Hilton CFO: 'We've seen occupancy levels get up to about 50% in China'

Hilton CFO, Kevin Jacobs, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss the current state of the company and overall industry, long-term outlook, Hilton's CleanStay program with Lysol & Mayo Clinic and more.

Video Transcript

BRIAN SOZZI: Now, the hotel industry has been hit hard by the COVID-19 pandemic, but there may be some signs of life starting to emerge in the industry. Here to chat about all things hotels is Kevin Jacobs, Hilton's CFO. Kevin, a little bit of different circumstances since the last time we spoke with you. But-- but thanks for taking some time this morning.

KEVIN JACOBS: Yeah, for sure. Great to be with you guys.

BRIAN SOZZI: Take me through what you're seeing in your China business. I just talked to your CEO, Chris Nassetta, a couple of weeks ago. He suggested to me that there might be some green shoots in China. Has that continued? And what precisely are you seeing right now?

KEVIN JACOBS: Yeah, it has. I mean, a couple additional anecdotes, I think, you know, over-- last weekend, over the May Day holiday, we saw occupancy levels get up to about 50% in China. So those were levels that we hadn't seen in a while. You know, on a run rate basis, probably in the high 30s, low 40s, which is up from, you know, at the worst of the crisis in China, you know, single-digit occupancy levels.

And the other-- you know, the other sort of encouraging data point, I'd say, is virtually all of our about 150 hotels that were under construction-- sorry, 150 hotels are-- virtually all of them are reopened, and virtually all of our hotels that were under construction in China are-- have resumed construction at this point.

ALEXIS CHRISTOFOROUS: Kevin, I'd love to know how the experience for visitors is going to change at-- at Hilton hotels and all of your brands, post this pandemic. Or I'm sure it's changed now for people who were staying there. But-- but when we really sort of open up in a bigger way, how are things going to change for us in terms of our experience at your hotels?

KEVIN JACOBS: Sure. That's a great question. I think, you know, obviously, for some period of time, they're going to change, potentially, fairly dramatically. And then, I guess we'll-- you know, over the long term, obviously, hopefully we get back to the normal levels of, you know, kinds of products and service delivery that our customers have come to expect from us.

But I'd say, in the near term, one thing we did was we've announced a partnership with RB Lysol and Mayo Clinic to roll out a program that we call Hilton CleanStay. And so what that means is-- you know, we've always had great levels of, of course, cleanliness and sanitation in our hotels. But that's just going to mean a heightened level of cleanliness and sanitation.

And we're still working out the details. But some things you might notice-- obviously, you're going to notice social distancing, and you're going to notice our team members wearing personal protective equipment. And the-- and the specifics of that will vary based on, you know, the rules and regulations in various jurisdictions.

But for Hilton CleanStay, you'll notice things-- like one of the things we're planning on doing is there'll be a seal on the room, so that once that room is cleaned, again, to the standards that Lysol and Mayo Clinic help us with, we'll put a seal on the door. And you'll actually break that seal when you go into the room. So you'll know that no one's been in there before.

You'll probably see some changes and things like housekeeping, where, you know, you're used to-- you know, people tend to come into your room to clean it when you're staying there during your stay if you're there for multiple days. You know, things like that, where maybe you then have to opt in if you want that-- that cleaning service. Because therefore, if you don't opt in, you'll know that nobody's been in the room.

So we're still working things out beyond that. But one of the things we have to put-- make of paramount importance is our team members and our customers have to both be and feel safe. Otherwise customers aren't going to come back if they don't feel safe.

And then another thing is, you know, at these levels of very low occupancies, our hotel owners-- you know, I think maybe not everybody understands this. But we don't own our hotels. Our hotels are owned by individual-- individual investors. And at these levels of occupancy, they're-- they're hurting financially as well. And we need to make sure that we're providing, again, all the best-- all the things we need to provide for our customers to feel safe. But also we need to make some adjustments to the operating model so that the model works, you know, in a profitable way for owners going forward.

BRIAN SOZZI: And Kevin, what does-- how far away are you from-- and not just you, just the entire industry-- liquidity relief from the government? And if you are close, what does that even look like? Are we looking at the case where the government comes in here and takes stakes in hotel chains, not unlike what they have-- or what they may be doing with airlines?

KEVIN JACOBS: Yeah, it's a good question, Brian. It's a little bit different setup for us than the airlines. We've been very active, as you can imagine. You've-- you've probably noticed that Chris has been very prevalent at the White House. Very early on in the crisis, I was also involved and have continued to be involved in lobbying, both with the Federal Reserve and-- and Treasury.

We're-- but we're not lobbying on behalf of ourselves. We're lobbying on behalf of our frontline team members to make sure that there's relief, overall, available for the industry so people can remain employed. And we're lobbying on behalf of our owners, again, who provide all of the capital to our-- to our system to grow. And they are really-- as I said, really struggling financially.

And so we're trying to make sure that, you know, our hotel owners are able to access the PPP program. To date, that's not-- unfortunately not been super successful. In the first round of PPP funding, I think 9% of it went to our business.

And just-- just to juxtapose that in the April jobs report, you may have noticed, of the 20-plus million jobs that were lost in the United States in April, nearly 40% of those were in travel and hospitality, almost 8 million jobs. And so the level of financial impact to our business has been outsized. And so hopefully as the Main Street Lending Program and other things get rolled out, our hotel owners are able to get a little bit more access to those relief funds. But-- but we are not lobbying for anything on behalf of ourselves, and don't expect anything like the government taking stakes, at least in the capital-light hotel companies.

ALEXIS CHRISTOFOROUS: What has it been like for your workforce, Kevin? Have you been able to bring back people who were either furloughed or laid off? And-- and how many more do you expect to be able to bring on in the weeks ahead? I know that might be a difficult question to answer.

KEVIN JACOBS: Yeah, it's a fair question, but a hard one to answer. We've not-- we've not yet been able to bring people back, really, in any material way. We have tens of thousands of team members, both at the hotel levels and corporately, who are furloughed.

And again, we're-- we said this on our earnings call. You know, April, for US, same-store sales slash, you know, the revenue of our business, we think, is going to be down about 90%. So when you're operating with 90% less revenue, obviously you have to-- you have to take pretty drastic measures to make the cost side of that equation balance out.

And so, unfortunately, it's been painful. We've had-- we've had to put a lot of people on furlough. And so the extent we-- and the speed at which we're able to bring people back is going to depend on the virus and-- and around the rate of recovery, and around reopening the economy.

BRIAN SOZZI: All right, let's leave it there. Kevin Jacobs, Hilton CFO. Always good to speak with you. Appreciate your time. And stay safe out there.

KEVIN JACOBS: Yeah, same to you guys. Stay safe, and great being with you.