We may enter a recession next year, according to some economic forecasters. Then again, we might not. Helpful, right?
In an effort to tame the effects of the worldwide covid-induced inflation, Jerome Powell and the Federal Reserve are raising interest rates. Some analysts think this will result in job losses and a recession, pointing to the unpredictable stock market, particularly in the tech sector (which tends to ripple out to everything else, eventually). But other analysts aren’t so sure about that, and believe we might be able to skate by without too much damage to the economy.
Predicting the future is inherently tricky, and perhaps inherently a fool’s gambit. But we try anyway, because it's a very human trait to want to avoid uncertainty and to steel yourself for difficult outcomes.
So while we don’t know what 2023 will look like, for the most part there are a few things we can safely predict. Disney’s Marvel Studios films will make a lot of money, political polarization will deepen in the lead-up to the 2024 presidential election, and even if we do enter a recession, Hilton Hotels & Resorts (HGV) will not lower their prices.
Hilton’s CEO Says Not To Expect Any Bargains
When recessions hit, or even when milder economic downturns happen, fun money is the first thing to go, and that includes vacations, live entertainment and eating at restaurants.
Many companies, in an effort to keep some money coming in will offer discounts, often quite deep ones, during downturns. For example, during the Great Recession that began in 2008, chain restaurants like Olive Garden famously began offering two-for-one meals.
But don’t look for Hilton to cut its rates next year, even if we’re all hit with some unfortunate economic news. In a recent third-quarter earnings call, Hilton CEO Christopher Nassetta, commented that because of the pandemic, there remains a great deal of pent-up demand for travel, and even a recession won’t reduce this, as many people will just accept the cost.
“We have these tailwinds like spending more on experiences, [revived] international travel, pent-up demand and then just incremental demand associated with people having to run their businesses [and] gather [for] meetings and events of all sorts — whether it's social or business,” said Nassetta on the investor call. “At the moment, those tailwinds are stronger than the headwinds, and I would say meaningfully stronger, which is why we would continue to recover. We continue to have pricing power.
“My own belief is we have enough wind in our sails to go for a while,” Nassetta added.
Bloomberg News
Lack Of Supply Is Leading To An Increase In Prices
Like many industries, the hotel sector was hit badly by the pandemic. Many people didn’t feel safe traveling, and construction on new hotels largely froze up. And because of ongoing supply chain issues, construction of new hotels has been slow, at best, and is not expected to pick up anytime soon.
Hilton posted a $346 million profit in the third quarter, as noted by The Points Guy. Part of this is that with an increase in interest in travel (because people really wanted to get out there after being stuck inside for a year) and without an increase in available supply, prices naturally went up.
“Despite near-term macro headwinds, we're not seeing any signs that fundamentals are weakening,” said Nassetta. “Rising demand, coupled with historically low industry supply growth, should continue to drive strong pricing power.”
So even if a recession hits, Hilton isn’t going to lower prices, because in Nassetta view, they just don’t have to.
“The laws of economics are alive and well,” Nassetta said. “Supply is at historically low levels, and it's going to stay there for a while given everything that's going on from COVID and now into the macro concerns.”
