If you searched this, you probably heard someone say it and could tell from the delivery it was a compliment. It is. It is also one of the more elegant pieces of improvisation in military English, and its history is considerably less settled than most pages will tell you.
The short answer
Sierra Hotel is the NATO phonetic alphabet for the letters S and H. It stands in for "shit hot."
Sierra is S and Hotel is H. The spelling alphabet lets the initials stand in for the expression.
"Shit hot" means outstanding — a pilot who flew a difficult profile perfectly, a plan that worked, a person who is genuinely excellent at a hard thing. It is not mild praise. It is the top of the scale.
How the mechanism works
The phonetic alphabet explains the mechanism; it does not by itself establish who coined the expression.
The expression uses those words to make a profanity legible without saying it directly. That explains how the phrase can work in a professional setting; it does not establish why, where or when it was first adopted.
What the dated record shows
An August 1978 issue of TAC Attack uses the expression in print. That establishes use by that date, not first use. C. R. Anderegg's USAF-published Sierra Hotel later defines the expression as a euphemism for “shit hot” in fighter-pilot culture. Those sources support meaning and a dated use; neither identifies the first speaker, service or unit.
Claims that the phrase began with fighter pilots, the Marine Corps or Vietnam-era use concern different communities and periods. They may overlap as adoption stories. We have not verified a first originator.
How it is actually used
A few things that do not come across in a definition.
It can describe a person or performance. It marks something regarded as outstanding. We do not have a frequency study that justifies calling one construction “the most common.”
It is not a measured ranking. The expression carries a strong compliment in the sources checked; broad claims about who uses it or how often remain outside the evidence here.
The design
The shirt places “SIERRA HOTEL” beneath a sunset-striped scene with a palm tree, wave and aircraft. “NO RESERVATIONS” appears above it, with a flag on the right sleeve.
Sources
- TAC Attack, August 1978, p. 6: a dated example of the expression in print, not evidence of first use.
- C. R. Anderegg, Sierra Hotel, p. 19, footnote (PDF p. 37): the meaning of the expression in fighter-pilot culture.