00:00A bit weaker inbound travel to the U.S., a little bit weaker government travel.
00:05But the outlook for next year, I should say for this year, 2026, is pretty good.
00:08One to two percent report growth.
00:10That's revenue per available room.
00:12Per available room, yep.
00:13And so leisure, group, luxury, all kind of strong, international, a little stronger than the U.S.
00:19But although this is an aging upcycle in the lodging industry, it's still got some likes to it.
00:25Now, Hilton, along with many of the other hotel companies like Marriott, has an asset-like business model, which means
00:31that it's brand licensing, right?
00:33They don't actually own and manage any of their own properties.
00:35And that allows it to move more nimbly.
00:38The profit margins are much higher.
00:39What's the downside of that, Brian?
00:41So, I mean, there's some benefit to actually owning the real estate when you're really in an upcycle.
00:45But this kind of fee-based model is a very capital-efficient way to expand and grow.
00:51You get your franchise fees and management fees.
00:52They've got a little bit of owned-to-hotel exposure as well.
00:56But most of the lodging companies separate from the REITs are actually asset-wide manager franchisers with some owned assets.
01:04Yeah, I'm looking at, you know, you've got a company with, you know, $13 billion of revenue.
01:09Call it, you know, $4 billion of EBITDA, $100 million of CapEx.
01:13Are you kidding me?
01:15That is awesome.
01:16So who builds a – if Hilton wants to build a new hotel in South Beach, they don't build it?
01:22Somebody else builds it?
01:23Yeah, so you have, like, ownership entities.
01:25Obviously, you've got the REITs like Park Hotels and Resorts and others that own the real estate.
01:30So this is, as you said, like an asset-wide, franchised, management-street-driven business with some owned hotels.
01:36There is some owned-to-exposure.
01:38So what do they do with all the free cash flow of you?
01:40They got – you know, most of that EBITDA goes down to the free cash flow line.
01:42They have been returning capital, right?
01:44So they've got capital returns.
01:46And, you know, there is real opportunity for growth within their business model.
01:51A lot of that is international.
01:52A lot of conversions, you know, a lot of conversions from other assets that fit very well under their brand
01:57flags.
01:57And they have also been launching some new brands as well in kind of that lifestyle category.
02:02How many brands do they have right now?
02:04So where are they now?
02:05I know Marriott's 31.
02:06I'm trying to remember what Hilton's got.
02:08So that's – all those 31 – is that just slicing and dicing the market?
02:11Yeah, it is.
02:12I mean, yeah, I think overall if you slice the market segment-wise,
02:16Hyatt and Marriott are more prominent in the luxury highest end.
02:20Hilton has some luxury, but it's also got a very solid kind of mid-scale limited service portfolio.
02:26And so what you tend to see is that in this environment, luxury upscale tends to be outperforming.
02:32And the limited service is somewhat weaker, partly because that's where you've got the government travel.
02:38You've got the transient independent business travel.
02:41But stuff like leisure, group, luxury, particularly international markets, UAE, Europe, non-China, Asia, all have been really quite strong.
02:52I wonder, Brian, do you – I know you don't cover Airbnb as a company, but do you ever see
02:57any correlation between the performance of Airbnb and, you know, a Hilton or Marriott?
03:02Because I'm sure in markets where Airbnb is not allowed, like New York City, for instance, Hilton benefits.
03:09Yeah.
03:09I tend to think of, you know, the OTAs, the Airbnbs of the world, as being a factor with respect
03:15to both Las Vegas lodging,
03:17particularly in kind of the value-conscious consumer limited service.
03:20You know, you've got some extra inventory there where it's good for that kind of last-minute inventory management.
03:24But the big focus of Hilton Marriott Hyatt has been the loyalty programs and the strong correlation between loyalty members
03:32and kind of booking directly.
03:34So there's that aspect as well.
03:36The Walt Disney Company called out in their theme park business some weakness on inbound international travel.
03:42Is that – are the hotels seeing that as well?
03:44There is some of that.
03:45I mean, some of that's from Canada, tariff-related.
03:48I think kind of that globally, the weaker areas maybe are inbound U.S. travel, U.S. government travel.
03:55China's kind of flat.
03:57The strong areas are all the other categories we talked about, you know, luxuries, group travel.
04:01I always say to my Canadian friends, you know, the first time it drops, like, below 20 degrees or 10
04:06degrees in, like, November,
04:08you guys are booking your flights down to Florida.
04:10You can just be honest.
04:11You'll sing a different tune, right?
04:12You'll sing a different tune.
04:13Brian, how exposed are the Hiltons and the Marriott's of the world to, you know, the whole credit card debate,
04:19you know, the president wanting to cap interest rates to 10% on credit card companies
04:24and that putting at risk all these reward credit cards programs?
04:27Right.
04:28Well, I mean, it's a consideration partly because a big part of that franchise fee line you see for Hilton
04:34and Marriott
04:35is actually fees from co-branded credit cards.
04:38That's actually a big kind of fee source.
04:40So, all else being the same, the royalty rates and the level of credit card activity are somewhat
04:47of a driver for these franchise fees, these, I should say, co-branded credit card license
04:52fees, which kind of find their way into the franchise fee line.
04:56So, it is important.
04:56I'll see you in the next video.
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