Hilton picked a good time to go public: The hotel industry is booming

December 13, 2013

Yesterday, the gigantic private equity firm took Hilton Hotels public, realizing an $8.5 billion profit on an offering that popped 7.5 percent on its first day of trading. A lot of that came from smart debt restructuring, and a market that's gone crazy over IPOs all year. But it's not just financial engineering and froth: The hotel business is looking pretty great these days.

Of course, it was coming from a low baseline. Bookings nosedived during the recession, since travel is one of the first expenses to go when companies, governments, and families have to tighten their budgets. But so did construction — and as the economy recovered, supply took longer to start flowing again, pushing up room rates for those that previously had to offer deep discounts just to keep them occupied. RevPAR, an industry measurement for revenue per available room, grew much faster than the rest of the economy last year and finally topped the 15-year average, according to PwC:


(PwC)

That's because, on a per capita basis, Americans are traveling more than they ever have before:


(PwC)

In response, construction is finally kicking into gear, with rooms in the pipeline up 35.8 percent over last year. The recovery isn't as fast as what followed previous recessions, but at least it's solid:


That's pretty good news for the U.S. economy, since the hotel industry is fairly labor-intensive — even if the jobs aren't all highly paid — and local jurisdictions can milk the hospitality industry for revenue. Here's the job growth curve, from the Bureau of Labor Statistics:

latest_numbers_CES7072100001_2003_2013_all_period_M11_data

Investors are probably also looking at the strong performance of other hotel stocks, which have been trending steadily upwards for the last few years as well:


(Ycharts)

Meanwhile, Hilton is the biggest hotel chain in the country, and is planning a new brand aimed at affluent young folks. And Blackstone, betting on continued growth, says it'll continue to own a big chunk of the business for a long time.

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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Brad Plumer · December 13, 2013