Good morning, and welcome to the Hilton Third Quarter 2021 Earnings Conference Call. 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 Third Quarter 2021 Earnings Call. Before we begin, we would like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our most recently filed Form 10-K. 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 in 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 and President, Global Development, will then review our third quarter results. Following their remarks, we'll be happy to take your questions. With that, I'm pleased to turn the call over to Chris.

Thank you, Jill. Good morning, everyone, and thanks for joining us today. We are pleased to report another quarter of very solid results that demonstrate continued recovery and the resiliency of our business model. Increases in vaccination rates and consumer spending, coupled with improving business activity, continued to drive solid travel demand throughout the summer and into the fall. As global borders reopen and the travel environment recovers, we remain extremely encouraged by people's desire to travel and connect more than ever before. In the third quarter, system-wide RevPAR grew 99% year-over-year. Compared to 2019, RevPAR was down roughly 19%, improving 17 percentage points versus the second quarter, with system-wide rates down just 2.5% versus 2019. Adjusted EBITDA totaled approximately $519 million, up 132% year-over-year and down 14% versus 2019. Performance was primarily driven by strong leisure trends with leisure room nights roughly in line with 2019 levels, with leisure rates exceeding 2019 levels. Business travel continued to gain momentum with midweek occupancy and rates improving meaningfully versus the second quarter. In the quarter, business transient room nights were roughly 75% of prior peak levels. Group continued to lag but showed significant sequential improvement versus the second quarter, boosted by strength in social events. For the quarter, group RevPAR was approximately 60% of 2019 levels, improving 21 percentage points from the second quarter. Overall system-wide RevPAR versus 2019 peaked in July at 85% with rates just shy of prior peaks. As expected, recovery slowed modestly later in the quarter due to typical seasonality and customer mix shift, but overall trends remained solid. Both August and September RevPAR achieved roughly 80% of 2019 levels, driven by continued strength in leisure and upticks in business travel post-Labor Day as offices and schools reopen. These trends improved modestly into October with month-to-date RevPAR at approximately 84% of 2019 levels and rates in the U.S. nearly back to prior peaks. Roughly 40% of system-wide hotels have exceeded 2019 RevPAR levels in October month-to-date. Additionally, bookings for all future periods are just 8% below 2019. With loosening travel restrictions and strong nonresidential fixed investment forecast, we remain optimistic for future travel demand. TSA reported third quarter travel numbers were nearly 80% of 2019 with demand picking up further following the announcements of the U.S. border reopening and the lift of the international travel ban for vaccinated travelers. Additionally, studies show that nearly 70% of U.S. businesses are back on the road, up 28 points from the end of the second quarter. With roughly 80% of our typical corporate mix coming from small- and medium-sized businesses and with the lagging recovery of larger corporate travel, we've taken the opportunity to continue our work from before COVID to further increase our focus on this segment of demand. This demand is higher rated, the more resilient, which has helped us recover more quickly in business transient and should drive rate compression in the future as larger corporate travel picks up. On the group side, our position for the rest of the year remains fairly steady with forward booking sentiment improving as variant concerns taper. Additionally, the recent reopenings of some of our large urban properties, like the New York Hilton Midtown, increased our confidence in our positioning as group recovers. Turning to development. We added nearly 100 hotels and 15,000 rooms across all major regions and delivered strong net unit growth of 6.6% in the third quarter. Conversions represented roughly 1/3 of openings. Year-to-date, we've added more than 42,000 net rooms globally, higher than all our major branded competitors. Our performance reflects the success of our disciplined growth strategy, the strength of our brands, network effect and commercial engines across the world. It also illustrates our increasing confidence in a strong recovery in global tourism in the months and years to come. During the quarter, we launched our large-scale franchise model in China, enabling independent owners to explore franchising opportunities with our Hilton Garden Inn brand with a prototype developed specifically for the Chinese market. To date, we have signed more than 100 deals to develop Hilton Garden properties in China, strengthening our confidence in the long-term growth of our focused service brands and our ability to cater to a growing middle class. Following our recently announced exclusive license agreement with Country Garden, we were thrilled to open our first Home2 Suites in China with plans to grow to more than 1,000 properties. We look forward to leveraging our partnership to capture the rapidly growing demand for mid-scale hotels in China. We also celebrated the opening of our 500th Home2 Suites following the brand's launch just 10 years ago, making it one of the fastest-growing brands in industry history and boasting the industry's largest pipeline in North America with more than 400 hotels in development. Our luxury and lifestyle footprints also continued to expand globally with the debut of the Canopy by Hilton in Spain and the highly anticipated opening of the Mango House LXR in the Seychelles. Marking another important milestone in its global expansion, LXR celebrated its debut in Asia Pacific with the opening of the ROKU KYOTO. In the quarter, we signed nearly 24,000 rooms, up approximately 40% year-over-year, driven by strength in the Americas and Asia Pacific regions. Driving our positive momentum in luxury, we announced the signing of the Conrad Los Angeles, the brand's first property in California. The 300-room hotel is expected to open in 2022 as part of The Grand LA mixed-use development. With approximately 404,000 rooms in development, more than half of which are under construction, we expect positive development trends to continue, driven by both new development and conversion opportunities. For the full year, we expect net unit growth in the 5% to 5.5% range, and we continue to expect mid-single-digit growth for the next several years. For our guests, flexibility has always been important, but the pandemic has made choice and control even more critical. We were excited to launch several new commercial programs and loyalty extensions, including the launch of Digital Key Share, a first for a major hospitality company. This feature allows more than one guest to have access to their room's digital key. Additional technology enhancements have enabled our elite Honors members to begin enjoying automatic room upgrades. Gold and Diamond members may be notified of a complimentary upgrade prior to arrival, enabling guests to choose their upgraded room directly by using the Hilton Honors app. We continue to focus on new opportunities to further engage our 123 million Honors members and are thrilled to see engagement is nearly back to 2019 levels. In the quarter, membership grew 11% year-over-year. Honors members accounted for 59% of occupancy with the U.S. at 66%, just 2 points below 2019 levels. During the pandemic, approximately 23 million U.S. households brought home a new pet, including my own. And like so many others, my family loves traveling with our new dog, Miller. In the coming months, Homewood Suites will join Home2 in becoming 100% pet-friendly in the U.S. with plans for all limited service brands to be pet-friendly by the first quarter of next year. And thanks to our exciting partnership with Mars Petcare, we're offering new pet-focused programming and benefits. Our guests are eager to travel with their furry little friends. And by making that simpler, we're able to capture demand and bring new business into the system. As the global travel environment improves, I continue to be impressed by our team members' dedication to providing exceptional experiences to our guests. That's why I am particularly proud that, last week, we were named the #3 World's Best Workplace by Fortune and Great Place to Work. After 6 consecutive years of being ranked, Hilton was the only hospitality company on the list. We truly believe that Hilton continues to be an engine of opportunity for all of our stakeholders around the world and are very optimistic for the future. With that, I'll turn the call over to Kevin for a few more details on our results in the quarter.

Thanks, Chris, and good morning, everyone. During the quarter, system-wide RevPAR grew 98.7% versus the prior year on a comparable and currency-neutral basis as the recovery continued to accelerate, driven by strong leisure demand, particularly in the U.S. and across Europe. Performance was driven by both occupancy and rate growth. As Chris mentioned, system-wide RevPAR was down 18.8% compared to 2019. Adjusted EBITDA was $519 million in the third quarter, up 132% year-over-year. Results reflect the broader recovery in travel demand. Management and franchise fees grew 93%, driven by strong RevPAR improvement and Honors license fees. Additionally, results were helped by continued cost control at both the corporate and property levels. Our ownership portfolio performed better than expected in the third quarter, driven by the accelerating recovery in Europe, the Tokyo Olympics and ongoing cost controls. For the quarter, diluted earnings per share, adjusted for special items, was $0.78. Turning to our regional performance. Third quarter comparable U.S. RevPAR grew 105% year-over-year and was down 14% versus 2019. Robust leisure demand and improving business transient trends drove strong performance in July. Trends modestly slowed later in the quarter due to seasonality. U.S. occupancy averaged nearly 70% for the quarter with overall rate largely in line with 2019 levels. In the Americas outside the U.S., third quarter RevPAR increased 168% year-over-year and was down 30% versus 2019. The region benefited from easing travel restrictions and strong leisure demand over the summer period. Canada also saw a noticeable step-up in demand in August after reopening their borders to vaccinated Americans. In Europe, RevPAR grew 142% year-over-year and was down 35% versus 2019. Travel demand accelerated across the region in the third quarter as vaccination rates increased and international travel restrictions loosened. In the Middle East and Africa region, RevPAR increased 110% year-over-year and was down 29% versus 2019. Performance benefited from strong domestic leisure demand and international inbound travel from Europe. In the Asia Pacific region, third quarter RevPAR grew 5% year-over-year and was down 41% versus 2019. RevPAR in China was down 25% as compared to 2019 as a rise in COVID cases led to reimposed restrictions and lockdowns across the country. China has recovered steadily into October with occupancy nearing 60% for the month. In the rest of the Asia Pacific region, prolonged lockdowns in Australia and New Zealand offset upside from the Tokyo Olympics. Turning to development. As Chris mentioned, in the third quarter, we grew net unit 6.6%. Our pipeline grew sequentially, totaling 404,000 rooms at the end of the quarter with 62% of pipeline rooms located outside the U.S. Development activity continues to gain momentum across the globe as the recovery progresses, a testament to the confidence owners and developers have in our strong commercial engines and industry-leading brands. For the full year, we now expect signings to increase in the mid- to high teens range year-over-year and expect net unit growth of 5% to 5.5%. Turning to the balance sheet. We ended the quarter with $8.9 billion of long-term debt and $1.4 billion in total cash and cash equivalents. We're proud of the financial flexibility we demonstrated over the past 18 months. And looking ahead, we remain confident in our balance sheet management as we continue to progress through the recovery and move closer towards our target leverage. Further details on our third quarter can be found in the earnings release we issued earlier this morning. This completes our prepared remarks. We would now like to open the line for any questions you may have.

Chad, can we have our first question, please?

Chris, you provided a lot of insight, as did you, Kevin, in your prepared remarks. I wanted to ask how you envision the cadence of business transient travel will develop in the fourth quarter and how you're considering the sequencing through 2022.

Yes, that’s a great question, Carlo, and it’s clearly something everyone is curious about. I’ll discuss all the segments briefly, as they're interconnected. To simplify, I see a continued increase in business transient travel in the third and fourth quarters, driven mainly by small and medium enterprises, although there won't be a significant surge—just a modest improvement. Meanwhile, as more people return to offices and children go back to school, I expect a slight decline in leisure travel. The weekends will continue to be strong, but midweek leisure travel is likely to decrease, balancing each other out in the fourth quarter. Group travel will stay relatively stable. We saw a surge during the summer, but the Delta variant impacted that momentum. There's enough group activity happening, particularly in sports and social events, but planning is being pushed further into next year as people navigate past Delta towards an endemic stage of COVID. Looking into 2022, I believe leisure travel will remain above historical levels, as kids will be in school and more offices will be operational, leading to a return to normal midweek travel. Weekend demand will likely stay high since people want to get out after being cooped up. I'm optimistic that leisure will overall be stronger than in pre-COVID times. Business transient travel is set to continue its upward trend with small and medium enterprises almost back to pre-COVID levels. I expect larger corporations, still about 40% below 2019 levels, will start to engage more heavily, contributing to the growth in business transient travel. Group travel is expected to improve next year, with the first quarter typically being slower, which I anticipate this year as well. However, as we move into the second, third, and fourth quarters, both booked and realized business for groups should show improvement. Overall, the fourth quarter will likely resemble the third quarter, with 2022 poised for significant progress toward normalization.

You had some interesting comments on the development side, which is obviously positive. Chris, when do you think hotel construction will reach its lowest point? When do you think new signings will peak, or have they already?

Yes. We have spent considerable time examining this over the last few quarters, and more recently. I previously mentioned that I believe we will reach mid-single digit growth over the next couple of years. This will require significant efforts, including signing deals and starting construction, which will eventually reflect in our numbers. Looking back two years from now, I am quite confident that last year marked the lowest point for deal signings. As Kevin noted, we expect to see mid- to high single-digit signings this year, although we still have some time left in the year. We typically experience a productive end-of-year surge, and we already have a considerable number in the pipeline, so we're optimistic about our performance. I believe next year will see even more deals signed, given the current environment, particularly in terms of operational recovery and pricing power. I see last year as the low point for signings, and this year will likely be the low point for construction starts, which usually follow signings. We anticipate being somewhat down in signings this year after a decline last year, but expect that to reverse next year. This leads us to our mid-single digit target for the next couple of years, followed by a return to the 6% to 7% range, fueled by increased signings this year and starts next year. A significant portion of our NUG growth, as shown in the second quarter, was driven by conversions, indicating we are making progress. Overall, we believe that beyond a few years, we will see improvement, with aspirations to return to the 6% to 7% growth range. Our observations suggest that recovery will happen faster than in previous cycles, largely due to our ability to exercise pricing power, which is unusual compared to past 40 years of experience. Typically, recovering occupancy is a slow process with rate increases lagging behind, but rates are currently leading the way, which is beneficial. We have taken many steps to enhance our brands' profitability, and even with rising labor costs, we are operating higher-margin businesses. In this inflationary environment, we can adjust our pricing frequently, which acts as a strong defense against inflation. Therefore, I believe we will experience a quicker recovery in development compared to prior cycles, positioning us well for next year.

Chris, I think there were a couple of fat pitches there on the pricing environment, so maybe I'll behave, if you could. But I guess my twist would be could you give us a little color specifically on the business pricing side? I think we all see that the leisure rates are exceptional. And so maybe your thoughts on how long leisure can continue pricing like it is, your thoughts on the recovery of business pricing. And then any headwind from large corporates? You've done a great job of delineating small and large, so how much of a headwind is large corporate? Does that price any differently? Is that a factor at all?

Yes, that's a great question. I’m glad you asked it. The core of your question contains part of the answer. We believe that the fundamentals of economics are very much in play. The strength of the leisure market allows us to price our services above the historically high levels we've seen in the past. There is a tremendous demand, especially on weekends where we're operating at 85% to 90% capacity across the U.S., which enables us to surpass 2019 pricing levels. We expect that the ability to set prices in the leisure market will continue, given that we anticipate leisure demand will stay elevated, particularly on weekends, enhancing our pricing capabilities. While the recovery for business travel has taken longer, we’re currently at about 75% of pre-pandemic levels. However, the situation varies: larger corporate clients are still about 40% below pre-COVID levels, whereas small and medium businesses are closer to 10% off, possibly even just 5%. This gives us significant pricing leverage, especially with large clients, who tend to be less sensitive to price changes. Overall, we aim to capture more of this demand that was identified before the pandemic, which has also supported us during recovery. Even in this recent quarter, business travel combined is at 90% of 2019 levels; there's more ground to cover but I remain optimistic about our trajectory. We plan to keep focusing on small and medium businesses, which I believe will not only return to prior levels but exceed them. The larger corporates will eventually come back, contributing to more demand and enabling us to adopt more aggressive pricing strategies. Looking ahead, we might find ourselves in a 90-10 pricing dynamic instead of the previous 80-20 structure since we’ve successfully identified segments that are expected to endure and command higher prices. Although the pricing power for business travel doesn't match that of leisure, it is still quite significant. The group segment currently mirrors the trends in business travel, but due to substantial pent-up demand, we are already pricing above 2019 levels. It's worth noting that group bookings tend to happen well in advance, and with limited meeting spaces available, our property offers significant capacity. The high demand and limited availability create favorable conditions for pricing. Even though group revenue isn’t as high presently, we anticipate robust pricing power moving forward, as reflected in our advanced bookings for the next year. In summary, we’re in a better position now than ever before, with our revenue management systems being more sophisticated. Additionally, the current inflationary landscape, influenced by fiscal and monetary policies, is also enhancing our pricing capabilities.

So a strategic question. You talked in your prepared remarks about starting to open franchising for Hilton Garden Inn in China. I know that was an interesting change because with Hampton Inn, you did a master franchise agreement. Can you just talk about the rationale?

It's very straightforward. We've completed two projects. The first one was the Hampton Inn with Plateno, and recently, we opened our first Home2 Suites by Hilton in China, as part of our goal to establish 1,000 locations with Country Garden, one of the largest companies in China, through a master license agreement. So we have accomplished those two projects. Although it's not certain, we aim to work with large local partners who can help us scale up quickly and enhance our network in China, allowing us to eventually introduce our other brands ourselves. That's precisely what we are doing with Hilton Garden Inn. We have a strong franchise system in the U.S. and now in Europe, where a significant portion of our business operates as franchises. In Europe, franchising makes up a majority of our business, while in China and the Asia Pacific, it has historically been a smaller focus due to fewer resources. During the COVID period, we strategically invested in building up our infrastructure to operate more of our 18 brands independently. We are striving for a balanced approach to manage the risks tied to our global expansion. We value our partnerships with Country Garden and Plateno, which have been essential to our growth and will remain so. However, it's also crucial for us to develop our own franchising expertise. While franchising is somewhat similar in China, there are distinct differences, and we've learned a great deal, allowing us to build a robust infrastructure to expand our brands as we have successfully done in the U.S., Europe, and other regions.

And sorry, just a follow-up to this question. Any updated thinking on the potential TAM for these select service brands in China?

I didn't hear the question.

How many of these hotels do you think you can open in China? What's the addressable market?

We do consider the total addressable market. I'm not going to provide specific figures, but it's significant. In the U.S., we have around 4,500 limited service hotels and a population of 320 million people. In China, with a population of 1.3 billion, the potential is vast. There are countless opportunities, possibly 10,000 or 20,000 hotels or more. The mid-market in China has tremendous growth potential. Whenever we analyze the numbers for China, they continuously exceed expectations. There are no reasonable limits based on our current presence, the population size, and the ongoing expansion of the middle class.

Chris, I was just wondering if you could talk a little bit about what your owners are telling you about labor costs in the U.S. Kind of how they're handling restaffing and maybe just the sort of idea of slimmed down the operating models versus trying to get back to full headcount?

I had some difficulty hearing your question, but I believe I understand what you're asking regarding labor costs and feedback from owners. This has been a significant issue that we've spent considerable time addressing, and it's quite complex. There isn't a single perspective among owners since they come from various locations and have different viewpoints. However, if I were to summarize their sentiments, while the situation remains challenging, we are beginning to see improvements in labor access. We still have a long way to go, and we're implementing technologies to tap into labor pools that we may not have utilized in the past. Overall, we are seeing an increase in available labor, and some of the pressures are starting to ease. It's important to acknowledge that labor costs are high across the board, which is a reality we must face. It's hard to predict where these costs will stabilize, but I believe they are beginning to settle as more people re-enter the workforce. A crucial point is how the situation will look for owners in the future. It varies based on many factors like location and product type. However, generally, we expect to see higher margins when we emerge from this phase. Input costs and labor expenses are rising, but as we adjust rates upwards, we'll enhance profitability due to the pricing power we possess and the prevailing inflationary context. This is beneficial for our business. In the main hotel categories, where most of our ownership community operates, we've undertaken significant initiatives, learning and testing to improve customer experiences while also enhancing efficiency to boost margins. We're optimistic about this. We have strong evidence that even when labor returns at a higher cost, the projected rate structures will lead to margins that are better than before. While some owners are still facing challenges, many have successfully navigated these issues. It's important to note that some situations are unsustainable due to insufficient labor, resulting in abnormally low labor costs. However, in places where owners can regain labor, efficiencies in our operational standards and pricing strategies have yielded favorable margins. Our owners have indeed faced difficulties, and I don’t want to downplay that. Many of them are still struggling, but we are committed to supporting them in becoming stronger businesses. This effort is not only our responsibility but also crucial for our continued growth. We must provide them with investment options that offer reasonable returns, and we are fully focused on this objective. I feel optimistic that the development cycle will rebound more quickly than in past cycles due to the strong economic fundamentals at play. If owners can achieve excellent returns as a result of both macro and micro factors, they will be motivated to build more hotels with us. The increase in hotel signings supports this outlook, suggesting that our strategies are effective.

And the next question will be from Stephen Grambling with Goldman Sachs.

This is a bit of a multi-parter, but you mentioned that the majority of the pipeline is outside the U.S. Can you just remind us of what that split maybe looks like within some of the major markets? How the contribution from international room growth could compare and contrast to the U.S. as we translate NUG to fees? And then if you could just talk to any kind of incremental signing opportunities that you're seeing that surfaced in new markets as a result of the pandemic that could be longer lasting.

Yes, Stephen. It's Kevin. I'll address those points in order. The construction mix shows that just over 60% to 65% of the rooms being built are located outside the U.S. We're always looking to enter new markets, and currently, there are around 25 to 30 new countries in our pipeline that we haven't tapped into yet. This effort isn't necessarily a result of the pandemic; it's part of our business growth over time. The development trajectory depends significantly on how different locations are recovering from the pandemic. For instance, even with the fluctuations in RevPAR in China due to lockdowns, development has remained strong and continues to improve. However, in Europe, the traditional face-to-face development model has seen delays because our teams and partners have had limited travel abilities, which impacts signings. I see this as an opportunity now that there is considerable pent-up demand for development in EMEA, but achieving that will require more mobility. Over time, as the middle class expands and demand for mid-market products increases, we'll see a rise in that demand. The full-service segment is still viable, but I anticipate more capital will flow towards limited-service hotels. This means we'll pursue more deals where the capital is directed. Additionally, as we expand our successful franchising approach, particularly in Asia Pacific, we’ll engage in more franchise agreements moving forward. I don’t expect any drastic changes; rather, there will be a gradual increase in the limited-service and franchise segments. Did I address all the points?

One very quick follow-up. So from a net unit growth standpoint then, I guess, the fees that you're getting from the international market maybe ends up being a little bit lower because of the RevPAR. But on the flip side, it sounds like you're doing more direct, so there's a potential for that to actually improve within that mix. Is that true?

Well, yes. Mathematically, right, the lower price points, it will blend in over time. Again, it will not change dramatically. We've modeled it every which way, and it's really hard to make that per room number move. But mathematically, it has to move over time. And the reality is, look, it's very high margin. It's 100% margin. Once we have scale in these parts of the world, it's a 100% margin and infinite yield. And so we'll take it.

Great. Many of my questions have already been answered. I just wanted to follow up, and I hope I didn’t miss this in the opening remarks. I was briefly taken out of the call. When you discussed the group and the expectation for significant pent-up demand for 2022, could you provide insight into how the group bookings for next year compare to 2019? Specifically, are they likely to be higher, and how are the bookings pacing for 2022, whether by quarter or by the first and second halves?

Yes, the group bookings will be more significant in the second half of the year. This is primarily because people want to get through the winter, and the first quarter is typically not a strong quarter for group bookings. Combining these factors, we see a strong trend towards the second, third, and fourth quarters. Currently, we have about 75% to 80% of our bookings, which is consistent with last quarter. If it weren't for the Delta variant spike, we would likely be further along in our bookings. The Delta variant had a cooling effect on advanced group bookings, but those have started to recover. Additionally, we believe there is substantial group potential in the second, third, and fourth quarters, but we are cautious about committing too much space right now, knowing we will have significant pricing power. It's a careful balancing act.

I just noticed that your cost reimbursement revenue has exceeded your cost reimbursement expense for the first time since the pandemic began. You have lost about $500 million due to that Delta variant as the pandemic has progressed. Is this potentially the beginning of being able to recover that loss? Could this provide a boost to cash flow over the next few quarters?

Yes, Richard. I wouldn’t exactly call it a clawback. Early in the pandemic, revenue dropped significantly, around 85% to 90% almost overnight. We managed to reduce expenses well, but only by about 60% to 65%. Therefore, we essentially used our balance sheet to support all the commercial activities and websites along with the other funded parts of the business. These components essentially function as large co-ops that will break even over time. Right now, you’re seeing revenues increase, and all the funding sources for these programs are based on a percentage of revenue. As revenue rises, our receipts will also grow. Ultimately, we expect to return those funds to breakeven and recover those deficits. Currently, it may appear as surpluses, but I wouldn’t characterize it as clawbacks. The funds will fluctuate between surpluses and deficits at times. So, expect to see it run a surplus for a while. Yes, the cash is mixed together, but it ultimately belongs to our owners, and we utilize it all for them.

Chris, I hope you don't mind. I'm going to challenge you a little bit on the leisure outlook for 2022. And I'm just wondering how much risk there really is when we think about the combination of the return to office, the absence of government checks, much higher costs from inflation for the consumer and probably a pretty considerable pent-up outbound international demand. So I'm thinking about your comments on rate and leisure and weekday leisure in particular. Are we at risk kind of setting ourselves up for disappointment next year?

I don't believe so. You’ve heard my perspective, and we can discuss it, but I think the midweek leisure demand is already diminishing. Most children are back in school, which affects mobility, even if people are in the office. While more offices are opening throughout this year and into next, we’ve already seen a significant decrease in midweek leisure activity. I could be mistaken, but I believe weekends will remain strong because there is still a considerable amount of savings from COVID that people have yet to spend. People are eager for experiences they missed out on, and this desire seems to be more concentrated on weekends, which is evident in current trends. I see this continuing. To clarify my view, in comparison to pre-COVID leisure demand levels, I think we're moving closer to that, possibly even exceeding it slightly due to stronger weekend activity. I agree that midweek leisure won’t be particularly robust, and that’s not factored into my expectations. Regarding outbound travel, the world is indeed opening up, but there’s also inbound travel to consider. Especially in major cities, where international travel has historically contributed about 20% of their business, they’ve been at a standstill. With travel restrictions lifting soon, there will be many people wanting to visit the U.S., balancing out any outbound travel demand, mainly in the top 25 markets. We’re still finalizing budgets and discussing these matters, so this is just my opinion. Looking ahead to next year and beyond, I believe the share of leisure business will be higher than the 25% or 30% it represented pre-COVID, as people are eager to go out more. There remains plenty of untapped savings, and even though we’ve seen improvements in weekend business historically, I think that increased activity will persist. And William, can I give you the opportunity to maybe update us on the timing for potential capital returns and buybacks? We don't have any new updates, but I want to reiterate that we are eager to resume returning capital. We firmly believe in our capital allocation strategy from before COVID, which involved generating significant free cash flow without needing to use much of it to grow the business in a leading manner. Consequently, we aimed to return it to our shareholders since there was no need to hold onto it or use it ineffectively. We believe that disciplined capital allocation is key to delivering strong long-term returns for shareholders. My perspective hasn't changed due to COVID; the only shift was that we didn't have much free cash flow during the peak of the crisis. We are moving past that now and are cash flow positive. We just need a bit more time to finish out the year. If everything proceeds as we anticipate, we plan to reinstate a return of capital program in the first half of next year, which I expect will resemble our pre-COVID approach. We’re keenly focused on this and looking forward to getting back to it, so I would say look for updates in the first half of next year.

A question on labor costs and specifically Hilton Corporation's labor costs. Any change in your expectations for G&A and trajectory of your G&A versus what you said in the past? And correct me if I'm wrong, I have in my notes here. You've talked about sensitivity of EBITDA to RevPAR, EBITDA growth about 1.3x RevPAR growth. Is that still your thoughts on that trajectory?

Yes. In the context of elevated RevPAR levels and growth, we expect it to remain in that range. Given that 90% of our business comes from fees, we anticipate a roughly 1:1 ratio as things normalize. We believe we might exceed that slightly over time with net unit growth, cost management, and license fees. The 1.3x factor applies when RevPAR is high. Regarding G&A, our perspective hasn’t changed. We’ve maintained strict discipline and expect cash G&A to decrease this year by mid- to high teens compared to 2019 levels. We might improve beyond that due to effective cost management. GAAP expenses differ but involve various factors; in the third quarter, we are dealing with the write-downs from last year. Looking ahead, we recognize that increased business activity will bring some additional costs. While we're in an inflationary period that may boost revenues, we expect to pay employees a bit more. However, we are committed to keeping our expenses under control. The structural changes we've implemented will be sustained going forward, and we maintain our outlook.

Great. Question on distribution. You guys have done a nice job driving direct business with, I think, loyalty contribution around 60% pre-COVID. But I know OTA contribution fell from high teens to about low doubles while reducing commissions along that path, so a lot of exciting things happening on the distribution front. I'm curious, on the other side of this, how you're thinking about OTA contribution as well as how high that loyalty contribution can get.

That's a great question. I don't feel significantly different from before COVID. We believe there’s an optimal point that we’ve analyzed for each market property, balancing what they can deliver at certain price points with our own capabilities to achieve the highest revenue for the lowest distribution cost. We have a strong relationship with OTAs, which we believe are part of that equation. Typically, OTA contributions have been around 10% to 12%, which is where we historically are. During COVID, that figure increased as we partnered with our OTA allies, especially since the bulk of demand during that period came from lower-rated leisure travelers, which is their specialty. This increase in contribution did happen, but not excessively, and we have seen it peak and start to decline. Looking ahead, while we will continue to monitor the efficient frontier, even with possible increases in leisure travel, we expect contributions to remain relatively stable and not shift dramatically. Ultimately, we believe that in a couple of years, the landscape will resemble what it was before. We are confident about the terms we have with OTAs moving forward. Regarding the Honors program, we are currently maxed out at around 63% to 64% system-wide, and in the U.S., we’re nearly there as well. Globally, we are gaining more travelers who weren’t previously loyal, and many of our core customers are returning. While I won’t specify a number—because that would scare my team—I see a lot of growth potential. Most of our customers would want to be Honors members, as the benefits are significant and meaningful. They enjoy discounts, technology perks, exclusive experiences, and redeemable points, which can be used for shopping and other activities. As we recover, I expect to actively engage our customer base in a way that should allow us to increase participation beyond previous levels. This will take time, so to my Honors team, no need to worry—we will give you the time you need. Our goals are significantly higher than what we achieved before, which also surpasses any of our competitors.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the call back to Chris Nassetta for any additional or closing remarks.

Thanks, everybody, for the time today. I know it's a busy earnings season. We're obviously quite pleased given what we've all lived through over the last 20 months to be able to report the progress that we were able to report for the third quarter. As you could tell from the call, I remain quite optimistic about where this recovery is going and what the opportunities are in the industry but particularly for our business and the growth of our business. And we'll look forward to reporting fourth quarter and full year after the New Year. Look forward to seeing many of you while we're out on the road. And have a terrific day and holiday, if I don't see you.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.