HOTELS Exclusive: Q&A With Hilton CEO Chris Nassetta
Jeff Weinstein, Editor in Chief -- Hotels, 1/1/2010 7:19:00 AM
No, Chris Nassetta would not offer any perspective about the Denizen debacle, nor was he willing to provide an update on any pending lawsuit settlement with Starwood. While there have been some rumors about the launch of another lifestyle concept, Nassetta said it is not in the immediate offing. However, from his newly appointed office in McLean, Virginia, in early December, the understated CEO of Hilton Worldwide was happy to volunteer his point of view on the state of the industry for 2010, talk about the future of his brand portfolio with some 130,000 rooms in the pipeline, present his opinions on OTA relations and wax a bit on the subject of authenticity. HOTELS' Editor Jeff Weinstein sat down for an exclusive interview with Nassetta, and here is what he could print.
HOTELS: What is your outlook for M&A activity for 2010?
Nassetta: We will see an increase in activity, but it will be a lot less than some expect. On the single-asset side, it feels like banks are more likely than in the past to work with borrowers. On the corporate M&A side, it is too early in the recovery cycle to see a lot of activity. 2010 will be a transition year.
Hilton owns a lot of real estate, but our business model going forward is very focused on branding, management and franchising. I don't expect we would participate directly in hotel asset trading. While I never say never, on corporate M&A I don't expect that anything major will happen with us in the short term.
HOTELS: What is your response to speculation that Blackstone might consider selling Hilton assets or brands?
Nassetta: Blackstone has commented and categorically denied any plans or discussions about breaking up the business. They made that statement for a reason-they have no intention to do it, and I will confirm that from Hilton's point of view no work is being done and there is no intention to do any sales of any major assets, whether it be a brand or hotel assets.
HOTELS: What is your forecast for hotel performance?
Nassetta: I am relatively optimistic that there are some early signs of recovery. If the industry forecast is in the flat to the negative-5% range, our expectation for systemwide, currency-neutral RevPAR growth is plus or minus the middle of that range. It will be driven by weakness from a pricing perspective and compounded a bit by occupancy strains as a result of the group business pace being significantly off in big hotels. Net, net, occupancy levels will be relatively flat, and modest declines in RevPAR will come in the form of pricing declines.
The reason I am optimistic is based on what we have seen in the fourth quarter of 2009 in terms of a pickup in short-term group business. What we are hearing from some big corporate customers is that when we get a couple of quarters into 2010 there is potential for them to increase the volume of their travel. While it is hard to forecast rate now, there is some upside potential in terms of the volume of business that would give us a better result next year.
After having experienced the toughest year on record for the hotel industry, it feels like we have made it through the most challenging part and that the industry is on the mend.
HOTELS: We have heard rumors you are close to launching another lifestyle brand. Are they true?
Nassetta: I am not really in a position to say when we will get going in the lifestyle space. At some point in the future, we want to get into the space. We have hired John Vanderslice to run our luxury and lifestyle brands, and he is in the process of understanding what we have and starting to think about what we might do in the lifestyle space. But there are no definitive plans on timing and exactly what we might do with lifestyle.
HOTELS: You changed your corporate identity and logo to Hilton Worldwide. How has it been received?
Nassetta: We have had nothing but positive feedback about our corporate identity change. The purpose was to reflect more of what the company is today, which is a worldwide company, and what we want the company to be going forward-increasingly more international in scope.
As we finish a year-and-a-half-long restructuring, which was focused on integrating a global platform, it was the perfect time to put a stake in the ground internally for our team members and externally for the rest of the world to say this is a new Hilton-a worldwide company with an integrated platform, which is focused on international growth.
HOTELS: What can you tell us about brand initiatives?
Nassetta: We are in the middle of a process for the core Hilton brand called H360. It is a customer-centric review and SWOT [Strengths, Weaknesses, Opportunities and Threats] analysis to define what we want to do to accelerate market share growth over the next three to five years. We are identifying the key elements of that plan, and there will be more to come in the coming months.
We have broken ground on the first of 53 signed Home2 Suites by Hilton and will deliver one or maybe two in 2010. We are doing a significant amount of work within our luxury brands [Waldorf Astoria, Conrad] to understand how we want to tweak and define those brands to make sure they are positioned as well as they can be.
HOTELS: The industry just witnessed a public feud between Choice Hotels and Expedia. What is Hilton's approach to working with OTAs [online travel agents]?
Nassetta: We are happy with our deals with the OTAs and growing our business with them this year at a high pace-almost 30%. As a company, we were underpenetrated among the OTAs, and now we are being more aggressive about accessing those channels.
Obviously, channels are more open lately. We embrace the OTAs and view them as another distribution channel, which is a good thing, as long as we can control our pricing and inventory, which we think we can with our agreements. If we have excess inventory we want to put out to them, we have consistent pricing on all distribution channels, so we are yielding to that price across all channels. Yielding to price rather than to a channel is a more sensible approach and ultimately enhances the trust we have with customers, because wherever they go they get a consistent answer.
HOTELS: You recently announced a change to your loyalty program that equates to a 20% reduction in value of points, which created an uproar among consumers. How do you justify a move like this now?
Nassetta: HHonors' Jeff Diskin did a nice job addressing customer concerns, and we do care about what they think. If you look at what we did in relative and absolute terms, it makes great sense, and our customers will ultimately understand. We haven't changed our redemption model in six years. Cost structures go up, and at some point, to run these programs you have to make adjustments. I don't think we are in any way out of sync with the industry other than we have given a benefit to our customer, because we have waited longer.
HOTELS: What are owners asking for during these tough times, and what are you offering?
Nassetta: We are very sympathetic and trying to work with them in every way we can. We are the only major branded company that has reduced bundled program fees-a half-point reduction. I don't think anyone else has done this, and we are doing it again in 2010.
HOTELS: What are the hottest items in your inbox?
Nassetta: From a consumer point of view, we are more focused on personalization and customization of products and services. We are also looking at social media and how it is increasingly becoming a way people judge our products. We are spending a lot of time thinking about how we can be proactive in that area. Also, mobile devices are becoming an increasingly important way to book and shop, so we are spending a lot of time on that. We launched an iPhone app and already see reservations through mobile devices up nearly 60%. Granted, it is still a small number, but it is growing by leaps and bounds. These three areas are connected, and the megatrend is that people are more empowered in how they think about our product.
HOTELS: A big industry buzzword is "authenticity." What are your thoughts on this topic?
Nassetta: Clearly, there is a trend toward authenticity and a current trend toward frugality or value opportunities. My view is that value-frugality will be less lasting than the authenticity trend. The idea that people want something more authentic is here to stay for a while and, at the high end of the business, it has an impact on how we look at our brands.
At the same time, the luxury side of the business will not disappear. It has been beaten up, but luxury is alive and well and long-term will be a strong business. Luxury will take a longer time to come back, as there has been more of a fundamental shift as to what is going on beyond the economy. The excesses of the past 10 years taught us something, so for a certain amount of time, consumers will think about things differently.
Longer term, people are going to want something more authentic-less flashy. When we think about what we are doing, we must focus on making sure we are delivering a good value proposition with a significant amount of authenticity. You can have luxury without being overly opulent. What we see as the future is high quality but understated on design. Service will be less in your face-more subtle.
I think this is a big deal. If you can capture the essence of giving someone a product that delivers what they want so they can relate to it the way they want-a very high-quality product not overdone and delivered more intuitively, authentically and less contrived-you will have more success.
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