The hotel industry is feeling major impacts of the COVID-19 shutdown, with the sector on pace to lose $500 million in room revenue per day, according to the American Hotel & Lodging Association. And that trade group predicts that could mean a loss of upwards of 5.2 million jobs in the hospitality sector.
But among the major hotel chains, Hilton (HLT) could be the best suited to emerge from the pandemic, according to one expert.
“Based on taking a look at the balance sheets, the leverage of some of the major brands at this point, I think Hilton is the most well capitalized to make it through and weather the storm,” Deborah Friedland, Hospitality Practice Lead at the accounting and advisory firm EisnerAmper, told Yahoo Finance’s “The First Trade” on Wednesday. “We have seen Marriott [MAR] cut costs aggressively across from corporate to to their property levels. So they have access to a decent balance sheet, as well. But right now it looks like Hilton has the best balance sheet.”
Hilton’s balance sheet showed about $8 billion in long-term debt at the close of 2019, with nearly $15 billion in assets on the books. It’s drawing down part of a $1.75 billion credit line to “preserve financial flexibility.”
Hilton in many ways is lucky that it has access to credit, Friedland says.
“The hospitality industry has always been a risky sector, and especially now,” she told Alexis Christoforous and Brian Sozzi. “Access to capital, the companies that have that access will be the ones to survive.”
Hilton also has been cutting costs, with furloughs and pay-cuts for everyone from front-line workers to the CEO. It’s also suspended capital expenditures, future dividend payments, and share buybacks.
“As a 100-year company that takes the long view, we are confident in our resilient business model, the performance of our leading brand portfolio, and our ability to respond appropriately to market conditions,” CEO Christopher Nassetta said in a statement on March 10 as the company withdrew its guidance.
Friedland believes this crisis will change what people want from their travel, including an end to unique lodging experiences in favor of safety and security. That could mean good things for Hilton when the shutdown orders lift and people start traveling again.
“I suspect that consumers will want the security of a brand,” Friedland said. “They want to know what they're going to get when they walk in the door.”