The hotel industry’s branding equivalent of keeping up with the Joneses (or Kardashians) continues to thrive — and the latest move points to a new luxury offering in the works.
Major hotel companies like Marriott, Hilton and Hyatt often move in lockstep when it comes to brand additions and launches. When one company announces a new brand, you can usually expect the others won’t be far behind with their own version.
Marriott launched the youthful Moxy, Hilton followed with Motto and Hyatt added Caption. Just in the last year, all three of these companies have made a play for extended-stay and midscale brands with the launch or acquisition of brands like Hyatt Studios, MidX Studios (Marriott’s working title for its extended-stay brand) and City Express.
Hilton garnered plenty of buzz with the launch of Spark, its play for the “premium economy” sector, and Project H3, the working title for its own extended-stay brand. But the company isn’t done there.
A new brand is in the works, and it’s likely to put Hilton directly on the playground of Marriott’s Edition brand.
“We don’t have a pure hard brand in the luxury lifestyle,” Hilton CEO Christopher Nassetta said on a company earnings call late last month. “We will.”
While everyone knows what a luxury hotel brand is, the term “lifestyle hotel” is a little trickier to pin down. But these are hotels that typically make at least half their revenue off restaurants, bars or other amenities beyond guest rooms and suites. Edition fits the bill, but so do other offerings like The Standard and Nobu Hotels.
Ian Schrager, co-founder of Studio 54 and one of the earliest leaders of the boutique hotel movement, was an early player in the lifestyle hotel space thanks to his partnership with Marriott on Edition. While that partnership is winding down, he has another offering in this space with Public, currently with one hotel in New York City but slated to grow to other cities.
Expect Hilton to announce details on the new luxury lifestyle brand later this year, Nassetta said.
“We want to give our babies, Spark and H3, [time to grow] and then we need to make sure they become little toddlers and are successful,” he added. “But we’re doing developmental work in luxury and lifestyle.”
Hilton’s booming budget-brand business
Speaking of Spark and Project H3, they’re growing significantly since their respective launches over the last eight months.
Project H3 launched with roughly 100 development conversations underway, but Nassetta indicated on the earnings call that there are now more than 300 deals in negotiation for the extended-stay brand.
Hilton launched the premium-economy-focused Spark at the beginning of this year with 100 deals in various stages of development slated for the U.S. Today, Hilton has roughly 60 hotel deals signed for Spark and another 400 in negotiation, Nassetta said. The first 20 hotels are expected to open by the end of this year.
While Hilton’s Spark is expected to focus its early growth in the U.S., the company expects to expand to Europe “very quickly.” Marriott’s leadership team this week indicated they were planning on bringing a midscale conversion brand to Europe later this year.
Spark’s quick growth trajectory is fueled by the idea that most of its hotels will also be conversions — deals where an existing hotel gets renovated into another brand’s various design and operations standards.
Why all the focus on more budget-friendly, middle-of-the-road brand offerings?
“I don’t have to tell anybody on this call there is a growing middle class all over the world, and that’s where the money is,” Nassetta said. “Those people can afford midmarket hotels. When you wake up in 10 or 20 years, the bulk of the rooms growth in the world … the bulk of the money that’s going to be made is in the midmarket. So, that’s why we have focused there.”
Leisure cool-off? Hardly
There’s been plenty of industry banter as to whether the luxury travel demand boom seen during the pandemic is somehow cooling off. Marriott’s luxury hotel performance in the U.S. and Canada was slightly soft compared to last year for the second quarter, and Nassetta indicated Hilton is also seeing a “normalizing” of demand.
A large driver of that is the fact that more parts of the world dropped travel restrictions this year compared to last, so there are more options for leisure travelers.
“We’re having a wildly strong summer in leisure. I mean, the only places where leisure has backed off a bit is where you would expect it, where it’s normalizing from like crazy highs,” Nassetta said in reference to markets like South Florida, Hawaii and parts of Southern California. “It’s still in those markets, way over  levels.”
In short: Don’t expect rates to come tumbling down in any of these parts of the U.S. anytime soon just because more people are in Europe this summer. Hilton still boosted its performance outlook for the remainder of this year, and company leadership is part of the growing camp within the business community expecting the U.S. economy to perform better than expected.
“It all feels pretty good and, if we can orchestrate a slowdown but a reasonably soft landing, I think the rest of this year is going to be very solid and in line or better than what we said,” Nassetta said. “And I think next year will be a darn good year because I still think there’ll be strength in leisure.”
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