A breakdown of Hilton’s revenue by segments

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Oct. 6 2014, Updated 4:00 p.m. ET

Operating segments

In the previous part in the series, we showed the segregation of Hilton’s hotel brands based on service level. In this part, we’ll discuss how each segment contributed to Hilton’s total revenue in fiscal year 2013. Hilton reports revenue from all its hotels under three operating segments:

  1. Owned and Leased segment
  2. Management and Franchise segment
  3. Timeshare segment

The segments get revenue from different sources based on the ownership structure of the hotels.

Part6_Revenue Breakdown

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  • Ownership – The company owns or leases the hotel property. It generates revenue from room rentals, food and beverage sales, and other ancillary services. This segment accounted for ~64% of Hilton’s total revenue from segments. This is higher than most of its peers. The percentage of revenue from owned and leased hotels for Hilton’s (HLT) peers are—Marriott (MAR) 38%, Starwood (or HOT) 46%, and Hyatt (H) 86%. Wyndham (WYN) only owns two hotels. It caters to two categories of customers including transient—individual travelers for business or leisure purposes—and group customers—for group events such as meetings, conferences, or social functions. Reservations from the group customers are usually sponsored by associations, corporates, or other religious or social organizations.
  • Management and Franchise – In this category, the hotels aren’t owned by the company. Hilton only handles the management and supervision of the hotels or timeshare properties. Hilton works on behalf of the owner in exchange for a fee or share in revenue. As a hotel franchiser, the company charges franchise fees for the use of its brand name or other services—like reservation system, marketing, or information technology services. We’ll provide more details about the components of management and franchising fees in Part 7 in this series. Revenue from the Management and Franchise segment accounted for ~19% of Hilton’s total revenue from segments. The owner pays for all operating and other expenses related to the hotel.
  • Timeshare – Revenue from this segment accounted for ~18% of total revenue from segments. The company generates revenue by marketing and selling timeshare interests and managing resort operations. It also provides consumer financing. We’ll provide more details about timeshare properties and how the company makes money from these activities in Part 8 in this series.

To hold a diversified portfolio of companies in the consumer discretionary sector, investors can hold shares of individual companies or invest in an exchange-traded funds (or ETFs) like the PowerShares Dynamic Leisure and Entertainment Portfolio (or PEJ), the First Trust U.S. IPO Index Fund (or FPX), and the Consumer Discretionary Select Sector SPDR Fund (XLY).

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