Inside Hilton’s Quest to Become the Most Valuable Brand in Lodging

AROUND THAT TIME IN 2010, BLACKSTONE MADE AN ADDITIONAL INVESTMENT OF $819 MILLION IN HILTON TO BUY BACK SOME OF THE DEBT. CAN YOU TALK ABOUT THIS DEAL? I would describe that as an insurance policy, because nobody knew what was going to happen with the financial system and how long we were going to be in recession. Having that extension of time and reducing the debt by buying some back at a discount and converting some of the mezz debt to preferred equity allowed us more flexibility. With less debt to shoulder, we had more confidence that we could make it to the other side.

YOU ONCE COMPARED THE TEAM AT BLACKSTONE TO BEES IN HOW THEY COMMUNICATED WITH EACH OTHER. CAN YOU EXPAND ON THAT? It’s true. I’ve had a 22-year relationship with Blackstone and Jon Gray [global head of real estate] and the senior guys that we interact with. I wouldn’t have taken this job if I didn’t have an immense amount of respect for them. They’re smart, they do their due diligence, and they move at light speed, in part because of their ability to communicate. They have a system that’s so well wired, it’s like a collective—what one person knows, they all know. So you get the benefit of all the bees’ brains on whatever issue you have.

ARE YOU SURPRISED BY THE RESPONSE TO THE SALE OF THE WALDORF ASTORIA NEW YORK? I’m not surprised. It’s the Waldorf Astoria New York, and people want to talk about it. It’s an amazing piece of real estate, and I think everybody has known for many years that something needed to happen with it. We’re excited about the deal because we think it’s a home run for everybody involved. It’s a great price for us, and we have a good team in place to get the capital redeployed in intelligent ways. It will be under a 100-year management agreement with Hilton Worldwide, and it will be renovated to meet the highest standards of the Waldorf Astoria brand. Anbang [Insurance] is getting an iconic piece of real estate and can finally fully optimize it.

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ON THE DEVELOPMENT FRONT, HOW HAS HILTON HAVING MORE PRODUCTS TO SELL HELPED THE PUSH INTO INTERNATIONAL MARKETS? When I started, we were already in more countries than any other company, but we didn’t have broad distribution in terms of multiple assets and price points in many markets. Large-scale, broad geographic and chain scale distribution make a huge difference, and the loyalty effect of high-quality brands is undeniable. Putting it all together has allowed us to grow in good times and bad because we could lean in and out of various markets around the world depending on the demand patterns that develop. We’ve had amazing success doing this.

A good example is what’s happened in Europe. Six years ago, you could tell Europe was slowing down, and the European banking system was in a tough spot, which meant there wasn’t going to be capital, and frankly there probably wouldn’t be demand to build high-end hotels. We knew Europe was going to be a value proposition play and that we had some great products to deploy. So we reengineered the DNA of DoubleTree by Hilton and the entire product and service delivery of our Hilton Garden Inn and Hampton by Hilton brands.

People weren’t going to build full-service hotels in this environment, but we knew they would want to convert and with DoubleTree, we could convert them in great numbers. And if they were going to build anything, it would be lower-cost-of-entry products like Hampton and Hilton Garden Inn. There was real opportunity to bring more value to European hotels, which are traditionally smaller with less functionality. As a result of deploying our brands in a strategic way, we now have 25,000 rooms in the pipeline in Europe, which is more than any of our competitors have.

WHAT’S THE SITUATION FOR HILTON IN CHINA? What’s happened in China is that the big international brands have done a good job of getting the high-end, upscale, and luxury properties, while the local brands have done a good job with the super budget, low-end price points. So you end up with a barbell with the middle up for grabs. Over time, the bulk of demand is going to come from the mid-market, like it does everywhere else in the world. We think there’s a real opportunity to capture the flag in the mid-market space, especially as the Chinese lodging market matures.

So we’re doing some things in China to expand out of the upper end of the business. We launched Hilton Garden Inn this year and opened our first hotel, and we have 20 in the pipeline. We’re also getting ready to launch Embassy. And while there are going to be plenty of the full-service and luxury hotels built in China for the rest of our lives, demand growth will be higher in the mid-market over time. If you want to get loyalty from the masses in China, just like any-where else in the world, you’ve got to have the distribution. When I got here seven years ago, China wasn’t a strategic market for the company. Now, we have 50 hotels there and 150 more in the pipeline.

ON THE TOPIC OF BRANDS, LET’S TALK ABOUT THE NEW ONES YOU ANNOUNCED THIS YEAR—CURIO AND CANOPY. Absolutely. What do you think about them?

IT’S SMART AND ADDS TO THE BRAND LINEUP IN A WAY THAT MAKES SENSE, BUT IT ALWAYS COMES DOWN TO THE IMPLEMENTATION, DOESN’T IT? It’s always about the rollout, which is why we’re doing them in stages. Rolling out a new brand is complex because it has to perform. That means the DNA of a brand from a product and service delivery point of view and the actual properties themselves resonate with customers. They also need to be connected with our revenue engines in such a way that it drives results for our owners.

The reason owners want to work with us is to make more money. Our pipeline is the biggest in the world—215,000 rooms—and all of that is supported by third-party capital. Our average market share is 115 percent, which means we’re getting 15 percent premium on every dollar in the system. That’s worth a lot to owners particularly when they’re entering into long-term agreements. Getting new brands right is important, because if the first experiences aren’t good for a customer or an owner, it’s going to make it hard to grow.