Good morning, and welcome to the Hilton First Quarter 2021 Earnings Conference Call. All participants will be in a listen only mode. After today's prepared remarks, there will be a question and answer session. Please note, this event is being recorded. I would now like to turn the conference over to Jill Slattery, Senior Vice President, Investor Relations and Corporate Development.
You may begin.
Thank you, Chad. Welcome to Hilton's Q1 2021 earnings call. Before we begin, we would like to remind you that our discussions Today speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. Form 10 ks.
In addition, we will refer to certain non GAAP financial measures on this call. You can find reconciliations of non GAAP to GAAP financial measures discussed on today's call in our earnings press release and on our website at ir.hilton.com. This morning, Chris Nassetta, our President and Chief Executive Officer, will provide an overview of the current operating environment. Kevin Jacobs, our Chief Financial Officer President, Global Development will then review our Q1 results. Following their remarks, we'll be happy to take your questions.
With With that, I'm pleased to turn the call over to Chris.
Thank you, Jill. Good morning, everyone, and thanks for joining us today. It has been a little over a year since the pandemic started. Over that time, we acted swiftly to the challenges we face so we could quickly turn our focus to best positioning ourselves towards recovery and beyond. I'm really proud of how we've and to all of our stakeholders for their ongoing support.
In the Q1, system wide RevPAR decreased 38% year over year and 53% versus 2019. Rising COVID cases and tightening travel restrictions, Ever, March marked a turning point. As we lap the start of the U. S. Lockdowns, RevPAR turned positive, up more than 23% year over year.
System wide occupancy reached 55% by the end of the month, driven by strong leisure demand. As expected, recovery in group and corporate transient continued to lag, but both segments showed sequential improvement versus the 4th quarter. Overall, this Positive momentum has continued into the 2nd quarter. While recovery varies by region and country, we can see the light a significant lift in forward bookings and occupancy, which is now around 60% as well as lengthening booking windows. This mirrors trends in other countries around the world.
For instance, China is running in the low 70s occupancy. We do expect this momentum to continue. Vaccine distribution, coupled with relaxed travel restrictions and Increasing consumer confidence should drive further RevPAR improvements in the coming months quarters. In fact, we are on pace to see record leisure demand in the U. S.
Over the summer months with April bookings for the summer exceeding 2019 peak levels by nearly 10%. We also expect continued corporate office reopenings to drive a meaningful pickup in business transient demand Towards the back half of the year, based on what we've seen in China and pockets of the U. S, once 75% of 2019 levels in states that were further along in the reopening process. Additionally, recent forecasts for nonresidential fixed investment are up more than 3 percentage points from prior projections to 7.8 percent indicating even greater optimism around business spending. On the group side, Forward booking activity continues to improve month over month.
Group bookings made in the Q1 for the back half of the year were roughly Flat with 2019 booking activity suggesting customers are increasingly optimistic about safety measures and loosening pandemic restrictions. Near term group bookings continue to be driven largely by social events and smaller group meetings, but we are seeing a slow shift back to a more normal mix of business with corporate group leads up more than 70% for future periods. Associations and trade shows have also started opening up housing and registration sites for events later this year, Further signs of moving forward with in person group meetings. As we look out to next year, our group position is 85 percent of peak 2019 levels with rate increases versus 2019. Group bookings were up in the mid teens for 2023 versus 2019.
In fact, last week, I was in Mexico to chair the World Travel and Tourism Council's Global Summit, where more than 800 participants Safeway and hybrid events can be incredibly effective at expanding participation and enhancing collaboration. It was great to be in the same room with other hospitality and government leaders talking about the bright future that lies ahead for our industry. The event made me even more optimistic for our recovery and confident that we are beginning to see a new era of travel emerge. Turning to development, during the quarter, we added 105 hotels totaling more than 16,500 rooms to our system and achieved net unit growth of 5.8%. We celebrated the openings of our 100th Curio and our 50th Tapestry Hotel, demonstrating the Strength of our conversion friendly brands.
Overall conversions accounted for approximately 24% of additions in the quarter. We also continued to enhance our resort footprint during the quarter with the openings of the 1500 Room Virgin Hotel Las Vegas, the Hilton The all inclusive Yucatan Resort Playa del Carmen and the 6 spectacular properties along the California coast, Customers have even more opportunities to stay with us as travel resumes. Building on our already impressive portfolio in the world's most During the quarter, we signed agreements to bring our Walder, Fastoria and Canopy Brands to the Seychelles. The properties are scheduled to open in 2023, joining the Mango House Seychelles LXR Hotel and Resorts set to open later this summer. In the quarter, we signed nearly 22,000 rooms modestly ahead of our expectations.
This included Our first Signia Hotel. Additionally, through our strategic partnership with Country Garden to introduce the Home2 Suites branded China, we added more than 5,000 rooms to our pipeline. We're excited for the opportunities this partnership provides with This growing brand, Home2 recently celebrated its 10th anniversary, marking the milestone with nearly 1,000 rooms Hotels open and in the pipeline. On Entrepreneur Magazine's annual franchise 500 list, which featured 11 of our 18 brands, Home2 was the number 2 hotel brand ranking only behind Hampton. Overall, we are very happy with our development progress and excited for additional growth opportunities.
With more than half of our 399,000 route Pipeline under construction, we're confident in our ability to grow net units in the mid single digit range for the next several years and continue to expect Growth in the 4.5% to 5% range in 2021. In an environment where safety and cleanliness are Top priorities for travelers, we continue to create more opportunities for our guests to enjoy a contactless experience from pre arrival to post checkout. Our digital key feature, which enables guests to bypass the front desk and go straight to their rooms, is now available in the vast majority of our hotels worldwide. Additionally, we've joined forces with Lyft to mobilize Honors members to contribute to the Lyft vaccine access initiative, which funds rides for those in need of reliable transportation to their vaccine appointment. We're excited to continue the momentum of our partnership with Lyft by supporting this important cause.
During the quarter, we also launched 2 new co branded credit cards Pan, building on our 25 year partnership with American Express and marking the first time our co branded cards have been made available to customers outside the United States. These cards are designed with both frequent and occasional travelers in mind and offer customers the opportunity to earn Hilton Honors bonus points on everyday spending as well as at our properties worldwide. As a result of our strong partnerships, Industry leading brands and unmatched value proposition, our loyalty program continues attracting new members. We ended the Q1 with more than 115,000,000 Honors members up roughly 8% year over year with membership increasing across The determination, creativity and hospitality that our Hilton team members have demonstrated, this earned us recognition by Fortune and great place to work as the number one best big company to work for and number 3 best company to work for in the United States. Overall, I'm pleased with our Q1 results and feel very good about the momentum for the remainder of the year.
I'm optimistic for the future of travel and for
Thanks, Chris, and good morning, everyone. During the quarter, system wide RevPAR declined 38.4% versus the prior year on a comparable and currency neutral As rising COVID cases and reinstated travel restrictions and lockdowns disrupted the demand environment, especially across However, occupancy improved sequentially throughout the quarter, increasing more than 20 points. Adjusted EBITDA was $198,000,000 in the first quarter, down 45% year over year. Results reflected the continued impact of the pandemic on global Travel demand, including temporary suspensions at some of our hotels during the quarter. Management and franchise fees decreased 34%, Less than RevPAR decreased as franchise fee declines were somewhat mitigated by better than expected license fees and development fees.
Additionally, results were helped by continued cost control at both the corporate and property levels. Our Ann, coupled with temporary hotel closures and fixed operating costs, including fixed rent payments at some of our leased properties, Weighed on our performance. Continued cost control mitigated segment losses. For the quarter, diluted earnings per share adjusted for special items was 0.02 Turning to our regional performance, 1st quarter comparable U. S.
RevPAR declined nearly 37% year 62% higher than January and ending at 55%, the highest level since the pandemic began. Leisure travel continued to lead the recovery, particularly on weekends with warm weather destinations benefiting the most. In the Americas outside the U. S, 1st quarter RevPAR declined 55% year over year and 63% versus 2019. Performance recovered in March, but lagged the broader system due to the region's greater dependence on international travel, which remain constrained by tightened travel restrictions.
In Europe, RevPAR fell 76% year over year and 82% versus 2019. Declines were driven by increasing COVID cases and reinstated lockdowns across both the United Kingdom and Continental Europe. Delays in vaccination distribution also In the Middle East and Africa region, RevPAR was down 32% year over year and 46% versus 2019. Performance in the region benefited from strong domestic demand and easing restrictions. In the Asia Pacific region, 1st quarter RevPAR fell 7 year over year and 49% versus 2019 as rising infections, lockdowns and border closures weighed on performance early in the quarter.
RevPAR in China increased 64% year over year with occupancy levels increasing from roughly 35% to roughly 65% during Both leisure and business transient demand rebounded quickly as restrictions eased with March occupancy in China exceeding 2019 levels. Turning to development. As Chris mentioned, in the Q1, we grew net units 5.8%, driven primarily by the Americas and Asia Pacific. Tightening restrictions and lockdowns across Europe delayed openings in the region. However, we expect an uptick in development activity as countries continue to reopen.
For the full year, we continue to expect net unit growth of 4.5% to 5%. Signings in the quarter decreased year over year due to pre pandemic Comparisons but exceeded our expectations due to greater than expected signings in China, particularly for our Home2 Suites brand. For the year, we expect signings to increase mid single digits versus 2020. Turning to the balance sheet. During the quarter, we took steps to further enhance our liquidity position and and opportunistically executed a favorable debt refinancing transaction to extend our maturities at lower rates.
As we look ahead, we remain confident in our balance sheet and liquidity positions as we continue to focus on recovery. Further details on our Q1 can be found in the earnings release issued earlier this morning. This completes our prepared remarks. We would now like to open the line for any questions you may have. We would like to Chad, can we have our first question?
Thank you. And the first question will come from Carlo Santarelli with Deutsche Bank. Please go ahead.
Hey, good morning guys and thank you.
Hi, Alain.
So Chris, Kevin, you guys gave some helpful data points around kind of the acceleration that you saw Throughout the Q1 and speaking more maybe on the U. S. Front, could you guys maybe talk a little bit about March and Maybe to the extent you're willing to April and how kind of not only RevPAR trends, I know you gave some data points on occupancy With the 55% exit rate coming out of March, kind of what you've seen from a fee generation on the U. S. Side as it pertains to the occupancy gains that And then perhaps how you're thinking about beyond people coming back into the office, the aspect of pent up demand within the business and corporate traveler as we get maybe probably a 4Q event, I think most of us would assume at this point.
But how do you guys think about that?
Boy, that's a lot of questions all embedded in one, but that is probably the most important. I'll cover parts of it, maybe Kevin will Throw some things in and we'll save a little bit maybe for later because I'm sure others love similar questions. But thank you and I do think That is the question, du jour. Obviously, as both Kevin and I covered, Carlo, we saw pretty marked improvement As we march through the quarter and that continued into April, in terms of the global data, I think the best way to Look at it is against a 2019 comparison because looking at it against 2020, Right now, as you were in the early stages of the pandemic is relatively useless. And so, if you look at January February, you were Globally, in the U.
S. Was similar. If you look at it, you were sort of in the 55% to 60 percent down from a RevPAR point of view. And you picked up about 10 points going down Into the sort of the mid-40s down in March. And then in April, we you had another step up And you're into the low 40s.
Obviously, May is a little early to say, but I would say 3 in our mind continues as we look at forward bookings both on the transient on the leisure transient side, which is what's going to dominate the Q2, it feels like we're going to continue marching on. If you look at it by Segments, which I obviously have spent a lot of time and this will sort of get to some of our views on business transient and the group side. If you look at you break down room nights by segments relative to 2019, again, I'm focusing on room nights to sort of take Rate for the moment out of it, leisure in the Q1 was already close to 90% of 2019. By the way, on a for what it's worth, much lower based on lower rated business, But just again, room nights and business was about 50% in the first Quarter, again lower if you look at it on a RevPAR basis. And group was about 35 to 40.
As you march through our expectations for the year, our belief is Globally and every region will be a little bit different. I'll save a regional question for somebody else because I don't want to do too much of a filibuster Incredibly robust leisure driven summer, so we're going to continue to see good progress. We believe the summer will be meaningfully over 2019 peak levels of leisure demand. As we get into the fall and every day you're reading the same things I'm reading, but I'm also, as I'm sure you are talking to a lot of CEOs of large companies that we deal with or that are friends of mine. And I think Clearly, as you get into the summer, many people are starting to bring folks back in the office.
Certainly, as you get into the fall, all things Sort of being equal in terms of trajectory of vaccination, most businesses are going to be bringing folks Maybe not fully probably not fully, but on some flexible basis, but a whole lot different than what we've been experiencing. We do believe that and we do see it both in China, as I said in my prepared comments, we do see it in parts of the United States, where have been lifted earlier. I mentioned in my prepared comments, business travel volumes already 75% of what they were in 2019 in those markets. So I think it Even though not fully through and not fully open anywhere, I think it is really good evidence that as people get back to work as kids in the fall go back to school, which at this point I think is very highly likely, you are going to see a step change into the 3rd and 4th quarter in business transient. I also see it in our booking pace on the group side that you will see a pretty good step In the group side, I gave you some stats, so I won't repeat them.
At the moment, it is more Smurf kind of Related business and small meetings in the second half of this year with the bigger meetings, really some happening, but really those getting booked more Into next year at a high volume, but we do believe that we will have a lot of realized group There's a lot more of it than we've been experiencing in the second half of the year. So if you sort of jump to the Q4 recognizing Q2 is going to be largely leisure, Q3 It's going to sort of be a transition. On a room night basis, our forecasting, Which is all it is, but it's based on a lot of data and based on sort of the current trajectory that we're on. We think room nights and leisure will be at 2019 levels, we don't think rate will be back to 2019 levels. So sort of RevPAR levels in The 4th quarter based on what we're seeing in markets that are recovering on a room night basis will be about 70% -ish.
I'm being reasonably precise, obviously, but these are sort of our sense of estimates. And obviously lower than that on a RevPAR basis because we're still not going to have the high all the highest rated business travel back. That's why it takes time to sort of get And we think group from a volume point of view could be halfway back to 2019 levels. Again, it won't be the highest rated groups. Those will start coming next year when we get To a place where we have the larger groups, association, etcetera, that are typically Aeropeng.
So that's sort of that's how we think the year is going to play out. We think that as a result, RevPAR levels every sort of month as we go versus 2019 are going to get better. By the time we end the year, I think we could be back somewhere around 70% or something ish of 2019 levels on a run rate basis, which isn't all the way home, but is a heck of a lot Better than where we were. And what I would say not to be Pollyannaish about it, what I would say is the recovery of late, Certainly, since we had our last call, the recovery the slope of the recovery has been steeper than what we would have thought in all regards. Now a lot of it is to But I would say broadly, as you can probably tell from my comments, there's a bunch of data to support it.
We think the slope of the recovery has steepened Since the last time we talked and thus our reason for optimism that things are on a good path. You asked about fee generation that will follow. I don't think there's a whole lot more to say that as the business recovers, so go our fees. That's how we get paid. And I do think sort of built into my expectations that I gave is sort of My view and our view of pent up demand.
I think there is a huge amount of pent up demand. And my guess is every single person that you guys talk to, whether they run a business, Whether you talk to them, they're a friend of yours, you see them on the beach or wherever you are, that they're talking about needing to and wanting to get out both for leisure, Sure, but increasingly needing to and wanting to get out for business and to congregate in groups. There are a lot of important work that gets done in these group settings that I think after a while people realize That it's not possible to keep going without it. So I do think there's a I think we're On a very good slope, we need the vaccination trends and the infection rates and all of the fun stuff that we're all looking at every minute of every day because that's Paul, the media is covering obviously. We need all that to progress, but our view is we're on a solid A very solid road to recovery.
Did I get most of what you wanted to ask? Yes. I left you nuggets for somebody else to ask about.
I also have carpal tunnel Right. So I appreciate the response. Thank you very much.
All right, Carla.
And the next question will be from Joe Greff with JPMorgan. Please go ahead.
Good morning, guys. Thanks for taking
my question.
I think most of my demand related recovery related questions were sufficiently answered before. So I just like to talk about the development pipeline. Nice to see that up sequentially on a quarter over quarter basis. What we've been seeing for a while now is that the non U. S.
Component is becoming a bigger percentage of the pipeline. How much of the non U. S. Is limited service and how did that composition, How did that compare to maybe a year ago? And maybe where I'm going with this question is when you look at the average fee per room in your development pipeline now Versus a year ago, is that average fee per room up or down?
And I think those trends are not changing dramatically in the short term, right? They sort of stay, We've got a pretty good development pipeline both in full service and limited service. You have seen growth, I mean primarily through our master limited partnerships In China with Hampton and Home 2, but also as we deploy Hilton Garden Inn and other brands around the world, you are seeing slightly faster growth in limited So for it to change the overall trajectory of fees per room, it will take a really long time. And so that has been pretty steady As has the mix between full service and limited service, generally speaking, in both the pipeline of rooms under construction. I think it's
Thank you.
The next question is from Shaun Kelley with Bank of America. Please go ahead.
Hi, good morning everybody. Chris or Kevin, maybe to stick with the same development topic. Inflation Has become a big theme around all of the markets recently. And I just want to get your thoughts on specifically what this could mean for the hotel development side. Are you seeing or hearing about any changes or delays that could be out there as a result of things like materials inflation?
Is this particular concern And how you're underwriting or what you're starting to hear back from your development teams?
Yes, I mean, of course, it's a concern, I mean, we have sort of inflation going on, not just in the input costs, but labor as well. So when they ultimately when people Need to operate open and operate the costs are higher. Now we've done a bunch of things and are doing a bunch of things to bring cost down inside the hotels by creating really good is not particularly readily available for the best owners. It is and people are starting new build projects in the U. S.
And around the world. But I suspect and sort of built in, Sean, to our expectations on unit growth is that the U. S, You will see a cycle where particularly in the U. S, the new construction numbers are going to be much, much lower. That's obviously long term healthy for the But the good news for us is the world's a big place and the pressures are not the same in all places the world, particularly recognizing that the place where we get the 2nd biggest chunk of our growth is Asia Pacific and China in particular and those pressures are very different in the sense that they're less and there's a lot more Financing available, etcetera, etcetera.
And so not unlike coming ahead of the great recession, our job is to be really resilient. This is the benefit Of an investment in a big global company, I think we're really good at this and sort of anticipating and adapting to the trends. And like after the Great Recession, the same thing happened in the U. S. For there wasn't so much There is just a dearth of capital and new construction starts went way down.
That's what's happening here. That will be healthy the industry and what did we do? We pivoted then the same way we're pivoting now just with more tools in the toolkit, Meaning, conversions become a much larger part of what we're doing. And we have we are much further along in terms of the relationships we have around the We have around the world and in the areas of the world that are continuing to not only motor along, but pick up steam. I mean, I think in China as an example, In our 2nd biggest market, we're going to sign more, start more and open more deals than I think we ever have this Sure, right.
And so diversification is a powerful thing. Ultimately, I do believe the pressures on the cost The build will abate over a period of time and I don't think it will be that long a period of time. I'm highly confident that the financing Markets will have been easing up and will continue to ease up and the U. S. In terms Of new development or new construction starts will be a huge engine of opportunity for us as it always has And pick up a lot of steam.
And I'm sure other things around the world will happen over time where they slow down. But we're very quick on our feet, not to pat us on the back Too much, but I think we've been able for 15 years to continue to drive really good growth. While lots of crazy things are going on around the world Because there are different conditions and there's ways to continue to grow. And so while we do starting Finishing with where I started, we do worry about it. I think we have a plan to address it.
I think we've built that into the expectations that we've provided to you guys in terms of where we think growth
Thank you very much.
Next question will be from Stephen Grambling from Goldman Sachs. Please go ahead.
Hey, good morning. Thanks for taking the questions and all the color. On capital allocation, what are the key factors you are considering in bringing back the dividend or buyback and thinking through just capital allocation priorities more broadly?
Yes, I think, look, the second part maybe is a little more straightforward. Our overall view on capital allocation hasn't changed. Obviously, we've Suspended dividend and buyback to preserve liquidity during the pandemic, but the way we think about it broadly hasn't changed. And I think the way we think about it more specifically on the first part Your question is, we want to get a little further into the recovery, a little bit further into reliably generating free cash, positive free cash And having our leverage levels start to come down. And so that unless something crazy happens, we think that happens over the course of the year.
We'll talk to our Board about it sort of in the second half of the year as the recovery takes shape. And we'd say it's highly likely that starting next
And the next question is from Thomas Allen from Morgan Stanley. Please go ahead.
Hearing your earlier The slope of recovery has been better than expected. Chris, what's your latest thinking on when RevPAR gets back to 2019 levels? Yes, that's a great question actually, Thomas. Thanks for asking it. It's one that we were debating over the last few days ourselves And they're varying opinions on it even inside our own shop.
I mean, I've been saying 23 or 24, As you know, on these calls publicly and I still believe that. I think from a I think With the slope of the recovery, I'd probably be on the earlier end of that rather than the later as we have a little bit more visibility. I think there is a chance From a room night point of view, certainly on a run rate basis that we get back next year, but I think to get both room nights And rate and the compression we need requires certainly in the U. S, but broadly requires the bigger groups to be And while I think they're coming back and certainly they want to be back, the planning and all of that, it's on a lag. So I think that takes some time next year.
So I'd still say 'twenty three, 'twenty four, but I'd probably air towards You know, the earlier end of that.
Perfect. Thank you.
Yes.
The next question will be from Smedes Rose with Citi. Please go ahead.
Hi, thanks. I kind of along the same lines, you can see this acceleration in RevPAR. In your conversations, really on the corporate side for groups less On the association side, do you sense any hesitancy on the part of corporates to move back in terms of Having enjoyed a year of essentially no travel budgets, any kind of pushback on the that you think in terms of the amount of people they put on the road or the amount People they put into groups or is that not really an issue? And it's just sort of pegging off this idea of impairment. Yes, I think
it's another reason I think it takes time to get back To 2019 levels, sort of picking up my earlier answer is because I do think not only have This is by number, have been really negatively impacted by the pandemic and they need to cut expenses. And so I'm highly confident as is the With any cyclical downturn in recovery when this happens that those budgets will build back, but it It will take some time. Now I think in the second half of this year, I think number 1, there is a huge amount of pent up demand and by definition, they only have half a year to spend whatever they have anyway because nobody is going to They only have half a year to spend whatever they have anyway because nobody is going to doing a ton of traveling in the first half of the year. So I think ironically, I think there's plenty of budget Capacity, I look at our own budget. There's plenty of budget capacity when you talk to businesses for the rest of this year.
I think as you go into next year, if we're in a full scale recovery while people Are going to for a period of time want to be thrifty. I think in the end, it will just be what the opportunity set is. And if we are in a robust Recovery, what I have seen, I can't prove it, but I've seen it in every other cycle as you get into that, the rope gets They let businesses let the rope through their hands because they have to. They have to deliver alpha. They have to compete against other businesses that are trying to do the same thing.
And so they asked that their people have to get out on the road, they have to have meetings, they have to build their culture, innovate, collaborate, get out They get their sales forces out and do all the things they do. So the steeper the slope of the recovery, like in every other Cyclical recovery and that's when we get through the pandemic, we're done largely with the health and you're in a cyclical economic recovery. The steeper the slope, The faster it comes back. That's just the way it's always worked. I don't think it'll be any different here.
But it will that's why I said 'twenty three, 'twenty four. Again, I said probably I'd take the earlier of that rather than the later given the current slope of what we're seeing, But that's why it takes longer. We will get back to room nights, I think, faster because we'll still find room nights business, get more compression from groups to ultimately get back there. So I think budgets will normalize Sort of between now and 2023, if the slope of the recovery is what we think is what we're saying.
Thank you. Next question comes from David Katz with Jefferies. Please go ahead.
Hi, good morning. Good morning. Covered a lot of territory already, but I wanted to just talk about the development In general, and we have not talked much about the degree to which the interactions with owners have Maybe changed either temporarily or permanently. We've been so focused on the demand recovery, which is worthy of consuming our attention. But is there any semi permanent or permanent change in the manner in which you deal with The development community and sort of how those monies and risks are managed long term?
It's a complicated answer. I think when you boil it down, I don't think there is going to be any material shift. I do believe in the Short to intermediate term, there is a shift because like everybody, not all of our owners, but most of our owners So, are dealing with a very difficult situation. I would say that 99.9 percent. Now, some of them are much For their long run recovery because their portfolios are in markets that have had rapid recovery, resort markets, Southern U.
S. And they're doing pretty well. But broadly, the owner community obviously has been hurting as have we, as have the whole industry. There's not it's not like it's been easy on any of us. We obviously have deployed a whole host of things to be supportive of the And those are still fully deployed in the sense of working very hard with a lot of folks on On behalf of the industry for government support in the right areas and we don't we have not stopped those efforts and I do believe as we get to real recovery, there's opportunities to help get help with real stimulus to get people moving again.
And so we continue to work day and night On those efforts as things evolve and obviously we've done a whole bunch of work in the short term Manage their way, we could all manage our way to the other side. I mentioned it in passing, but it's worth mentioning again, we call it our Hotel of the Future We're looking in a very granular way across every one of our brands. We're not done with the work, but we're done with a lot of the work to figure out When we get to the other side, how do we deliver, the incredible experience for the customer that continues to drive the premiums We've had, by the way, which are at the highest levels in our history at this moment, but also do it in a way that's more cost efficient For our ownership community, I'm highly confident, as I said, even with the labor pressures that we are going to experience in the U. S. Particularly that when it's all said and done, we're going to be able to drive higher margins.
So on a like for like basis, if you believe, which I do, that when you get out a couple of years, you're going to have similar demand levels to 2018 or 2019 even with the cost pressures we believe We have engineered a way to be able to drive even greater returns. So our owners, while it's difficult now when we get to the other side, both their existing assets their opportunity set for doing new development, we think are going to be better than what we had pre pandemic because we think we We're just doing a better we're going to do we are and we'll continue to do a better job. And so it's a long winded way of getting to the answer, which I gave you at the beginning. So as a result of that, I don't think there'll be a meaningful difference. I mean with some owners, there may be, but I would say, in the main, I don't think so.
I think the owner community that we deal with, which is an immensely diversified community, we have 10,000 owners around the world that we deal with. The vast majority of them, this is their business. This is what they do, own and operate on a franchise basis, and it's all they do. It's not the case Across all 10,000 owners, but the bulk of our system, this is what people do. And I don't think if we can deliver for them The premiums we've delivered, which have only gone up and do it in a way where they can get more of the bottom line, that they're going to abandon their business model.
I think they're going They're going to want to carry on, but it takes some time, right, just being pragmatic because this has been really difficult And which is why we've worked so hard to sort of help create the bridges both in what we could do, what the government could do to get them And why I said in my honestly in my earlier comments, particularly in the U. S. Where why I think the new development side, all of these pressures And just the pressures of owners broadly is going to mean it's going to take a little time for the new construction side of development to pick up What it was pre pandemic, but that will happen in my opinion. And I think the relationship will be Much more similar than different to what it was. And as I said before, in the meantime, it's a big world.
And we've pivoted and we're doing some really cool things around the world to make sure that we continue to enhance our network effect Deliver more hotels and more fees.
Appreciate it. Thanks for taking my question.
The next question is from Richard Clarke with Bernstein. Please go ahead.
Good morning. Thanks very much for taking my question. Just a quick question on the owned and leased Obviously, that seems to have driven the most volatility in the quarter. Where do your ambitions with that particular division stand? Are you looking to transition that more rapidly towards, Asset Light Lead towards Asset Light Now and where do you think the cost savings in that segment can land in the longer term?
Well, the cost savings, look, it's everything across the board, just like any hotel owner would be doing in times like this. We're looking for cost savings Sort of literally every aspect of the operations. I think our ambitions in that portfolio, we are Pretty capital light, right? So even in normal times, the ownership was down to 7% to 8% of our overall EBITDA, something like that in 20 20 of them are strategic. We'll be in those leases no matter what over time.
They have good coverage. They're important hotels. We got 20 at the bottom where there are sort of legacy deals that we inherited fixed lease payments in markets that aren't as robust. Those we will exit no matter what, when the leases are up. And then there's about 20 that are in the middle where when the leases roll, we sit down with the landlord and if We can work out an arrangement that we think makes sense for us to continue.
We continue. If we don't, we get out. And we've sort of been rolling our way out of 3 to 4 of them a year. We think it's actually probably more like 6 to 8 of them this year that we'll transition out of either transitioning them to management agreements or franchise agreements Just getting out. And over time, you'll wake up a few years from now and it'll be something like less than 5
Having said that, in the next Starting in the second half of the year and into the next couple of years, this will accelerate our overall growth just Because sadly, the ownership segment given a lot of the fixed rent nature of it and where it's been, which has been concentrated in UK, Europe and Japan, which have been impacted dramatically, If you look at the RevPAR numbers in those markets and in the segment are twice as bad in the Q1 as the overall. As you get Those markets open, you're going to take those numbers which have been terrible, will become a significant Contributor to growth? Yes.
And we think that happens over the course of the second half of the year.
Great. Thank you very much.
And the next question will come from Robin Farley with UBS. Please go ahead.
Great. I had a question going back to the unit growth topic. One is, I wonder If you have thoughts about 'twenty two unit growth, the rate you mentioned U. S. New construction obviously would be lower, Kind of how that would compare to this year's 4.5% to 5%.
And then also on that topic, the conversions in this Quarter, I think, were 20 some percent of openings. Do you see that moving higher? In other words, are you in the early stages of A bunch of conversions that maybe will come out later this year. I know you've talked in the past about how pressures in the business Can lead to a greater rate of conversion. So wondering if that's teeing up for later this year?
And then could that offset the lower new construction growth next year? Thanks.
Yes, sure, Robin. Good questions. I think, look, in the first part, I think we've said several times Sure. Sort of all of the things we've been talking about, right? The timing of openings, the timing of conversions, the timing of removals, The trajectory that we're seeing in new construction.
So we still think 4% to 5% and it will be within that range for the next few years. And then the second half on conversions, yes, we do think conversions will pick up over time. In the last cycle, it got to Something in the 40% range of overall deliveries probably doesn't get and we think we've said this publicly as well, probably doesn't get back to that level this cycle just because the denominator We won't contract that dramatically, but we do think conversions will continue to be a bigger contributor. It'll be a little bit lumpy. A lot of them are larger Some of the things we're working on now are bigger deals, either portfolio deals or larger individual hotels that sort of require for the conversion to happen.
So I don't know if that happens later this year or next year, but it definitely will pick up over time.
Okay, great. Thank you.
The next question is from Bill Crow from Raymond James. Please go ahead.
Hey, good morning. Good morning, Bill. Good morning. Looking globally, how important is outbound Chinese travel to the recovery in Europe? And Are there any comments you can make on the trends about on Chinese travel today?
Yes. I mean, we've been having a lot of discussion within the Within China, in fact, I participated in a meeting with the Premier Li of China just a couple of weeks ago, and this is one of the topics that we talked about. If you look at our business Using some metrics in our business like in the U. S, inbound global international More heavily inbound business in other parts of the world, particularly in Europe, which depends on it more. So it would be Higher than 10%.
A large feeder market is China. I mean, it's other parts of the world as well, but it is China. And so I think as Europe opens up, obviously, they're going to be like the rest of the world. I think they're going to be doing Within region travel, which given all the pent up demand has actually, I think, been Reasonably good, just like we're seeing in the U. S.
Even though we don't have much inbound travel going on, we don't have any outbound going on. And so I think In the end, Europe's opportunity for the early stages of recovery are robust for the same reason. While they're not going to have inbound from China Where other markets, they're not going to have any outbound and Europeans like to travel and particularly in the summer like to go on vacations and When it's open and they can, they will and they'll stay within the confines of either their countries or the region. So I think it's going to be fine. Obviously, longer term, as you get to a more stabilized world, you want to open up these travel quarters.
I had a meeting with the White House Last week, maybe the week before, as I said, was Premier League of China, the week before that. And we were talking about a lot of topics, but that It was a primary topic both of the Chinese administration and the U. S. Administration on trying to figure out how do we figure out as the world is getting vaccinated And it's a little uneven, but as certain countries are getting heavily vaccinated and getting to a reasonable level of herd immunity, how do we open up Safe travel quarters. Europe is doing the same thing.
Those discussions are ongoing. We're trying to get those discussions going with the U. S. They are obviously already starting to have those discussions with China. And so I don't that will take some time.
I think it's I think you will start to see some bilateral agreements or multilateral agreements in the second half of this year. I think we're at a stage Right now, everybody is still focused on vaccination to get their herd immunity. But with the overwhelming amount of supply Vaccines, which aren't all distributed perfectly around the world or even around our country at this point, but the numbers are becoming overwhelming. The surpluses are going to become as we get into the summer. My sense is overwhelming and we're going to be able to have a Shifting of those resources around the world to the markets most in need as we get into July June, July, August, September and into the latter part of the year, That is going to allow for, a reasonably, hopefully, a reasonable trajectory in terms of some of these economies Getting to a better place.
China is obviously already in a reasonably good place. So as the U. S. Sort of has a few more months in Europe, I think the real opportunity is to start opening travel quarters. I do think it will happen that way just based on the discussions I'm having with multiple And then our teams are having, I don't think it's going to be like one day the world is open, like, yay, everybody I think it's going to be agreements between Mike, the U.
S. And the UK, the EU and China, the U. S. And China that will allow for Those quarters to open up, make sure that there's flight capacity that the regime for vaccination testing and all that is sort of It is bolted down. So that's a long answer because it needs to be, it's complicated.
I think in the second half of the year, My hope is and belief is that you're going to start to see some of those quarters open up. We're pushing everybody really hard. But in the meantime, I think we're fine just because if The quarter is not open, as I said, people are restrained in leaving their country or their territory and they're going to start traveling when they feel safe and you're going to Keep all that pent up demand in your local market.
The next question is from Patrick Scholes with Truist. Please go ahead.
Hi, good morning, everyone.
Good morning.
One of the
Issues of the moment in the at the property level is with staffing and wages. I wonder your thoughts on this. Do you see that as a temporary issue that hotels can perhaps get by this summer without having to wages to attract employees, or do you see wage inflation inevitable to meet the staffing challenges? Thank you.
Yes, it's a difficult issue as I'm sure if you're talking to the ownership community you're hearing and listen, we talk to them every day and we operate a lot of properties. It is singularly at the moment, I wouldn't say the only issue when you're in a global pandemic, there's lots of issues, but it's one of the most important issues because It is very difficult, particularly here in the U. S. To get labor and it is constraining recovery at certain times because you Can't get enough people to service the properties. I do think in the short term, I've already said it and it's implied in earlier There's going to be wage pressure, wage inflation.
I do think it will stabilize and It worked itself out as we get later into the year. It's a complex issue that is at the intersection of People being concerned about their health still, particularly in some of the communities that we need to get focused back And coming back to work and that's going to take some time, both vaccination and marketing to a number of those communities to get vaccinated and getting it done and getting them to a place where they feel safe being in a workplace, so that's part of it. And then the other part of it is getting kids back in school because a lot of And the workforce are taking care of kids, there's no daycare, school becomes daycare, And the federal government, for all the right reasons way back when, did a top up of Employment insurance and on top of the state unemployment insurance and obviously sent out $1400 checks and they did all these things to support people who were in harm's way, All of which made sense at the time, maybe some of it makes a little bit less sense now in the sense that The demand is there and the jobs are there, yet people don't have as much of a need to come back to it.
So, but that in theory on September, whatever, 6th, the federal top up Expires, I guess it could be extended. My impression is it will not be. My hope is it will not be, not because I don't care about the people. I think is just enough jobs. We literally, I think, there are 3,000,000 of our not Hilton, But industry folks still out of work.
I think by the time you get to September, October, I think the vast majority of those could easily be Lloyd, given what I think demand will be in the business and that's best for everybody, right? Best for the country, it's best for the individual Team members to but that's a convergence of all of that. So I think it's going to be tough. I've been We've been talking to tons of our owners. I think it's going to be tough between now and September.
I think when we by the time you get to September, mass vaccination will hopefully be Kids will be back in school and people will feel safe that it's safe to go back And they want to get back and be earning a paycheck. And so I think it will then stabilize as we get into the latter part of the
Thank you, Chris. Certainly a complex and evolving issue.
Yes. Trust me, we're spending a lot of there's no silver bullet in the short We spent a lot of time on it. I think this is one of those you just have to sort of you just have to work through it. It will work Yes. Because all of those things are going to be changing.
And so the conditions are going to change pretty materially as we get To the fall, but between here and there, it's going to be incremental. Then I think it will be a sea change in the fall.
Thank you. Ladies and gentlemen, this concludes our question and answer session. I would now like to turn the call back to Chris Nutter for any additional or closing remarks.
Chad, thank you and to everybody that joined us Today, we appreciate the time as always. It's hard to say we're really pleased with where things are Given what we've been through over this last year and that we're still in the middle or towards hopefully the end of a pandemic, but we are pleased. I've always had confidence in the business model of ours. I've always had confidence in people's desire to travel for all the reasons they I've always wanted to travel. I think the evidence is pretty clear.
1, that I think the decisions that we made as The results of the crisis have made our business stronger. We're driving higher market shares, higher margins on a lower cost structure and that as we see the telltale signs of getting past the health crisis, We're starting to see the world come back to life and all the reasons I thought people wanted to travel are I think playing out the way I and we Had hoped for it, we have a ways to go. So I don't want to be a Pollyanna about it, but we feel good about where we are and definitely incrementally better than we did over the last couple of quarters. So thanks again, and we'll look forward to reporting back after we finish our Q2.
Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.