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Why this 100-year-old hotel chain thinks we are in the 'golden age' of travel

Brian Sozzi
Editor-at-Large

Airbnb be damned. The major hotel chains are charging ahead with fresh-looking upscale brands that target millennials and long-term commitments to opening thousands of new rooms.

And with the Chinese economy stabilizing after a 2018 slowdown and the U.S. economic growth outlook improving after a sluggish first quarter, hotels are poised to cash in those investments. In other words, welcome to the golden age of travel, said Hilton Chief Financial Officer Kevin Jacobs.

“The state of travel is quite strong,” Jacobs said on Yahoo Finance The First Trade . The way we think about it, there is a rapidly growing middle class around the world.”

Hilton ( HLT ) will spend 2019, which marks its 100th year in business, opening new locations around the world. The company’s development pipeline tallies a robust 2,400 hotels consisting of over 364,000 rooms throughout 103 countries. About 195,000 of the rooms in the development pipeline are overseas, including a sizable chunk in China.

Jacobs said one out of every four hotel rooms currently in development in China belong to Hilton.

Hilton is also fresh off the introduction of upscale brand LXR Hotels & Resorts. The first location opened in Dubai late last year, with the other cutting the ribbon in London shortly.

The company’s system-wide occupancy and revenue per available room (key industry metric known as RevPar) rose 0.8% and 3%, respectively in 2018. For 2019, Hilton expects RevPar rising 1% to 3%.

Hilton rival Marriott ( MAR ) is full steam ahead, too. Marriott told investors in March it plans to add 275,000 to 295,000 rooms by 2021. Its development pipeline already stands at a record 478,000 rooms. Most of the development pipeline includes opening new Starwood, Sheraton and Marriott hotels.

Marriott is assuming RevPar grows 1% to 3% annually through 2021.

Hotel stocks have outperformed

Despite the concerns about global growth and the potential impact on travel, hotel stocks have been solid outperformers this year. Hilton is up about 22% year-to-date while Marriott has tacked on 24%. The smaller Choice Hotels has gained about 15%.

Investors likely realize that with the global economy on the mend and hotel chains aggressively using cash to reinvest and buy back stock, the tepid outlooks coming into the year by several key industry forecasters may prove conservative.

Deloitte sees revenue per available room growth for the industry slowing versus 2018 to 2.4% and occupancy only increasing slightly. The industry’s revenue per available room rose 2.9% in 2018.

Meanwhile, STR and Tourism Economics pegs RevPar growth at 2.3% in 2019, which it calls “anemic.” The travel research outfit has downgraded its growth outlook for the hotel industry twice since last August.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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