Hilton sees no end to slump in tourism

Hilton Group warned yesterday that it had no way of forecasting when global travel would recover from its dramatic collapse after 11 September when it revealed profits in its hotel business had fallen by nearly a quarter in the first half.

David Michels, the group's chief executive, said he was "wrong" four months ago when he bullishly predicted that next year's trading should match the buoyant levels of 2000.

"We miss the Americans, we are scared of the Iraq situation and some economies like Germany, which wasn't helped by the floods, are getting worse," he said. Hilton's cautious outlook for the rest of the year on the eve of the crucial business conference season contributed to the 3 per cent fall in its shares to 199.5p.

The group, which operates Hilton hotels outside the US and Ladbrokes betting shops, said the fall in revenue per available room (revpar) – a key industry measure – of 5.4 per cent was due to poor occupancy levels because US tourists stayed at home. However, it added that the decrease was "much less" than in previous downturns such as after the Gulf War in the early Nineties when industry revpar fell by up to 20 per cent.

While the group could point to "encouraging" improvements in its hotel arm in July, when revpar grew by 1 per cent, it cautioned that it "was not enough to call a trend". Mr Michels said that the conference season was "looking fairly healthy", adding: "But will they turn up? For the first time in 40 years I don't know."

Hotels in Hilton's gateway cities of London, Paris and Amsterdam, where it owns or leases most properties as opposed to just managing then, suffered the most, with the five-star properties worst affected. Operating profits in its hotels division in the six months to end June were £97.8m against £126.3m a year earlier.

Hilton's failure to announce a widely expected sale-and-leaseback agreement thought to be worth about £350m of some of its UK hotels also disappointed the market. The move would release funds for capital expansion and crystallise the value of its hotel estate, worth an estimated £2.5bn. "Our determination to do a deal means negotiations continue so watch this space," Mr Michels said.

The group also said it planned to expand its mid-market hotel portfolio, following last year's successful acquisition of Scandic. It intends to develop a chain of 200 hotels by 2004, up from 137, and is in "serious discussions" with a handful of hotel groups. It said it was more likely to manage than own the new hotels, which would not necessarily be branded under the Hilton banner.

A robust performance from Ladbrokes limited the decline in pre-tax profits before goodwill, amortisation and exceptional items to £130m from £144.3m on turnover of £2.57bn, against £1.91bn. Betting profits rose 22 per cent to £76.5m, helped by the abolition of the 9 per cent betting tax last September, which encouraged punters to bet more of their winnings.

After admitting to analysts that the sale of its casino business in 2000 to Gala was a mistake, Hilton said it would create a new casino division next January, but the division would "probably have no casinos for the first two years".