By Hyun Ho Lee
The story of the year in hospitality, the announcement of the merger between Starwood and Marriott, has continued to make its reverberations felt throughout the industry, and Hilton Worldwide has felt the effects of the disruption more than any other. Hilton, which competes directly with Marriott in nearly every class, lost its position as the largest hotel company in the world by number of rooms in September when the merger finally closed. This revelation is a major threat to Hilton’s current market share and status as an industry leader.
As CEO Chris Nassetta recently explained, Hilton is driven by its goal to “be the most hospitable company on earth.” With Marriott’s recent expansion challenging that Hilton mission, Nassetta and his team have planned to restructure the entire business model of the company. Hilton, which owns a portfolio of brands including DoubleTree and Homewood Suites, is working to split off its real estate assets into a real estate investment trust called Park Hotels and Resorts, and its timeshare business into a separate company called Hilton Grand Vacations.
Hilton argues that the move will allow each company to increase tax efficiency, better focus on their distinct missions, and encourage investors by creating a simpler business model. Analysts have predicted that the overall combined market value of the three companies will be higher than the current value of Hilton Worldwide.
The company also believes that what remains of Hilton, primarily its hotel management business, will be much better positioned to compete with Marriott. Marriott, which spun off its real estate assets in the 1990s as Host Hotels and Resorts, is primarily a hotel management company and enjoys low operating leverage from its divestment from holding real estate. Hilton expects to see its management business benefit from the reduction of capital flowing into its non-hotel businesses. Park Hotels and Resorts is set to launch as the second-largest publicly traded hotel REIT in terms of market capitalization—behind only Host—and has already made moves to acquire smaller REITs in the lodging space.
These moves come during a time when Nassetta is stressing innovation for the company. From launching new lifestyle brands to including better and more far immersive technology at its properties, Hilton is undergoing a time of change. Time will tell if Hilton will be able to regain its position as the market leader in the hotel space.