. 11, 2001, terrorist attacks, as many businesses cut travel expenditures. Only last year did hotels see the beginnings of a recovery -- an upturn that now seems to be picking up momentum, Hilton spokesman Marc Grossman said.

“We’re seeing significantly increased demand ... especially from business travelers,” Grossman said. “They [are willing to] pay higher rates, so clearly, that helps.”

Hilton’s average room rate in the first quarter for all of its lodging brands was $158.72, up from $148.80 during the same period last year, Grossman said. Occupancy rose to 70.3% from 68.8%.

Hilton’s hotels in New York City and Hawaii saw particularly strong demand, helped in part by increased bookings by travelers from Europe and Asia. The weak dollar has made the United States a more attractive destination for many foreign travelers.

However, the company’s San Francisco properties had a relatively weak first quarter because of ongoing labor problems.

Other lodging chains are also seeing higher profits. Marriott International Inc., the world’s largest hotel chain, on Thursday reported a 27% jump in first-quarter earnings. Starwood Hotels & Resorts Worldwide Inc., which runs the Sheraton chain, will release its first-quarter earnings Thursday.

“Clearly, we’re at a very, very positive environment with respect to industry fundamentals,” said Marc Falcone, a lodging analyst with Deutsche Bank.

Hotel room rates probably will continue to climb through the rest of the year, said Freitag of Smith Travel Research.

Hilton is expecting demand to remain strong this year, and the company raised its full-year earnings forecast to 78 cents to 80 cents a share. In late January, the company had cut its profit projection for the year to just above 70 cents.

Hilton’s stock rose 36 cents to $22.39 on the New York Stock Exchange.