Authors: Vallo Asperk Ullabritt Laanemets Tõnis Pärn Reimo Esaul
Tallinn School of Economics and Business Administration 2011
TABLE OF CONTENTS
Abstract ...... 3 Introduction...... 4 1. Corporate overview ...... 5 1.1. Key Dates...... 5 1.2. The Founder ...... 6 1.3. Corporate development...... 7 1.3.1. Early 20th‐Century Origins ...... 7 1.3.2. Depression‐Era Wrangling over Corporate Ownership ...... 8 1.3.3. Postwar Expansion ...... 9 1.3.4. Second Generation of Management Introduces Casino‐Hotels ...... 9 1.3.5. Dispute over Founder's Will Spans 1980s...... 13 1.3.6. The 1990s and Beyond ...... 14 1.4. About Hilton Worldwide ...... 16 1.5. Developed brands ...... 17 2. Development of Business Model...... 20 2.1. 1919 – 1960...... 20 2.2. 1960 – 1990...... 21 2.3. 1990 ‐ …...... 23 3. Overview of strategical alliances...... 25 3.1. The Blackstone Group ...... 32 3.2. SWOT analyse...... 34 4. Financial statement overview ...... 37 5. Competitors ...... 38 6. Industry analyse and future development...... 40 6.1. Industry overview...... 40 6.2. Industry development...... 41 Conclusion ...... 43 Addendum...... 45 References...... 48
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Abstract
In a bit less than 100 years the Hilton chain has grown from one‐man‐business to a multi‐ billion profitable company. Hilton is a world‐known accommodation provider. Without a doubt if one is planning to travel to one of the most popular destinations for sure there is an option to select a Hilton chain hotel for a comfortable stay. Despite the fact that nowadays the building itself does not belong to the corporation, one can count on the service quality and standard. This paper examines how Hilton developed to such a high‐profile accommodation provider to all living standards. The study group will introduce the company, the strategically important alliances, and the development of business model. The main focus is on the alliances and business model. The study group also tries to propose future visions and development possibilities. This research and the example of Hilton development can be used as a reference to a success story via capability to adjust and being more innovative compared to competitors. The paper describes the importance of quick adjustment and being one step ahead from other providers.
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Introduction
Nowadays when someone is starting a business it is clear that the aim is to be cost‐saving and finding the special niche to provide the product or service in a way that is innovative and new. In the beginning of 20th century the case was not so obvious. Mostly people allied on the model of classical business development – high investments and then ages to earn the first profit. All kinds of new approaches were considered too risky, too alternative and too stupid. For example when a person started an accommodation service people could not imagine to send a client to competitors when they had no option to provide a roof over the head. They simply informed the customer that they are full without further instruction. The model stated to think highly on the company and not on the customer, despite the fact that this was the source for profit. The first innovative thinker who succeeded well in this new approach was Conrad Hilton, the founder of today known Hilton chain. After the purchase of one hotel in the beginning of 20th century the road has been nothing but uphill. Even though there has been some rocks and challenges on the road with their innovative thinking from the point the business was founded has always supported them. Not only supported but also keeping one step ahead from competitors. The reason for this success story could be also a challenging beginning. The founder Conrad Hilton was not born with the golden spoon. This was the foundation to find the way around to get what is desired. When a person has to fight for survival and not everything is delivered it develops enduringness, skills to keep the head above the water and a desire to receive more for less. After the death and even after the sell of the chain from the Hilton family to foreign capital, the trade mark has always kept with it the new way of thinking, the ability to see new markets and new development possibilities. The two key factors of survival are alliances and continuous re‐view of business model.
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1. Corporate overview
1.1. Key Dates
1919: Conrad Hilton buys his first hotel. 1925: The first hotel carrying the Hilton name is constructed in Dallas. 1946: Hilton Hotels Corporation is formed. 1947: Becomes the first hotel company to have its stock listed on the New York Stock Exchange. 1949: Hilton buys the lease on New York's Waldorf‐Astoria. 1953: The first European Hilton opens in Madrid. 1964: Hilton International is spun off as a public company. 1970: The company buys two casino hotels in Las Vegas. 1982: Subsidiary Conrad International Hotels is formed to oversee international growth. 1996: Stephen F. Bollenbach becomes the first non‐Hilton to guide the company; Hilton merges with Bally Entertainment Corporation. 1998: Hilton spins off its gaming operations as Park Place Entertainment Corporation. 1999: Hilton acquires Promus Hotel Corporation for $3.7 billion.
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1.2. The Founder
Conrad Nicholson Hilton
Born December 25, 1887 Socorro County, New Mexico Territory, U.S. Died January 3, 1979 (aged 91) Santa Monica, California, U.S. Occupation Hotelier Spouse Married Mary Adelaide Barron (m. 1925–1934) Zsa Zsa Gabor (m. 1942–1946) Mary Frances Kelly (m. 1976–1979) Children Conrad Nicholson "Nicky" Hilton, Jr. (1926‐1969) William Barron Hilton (b. 1927) Eric Michael Hilton (b. 1933) Constance Francesca Hilton (b. 1947) Hilton was born in San Antonio, New Mexico. His father, Augustus Halvorsen "Gus" Hilton, was an immigrant from Norway, and his devout Catholic mother, Mary Genevieve (née Laufersweiler), was an American of German descent. Hilton grew up with seven siblings: Felice A. Hilton, Eva C. Hilton, Carl H. Hilton, Julian Hilton, Rosemary J. Hilton, August H. Hilton, and Helen A. Hilton. Hilton attended the New Mexico Military Institute, at St. Michael's College (now the College of Santa Fe), and the New Mexico School of Mines (now New Mexico Tech). He was a member of the international fraternity Tau Kappa Epsilon. In his early twenties, Hilton was a Republican representative in the first legislature of the newly formed State of New Mexico. He served two years in the U.S. Army during World War I. While he was in the army, his father was killed in a car accident.
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The most enduring influence to shape Hilton's philanthropic philosophy beyond that of his parents was the Roman Catholic Church and its sisters. He credited his mother with guiding him to prayer and the church whenever he was troubled or dismayed — from a boyhood loss of a beloved pony to severe financial losses during the Great Depression. His mother continually reminded him that prayer was the best investment he would ever make.
1.3. Corporate development
1.3.1. Early 20th‐Century Origins
Conrad Nicholson Hilton was born in San Antonio, New Mexico, the second of eight children. Before he was 18, Conrad had worked as a trader, a clerk, a bellboy, and a pianist. By age 25 he had also worked in politics and banking. In 1919, following the death of his father, Hilton left the army and went to Texas. He had intended to take advantage of the oil boom by buying a small bank. Instead, he found bank prices prohibitive and hotels so overbooked he could not find a place to sleep. When one owner in Cisco, Texas, complained he would like to sell his property in order to take advantage of the oil boom, Hilton struck a deal. Hilton pulled together an investment group and the funds were transferred within a week. The Mobley, in Cisco, became Hilton's first hotel. The hotel was booked solid, and Conrad and his partner, L.M. Drown, rented their own beds and slept on chairs in the office. They also converted much of the hotel's public space into additional guest quarters. Making use of wasted space became a hallmark of the Hilton chain. With the Mobley running smoothly, Hilton bought two more Texas properties in 1920; the Melba, in Fort Worth, and the Waldorf in Dallas‐‐named after the prized New York hotel. In 1925 Conrad Hilton built the first hotel to carry his name, in Dallas. With expansions well underway, Hilton consolidated his properties into Hilton Hotels, Incorporated, in 1929, when the stock market crashed. The El Paso Hilton was completed in November 1930 and opened with a fanfare. A year later, Hilton owned eight hotels and was more than half a million dollars in debt when a young bellboy slipped him $300‐‐his life savings‐‐so Hilton could feed himself and his family.
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1.3.2. Depression‐Era Wrangling over Corporate Ownership
In 1931 the Moody family of Galveston, Texas, from whom Hilton had borrowed, took possession of his hotels when he defaulted on a $300,000 loan. The Moodys then hired Hilton to manage their own and his hotels, now known as the National Hotel Company. Nine months later, in 1932, Hilton and the Moodys decided to part. The separation, however, was in no way peaceful. The Moody family and Hilton sued and countersued each other regarding the terms of their agreement for separation, which Hilton claimed allotted him one‐third of the hotels and one‐third of the stock if the arrangement failed to prove satisfactory. In 1933, while Hilton continued to battle the Moodys in court, the Moodys defaulted on the loan for the El Paso Hilton, and Conrad Hilton managed to raise the necessary $30,000 to buy back that hotel. In 1934 Hilton settled with the Moodys, who lent him $95,000 and returned the Lubbock, Dallas, and Plainview hotels. According to Conrad Hilton, while Depression‐era hotel owners saved less than one hotel out of five, Hilton emerged with five of his eight hotels, and he met his debts by the summer of 1937. In 1938, Hilton bought his first hotel outside of Texas, the Sir Francis Drake in San Francisco. He sold it two years later at a $500,000 profit to raise capital to purchase the Stevens in Chicago, then the largest hotel in the world. Although U.S. entry into World War II spawned caution, Hilton acquired three new properties, one in Los Angeles and two in New York. Thus, in 1942, his name stretched from coast to coast. The New York properties included the Roosevelt and the Plaza. Hilton claimed he was practicing for New York's Waldorf‐Astoria, a picture of which he had clipped from a magazine and carried with him since the hotel opened in 1931.
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1.3.3. Postwar Expansion
In 1945, Hilton traveled to Chicago to complete the purchase of the Stevens, which he had initiated in 1940, and ended up acquiring the Palmer House as well. In May 1946, Hilton Hotels Corporation was formed. It made history the next year as the first hotel company to have its stock listed on the New York Stock Exchange. Conrad N. Hilton was president and the largest stockholder. Despite its reputation, the Waldorf‐Astoria was not a profitable hotel. While negotiations to lease that hotel were taking place, Hilton worried his board members with his interest in international hotels in a postwar climate uncertain for international business. Nevertheless, Conrad Hilton pursued the venture that would become the Caribe Hilton in San Juan, Puerto Rico. An agreement was made to form a wholly owned subsidiary‐‐Hilton Hotels International‐‐for which Hilton formed a separate board. In 1949 Conrad Hilton bought the lease on the Waldorf‐Astoria. The Waldorf made a $1 million profit in its first year under Hilton management. The first European Hilton was opened in Madrid in 1953. The largest hotel merger in the industry took place in 1954 when Hilton Hotels purchased the Statler Hotel Company for $111 million. The Statler chain consisted of eight hotels, with two more under construction. Statler was noted for its fine properties and solid reputation. The chain was about to be sold to a New York realty firm when Hilton made a plea to Statler's widow. She agreed to sell to Hilton, in order to keep the hotels in "the hands of hotel people." Earnings per share nearly doubled between 1953 and 1955, largely as a result of this acquisition. In 1955, another overseas Hilton was opened, in Turkey, and the Continental Hilton of Mexico City opened the following year. In 1964 Hilton International was spun off and became a public company with Conrad Hilton as its president. Hilton was made chairman of the board of Hilton Hotels that same year.
1.3.4. Second Generation of Management Introduces Casino‐Hotels
The late 1960s saw significant changes, beginning with the 1965 formation of Statler Hilton Inns, a corporate franchising subsidiary, and a change of presidents. In 1966 Hilton's son, William Barron Hilton‐‐known as Barron‐‐assumed the presidency. Barron Hilton's conservative fiscal strategies set a decidedly different course for the company his father had
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built. The following year, Barron Hilton persuaded his father, as the largest shareholder of Hilton International, to swap his stake in the overseas operation for shares of Trans World Airlines (TWA). Hilton remained chairman of Hilton International. The expectation had been that TWA stock would rise, but its value halved over the next 18 months. Meanwhile, foreign travel boomed, and Hilton lost the rights to his name overseas. In 1970, Barron Hilton engineered the $112 million purchase that would generate the largest percentage of the company's revenues within a decade: two casino‐hotels in Las Vegas, Nevada. While Conrad Hilton had dabbled in gaming via a Puerto Rican casino in the late 1940s, the acquisition of the Las Vegas Hilton and the Flamingo Hilton marked the launch of a consistent strategy. This move paid for itself, particularly during the late 1970s and early 1980s, when the occupancy rate at both hotels remained steady in contrast to industry‐wide trends. Barron Hilton then concentrated on franchising the Hilton name and managing other hotels. In 1973, the company launched a computerized hotel reservation dubbed "HILTRON." The system served not only the Hilton chain but was also employed by other chains in the industry, providing yet another source of revenue. In 1975 Hilton sold a 50 percent interest in six major hotels to Prudential Life Insurance Company of America for $85 million. Hilton continued to manage the properties in exchange for a percentage of room revenues and gross profits. This was one of the first management leaseback deals in the industry. Joint‐ venture arrangements later became standard industry practice. In 1977 the purchase of the Waldorf‐Astoria's building and land was finalized for $35 million. The decade closed with the death of Conrad N. Hilton in 1979, at age 91. Barron Hilton became chairman of the board. During the 1980s Hilton continued to make its money primarily though casino gambling, leasing and management, and franchise fees. These were sound measures during recession years: while revenues for owned hotels increased an average of 4 percent in 1980 and 1981, management contract fees increased by 6 percent in 1980 and 14 percent in 1981. Overall earnings for Hilton increased by 6 percent during these years, and the company grew rich in liquid assets. It put this capital to use in hotel improvements and in 1981, the $34.4 million purchase of another casino‐hotel in Nevada, the Sahara Reno. Barron Hilton maintained a no‐partnership policy for the company's casino‐ hotels. Although the hotels suffered from the loss of convention bookings during the
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recession, an addition to the Las Vegas Hilton in 1982 made it the largest hotel in the world, and further convention facilities were added in 1985. Having sold the international rights to the Hilton name, the corporation resumed international growth in 1982 under a new subsidiary, Conrad International Hotels. Construction began on a casino‐hotel in Australia the following year. Over the course of the next decade, this division established hotels (many of them joint ventures) in Turkey, Egypt, Hong Kong, Uruguay and New Zealand. By 1985 gaming was providing 40 percent of the company's operating income, and earnings had increased 20 percent annually since Hilton's entry into that industry. In 1985, however, after spending $320 million to build a casino in Atlantic City, New Jersey, Hilton was denied a license to operate. The New Jersey Casino Control Commission's primary objection was Hilton Hotel's longstanding relationship with Chicago labor attorney Sidney Korshak, who had been linked with organized crime figures and who the New York Times in 1976 had labeled "a behind‐the‐scenes fixer." Hilton severed its ties with Korshak, who had acted as a labor consultant for the company, and the gaming commission granted a new hearing. In April 1985, before the rehearing took place, however, the hotel‐casino was sold to Donald Trump at cost. While Hilton focused on the casino‐hotels, Marriott and Hyatt were expanding in the luxury‐hotels market. To keep pace with its competitors, Hilton pledged $1.4 billion to renovate older properties during the late 1980s. Barron Hilton also concentrated on solving the problem of his father's will.
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1.3.5. Dispute over Founder's Will Spans 1980s
When Conrad Hilton died, he had bequeathed the bulk of his holding‐‐a 27 percent block of Hilton shares‐‐to the Conrad N. Hilton Foundation. This foundation, incorporated in 1950, gives aid to Roman Catholic nuns. This provision left Barron Hilton with 3.6 percent of Hilton Hotels, but he claimed to have exercised an option on the foundation's shares immediately, buying their portion at the market rate of $24. Ownership of the stock was contested for the next decade. At issue was the interpretation of an option Conrad Hilton had allotted Barron Hilton in his will: Barron Hilton claimed the will allowed him to buy the entire stock from the foundation at the 1979 price. The estate's executor, who was Conrad's personal attorney, claimed the will intended that Barron Hilton be entitled to no more than 7 percent of the shares. Meanwhile, Hilton and ex‐wife Zsa Zsa Gabor's daughter also contested the will. The attorney general's office of California joined the case, arguing that the foundation was entitled to the shares at market value, or $225 million, in 1985. To complicate the issue further, Golden Nugget casino's chairman Steve Wynn attempted to buy the disputed shares in 1985 at their current market price‐‐$72 a share‐‐in order to launch a takeover of Hilton. A November 1988 settlement gave Barron Hilton four million of the disputed shares, a stake valued at $204 million. The foundation kept 3.5 million shares, worth $178 million at the time, and six million shares, a $306 million stake, went into a trust with Barron Hilton serving as executor. Perhaps most significant, the agreement gave the CEO the trust's voting privileges, for a total voting presence of 25 percent. In addition, Hilton was to receive 60 percent of the trust's share dividends until 2008, after which they would revert to the foundation. The chain closed the decade enjoying a 70 percent occupancy rate in its newly rejuvenated domestic hotels, greater international expansion, and properties totaling an estimated $4 billion to $6 billion. In May 1989, Chairman Barron Hilton solicited bids for the chain. By December 1989, however, the company had not received a satisfactory bid, and Hilton decided not to sell.
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1.3.6. The 1990s and Beyond
After three decades of leadership, Barron Hilton relinquished the chief executive office of the corporation in 1996. While his final years at the helm were criticized as indecisive and overly conservative, the fact remained that its revenues increased from less than $1 billion in 1989 to $1.6 billion in 1995. Net income increased at an average annual rate of 19.6 percent, from $84.3 million in 1991 to $172.8 million in 1995. In 1996 53‐year‐old Stephen F. Bollenbach became the first non‐Hilton to guide the company. He came to the job with incontrovertible credentials, having engineered both a debt restructuring for the Trump empire and Walt Disney's $19 billion acquisition of Capital Cities/ABC. A spate of high‐profile deals quickly ensued. Within five months, the new CEO had merged Hilton with Bally Entertainment Corporation via a stock swap valued at $2 billion. In one move, the deal created the world's largest gaming concern and made casino gambling Hilton's largest business. However, in the interest of equilibrium, Bollenbach also executed several key moves to expand the hotel chain. First, he repurchased the Prudential Insurance Company's stake in six Hiltons for $433 million. He also pledged to increase via franchising Hilton's budget Garden Inns chain by 50,000 rooms over the remaining years of the decade. Before 1996 had ended, Bollenbach had also pulled off a reunification of the global Hilton presence. By the mid‐1990s, ownership of Hilton International (and the overseas rights to the Hilton name) had passed to London's Ladbroke Group plc. Hilton purchased a 3 percent stake in Ladbroke and in return the British concern agreed to invest in future Hilton enterprises. The two companies planned to create cooperative marketing programs (including honoring each other's frequent stay plans) and develop new hotels together. On January 27, 1997, Hilton bid $55 per share for New York‐based ITT Corporation, aiming primarily to acquire its ITT Sheraton subsidiary's 415 hotels and 14 casinos. The company's hostile takeover attempt eventually failed when Starwood Lodging Trust outbid Hilton in a very public and heated battle. Bollenbach was undeterred by the failure and forged ahead with his strategy to take Hilton into the next millennium. Believing that Hilton's hotel and casino operations could achieve a higher stock value if they became separate entities, Bollenbach set plans in motion to spin off the firm's gaming arm. Shareholders agreed with the plan and in 1998, Park Place Entertainment Corporation‐‐now known as
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Caesar's Entertainment Inc.‐‐began operating as a public company. Bollenbach was named chairman of the new firm. Hilton Hotels' next big move came one year later when it made a $3.7 billion play for Promus Hotel Corporation. A September 1999 Wall Street Journal article summed up the company's reasoning for the deal claiming, "The transaction is designed to launch Hilton into a competitive triumvirate of top hotel companies with Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc." Indeed, as a result of the deal Hilton increased its portfolio to over 1,800 hotels located in all 50 states and added Doubletree, Embassy Suites Hotels, Hampton Inn, Hampton Inn & Suites, Homewood Suites, and Harrison Conference Centers to its hotel arsenal. With the Promus deal under its belt, Hilton stood on solid ground as it entered the new millennium. During 2000, the company formed a joint venture with Hilton Group plc to strengthen and expand its Conrad Hotels unit overseas. The company signed an agreement the following year with Hoteles Camino Real S.A. de C.V. The partnership added the Camino Real hotels and resorts in Mexico and Texas to Hilton's brand portfolio. Bollenbach hinted at the company's future acquisition strategy in a 2001 Hotel and Motel Management article stating, "A lot of changes have occurred at Hilton in the last five years, going from a company that was about half gambling company and a half hotel company to today being focused on the hotel business. We have a company that is forever one of the major competitors in the hotel business." He went on to claim, "Hilton is what you think of as a strategically complete company. It means we don't need to add anything to what we have in our collection of businesses." While Hilton digested its Promus purchase, it faced challenges due to a weak economy as well as a slowdown in travel as a result of the September 11, 2001, terrorist attacks. In fact, Hilton's stock fell to its lowest point in ten years during 2001. Revenues dropped in both 2001 and 2002, however net income increased by 19 percent in 2002. While net income fell in 2003, sales increased by nearly 51 percent over the previous year‐‐a sure sign that the company had a solid business strategy in place. With Bollenbach at the helm, Hilton appeared to be well positioned for future growth in the years to come.
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1.4. About Hilton Worldwide
Hilton Worldwide is the leading global hospitality company, spanning the lodging sector from luxurious full‐service hotels and resorts to extended‐stay suites and mid‐priced hotels. For 91 years, Hilton Worldwide has been offering business and leisure travelers the finest in accommodations, service, amenities and value. The company is dedicated to continuing its tradition of providing exceptional guest experiences across its global brands. Its brands are comprised of more than 3,600 hotels and 600,000 rooms in 82 countries and include Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, Doubletree, Embassy Suites Hotels, Hilton Garden Inn, Hampton Hotels, Homewood Suites by Hilton, Home2 Suites by Hilton and Hilton Grand Vacations.
Vision: To fill the earth with the light and warmth of hospitality.
Mission: We will be the preeminent global hospitality company – the first choice of guests, team members and owners alike.
Values:
H HOSPITALITY – We are passionate about delivering exceptional guest experiences.
I INTEGRITY – We do the right thing, all the time.
L LEADERSHIP – We are leaders in our industry and in our communities.
T TEAMWORK – We are team players in everything we do.
O OWNERSHIP – We are the owners of our actions and decisions.
N NOW – We operate with a sense of urgency and discipline.
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1.5. Developed brands
Hilton has developed a chain of different brands to answer to all living standards.
WALDORF ASTORIA® is Hilton Worldwide’s luxury brand of landmark hotels, with each one as singular and timeless as the brand’s namesake, The Waldorf=Astoria Hotel in New York. From classic elegance to modern grandeur, Waldorf Astoria Hotels & Resorts and Waldorf Astoria Collection hotels each represent worldly sophistication and unparalleled guest service. From sumptuous spas and culinary excellence to world‐class golf, each hotel & resort offers the exquisite
accommodations and signature accoutrements that define refinement and sophistication.
CONRAD® HOTELS & RESORTS is Hilton Worldwide’s global
contemporary luxury brand and the modern‐world choice for today’s sophisticated traveler. By focusing on the individual, Conrad offers guests genuine and personalized service and a world of style, service and connection. Each Conrad is a dynamic reflection of its city and culture, as well as a showcase for striking design and distinct surroundings. Across five continents, in the world’s gateway cities and most sought‐after resort destinations, Conrad invites each guest to enjoy The Luxury Of Being Yourself®.
The most recognized name in the industry, Hilton Hotels stands as the stylish, forward thinking global leader of hospitality. Today Hilton welcomes guests in more countries than any other full service hotel brand, with more than 520 hotels and resorts in 76 countries across six continents. From inaugural balls and Hollywood award galas to business events and personal moments, Hilton is where the world makes history, closes the deal, toasts special occasions and gets away
from it all.
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Doubletree offers a growing collection of contemporary, upscale accommodations in more than 220 cities, metropolitan areas and vacation destinations around the world. Doubletree and Doubletree by Hilton, as our hotels are known outside the U.S., are distinctively designed to provide genuine comfort to today's business and leisure travelers. From the millions of delighted guests who are welcomed with our legendary, warm chocolate chip cookies at check‐in, to the advantages of the award‐winning Hilton HHonors® guest reward
program, each Doubletree guest receives a truly satisfying stay wherever their travels take them.
Whether you're traveling for business, a family vacation, or just to get away for a few days, our spacious two‐room suites and lobby atriums offer you plenty of room to stretch out and relax. Wake up to our complimentary full cooked‐to‐order breakfast and wind down with our nightly Manager's Reception featuring your favorite beverages (subject to state and local laws; must be of legal drinking age).
At Hilton Garden Inn® hotels, you'll find everything you need to be self‐ sufficient on the road. Each guest room offers a hospitality center with a refrigerator, microwave and coffee maker, plus complimentary high‐ speed Internet access, two telephones with voicemail and dataport and secure remote printing to the 24‐hour complimentary business center. Other amenities include the 24‐hour Pavilion Pantry® convenience mart, a complimentary Fitness Center, swimming pool, whirlpool and
more.
With nearly 1,800 locations throughout the U.S., Canada, Mexico, Latin America and the United Kingdom, Hampton® hotels offer guests friendly service, clean rooms, comfortable surroundings, every time. Plus, guests enjoy free high‐speed Internet access in‐room and wireless in all public areas, free hot breakfast, local calls at no charge and more. Hampton guarantees 100% satisfaction ‐ If you're not satisfied, we
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don't expect you to pay. Real value from your friends at Hampton.
Homewood Suites by Hilton® is your home away from home. Whether you stay a few nights or longer, you'll find just what you need to work, relax and enjoy the journey ahead. Every suite features a full kitchen with a fridge, internet access and plenty of room to get comfortable. Hot full breakfast is included everyday as well as dinner and drinks Monday through Thursday evenings. Every guest also enjoys access to a workout room, outdoor grill and pool. Homewood Suites is committed
to helping guests accomplish their goals by making every guest feel at home.
Introducing the newest brand by Hilton Worldwide. With an exciting new design unlike any other extended‐stay hotel, Home2 Suites is packed with thoughtful amenities to help savvy, value‐wise guests balance life while they’re on the road. Authentic style, the latest technology and superior service are the hallmarks of this all‐suite hotel. Our first hotel is scheduled to open Q1 of 2011.
With a world‐class collection of resorts, Hilton Grand Vacations offers the most ideal conveniences of home in the most sought‐after destinations. Designed as vacation ownership resorts, each Club offers extensive amenities which set the stage for grand vacations and great getaways. Studio, one‐, two‐, and three‐bedroom suite accommodations come complete with fully equipped kitchens, separate living and dining areas, washer and dryer, large soaking tubs, and complimentary wireless Internet (room types and amenities vary
by location). Stay for business or leisure and enjoy the finest in service, comfort and convenience…or join our exclusive membership Club and own your accommodations for a lifetime.
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2. Development of Business Model
2.1. 1919 – 1960
The Hilton chain was established as a hotel chain. Meaning to provide accommodation service and develop its real‐estate investments. As it was said in previous chapter the first hotel as a building was bought in 1919. Conrad Hilton first concentrated in purchasing the buildings. The first investment was followed with following ones and by late 1940 Conrad Hilton owned a worldwide chain of premium hotels. The main aim was, as it is also today to serve the clients, and to provide them quality service. As a well known fact of Conrad Hilton and his chain, when his hotels were full then the clients were directed also to the competitors. The purpose was to organize the accommodation for everyone who would turn to his hotels. The business model was to expand its own chain by purchasing the buildings, and establish the hotels. The aim was to be able to provide as much accommodation in self owned hotels as possible, and not to direct the customers to competitors. With such first direction Hilton was a hotel chain and a real estate company more than a company how it is known today. In addition to expansion in North‐America continent, they also made first steps to expand in over‐seas. Such a business model requires very developed management skills in order to keep all the buildings up and running.
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2.2. 1960 – 1990
As mentioned in introduction by 1960’s it was clear that such a big chain is not easy to handle in distance and it was decided to sell the international operations and investments. With that the business model was changed from classical hotel chain and real estate company to a contract management and franchising company. It was developing to become more a trade mark, a trust sign to the customers. When looking back it was a logical step for a company which became known first as a hotel leading the customers to the competitors. At first the aim was to provide everything themselves, of course, but when it was clear that it is not possible they concentrated to the customers. The first important thing in service providing industry is the customer. At first when it was not possible to provide all the accommodation themselves, they concentrated to make sure that customer would come back to them. When the client turned to them with requested, even if not possible to solve and provide it by them it was arranged so the client received what was asked. With that behavior it is clear the client will turn to them again with requests, because they got their solution.
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With the business model for which first steps were taken in 1960’s they tried to ensure that the client will receive the requested service from their trade mark. As the chain developed and expanded it wasn’t possible to expand to infinity, as the growth seemed to be. So it was decided to develop another approach. To develop a trade mark that is known and trusted by the customer. Instead of purchasing the buildings and starting to develop the business by step one, they would sell the trust sign and the trade mark to a hotels, which are not able to survive on their own. Perhaps the reason for drowning is the fact it is not known, therefore not trusted. By purchasing the trade mark, which was known at that time already decades, they would receive automatically also the fame following the sign. During the 1960’s the Hilton chain also entered the Casino hotel market, which became their most beneficial investment in the 1970’s and 1980’s. Unfortunately by 1985 they received a denied permission to operate in that market.
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2.3. 1990 ‐ …
With the 90’s and with the new leaderships the company took new turns in their business model, or not so much as new, but rather put higher pressure on franchising and expanding via new brands and new acquisition of whole other hotel chains to their Hilton portfolio. After the pressure on the casino market in previous decades, Hilton was running low compared to its former competitors – Marriott International Inc., Starwood Hotels & Resorts Worldwide Inc. All the competitors had invested in luxury brands and expanded their overseas portfolio. This was something the Hilton had running in the background previously. In that they saw the new profit possibility. The aim was to go from half gambling half hotel business company to a total full‐service hotel business company. Full service in a sense that the clients would receive everything they wish for while planning their trip from SPOC (single point of contact). One of the supports for that purpose was to establish Travelagents.com. That was made only with clear purpose – to provide a person possibility to receive full service from one place. Plane tickets, hotel, tours, etc – all the services that Hilton has its own providers, so they would receive maximum benefit from one customer with one trip. In addition to that Hilton has announced also a wider expansion to the luxury market, and developing more the luxury brands. In addition to the existing one: Waldorf Astoria, they are planning to purchase more three new luxury resorts: Grand Wailea Resort Hotel & Spa, Arizona Biltmore Resort & Spa, La Quinta Resort & Club. In addition to that development plan, they have also stated clearly the plan to expand more intensively to oversea destinations.
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3. Overview of strategical alliances
Most of the hotels belonging to Hilton hotel chain are operating under franchise. All hotels around the world have the same standards. Each type hotel, which belongs to Hilton chain, has its own standards, but they are all uniform in 82 countries and 3,600 hotels. Of course, each individual hotel type has own set of rules and standards, but they apply equally everywhere. Hilton hotel chain also has its own quality assurance team, who constantly visits the hotels in hotel chain and verifies the franchise compliance. They shall follow that all the given standards are fulfilled and the franchise agreements are followed. As it is a uniform system and chain, all the services must be same in all same type hotels regardless of a country or continent. This ensures consistency and reliability in customers' minds. Wherever you go in the world, such as the Doubletree Hotel, you know what standards and conditions this hotel has. You do not have to worry about the quality of the hotel. Since the most of the Hilton hotels are operating under the franchise agreements, it assumes solid competence in order to keep the whole chain as a unity. Hilton chain has a strong dynamic capability, with which they involve external opportunities and internal capabilities and resources to achieve the maximum competitive advantage. This expects them strong and very wide social network. One of the biggest key factors with which they achieve competitive advantage and gain market has been the involvement of external partners. The extensive cooperation with different businesses and organizations provides a win‐win‐win outcome. Everybody wins, the hotel, partners and customers. For example, the airlines, which have a uniform airline miles and bonus points system. In both cases the customer will collect points by using either the airline or hotel services. Later these points can be converted, either points to miles or miles to points. This ensures that the customer prefers to fly with these partner companies who have a corresponding agreement with Hilton, because it provides an opportunity to earn points that can later be realize according to desires. The airline essentially brings customers so‐called at home to Hilton. Hilton also has as partners those airlines whose flight schedules are suitable to Hilton. In customer's point of In addition to the airlines, Hilton has many other partners with whom he cooperates. All these partners, of course, are related in some way with hospitality industry and offered services complement each other. For example, Hilton has many partners from car rental and
The study group 25 www.hilton.ee
credit cards companies. Many hotel guests use rental cars to drive around, whether they are business or personal customers. Also, most people use a credit card to book a hotel. If the customer has a credit card to use, which is in partnerships with the hotel and gives the opportunity to earn additional points in the customer program or gives other benefits, there is a major assumption that the choice will fall in favor of Hilton. Hilton hotel chain is pretty innovative in involving the partners. They take advantage of all opportunities to involve as many partners in their activities, which overall increases their market share and makes them more attractive to the customers. It also provides additional benefits and opportunities for the customers. They have figured out the working key in modern economy, which is the cooperation. There is no point to own in all areas, which will be involved by making your business, business and competence. Rather to contribute on the primary industry and take advantage of your social network and dynamic ability to attract foreign partners in your activities. If you deal with everything, you cannot completely deal with anything. Instead, focus on one particular activity and develop it further. Secondary activities, such as casinos, airlines, car rental, etc. are attributed on partners` shoulders. As partners have much larger capacity in these areas, then adding all of them together has significantly better result than developing everything yourself. If the opportunities are greater and better, it makes Hilton hotel chain even more attractive to the customers. If there is the possibility to fly to the destination with the airline, rental car on spot and stay overnight in a hotel, which are cooperating with each other, then this will make the services easier to use and more comfortable. And Hilton`s main goal is also to be the customer's first choice for hotel selection. Most of the hotels of Hilton are not their own, but operate under franchise. However, this is definitely the cheapest way to expand their reach. As a whole it does not earn to the company not so huge profit from each of the hotel when owning the hotel, but this is not the goal of Hilton chain. Owning a large number of hotels that earn smaller profit is on the total amount more useful, than to own a small number of hotels and with bigger profit figure. Of course, they are private equity based and profit seeking organization, but their vision of the big plan is quite innovative and as can be seen successful. If their brand includes over 3,600 hotels in 82 countries, it makes them the world's leading hotel chain. Instead owning themselves a large number of hotels, they have only a few hundred hotels as their own and the rest are all under the franchise agreements hotels
The study group 26 www.hilton.ee
using their logo and name and follow the same standards. This, however, gives them an opportunity to be represented and known all over the world. They do not have to deal with hotel construction or other activities that are not directly related to the brand. All this would take much time, money and slow down the development which they have achieved so far. Hilton has become today primarily a brand management company. Their main job is to establish and maintain the image of the Hilton brand. Since the hotels are dealing themselves with accommodation, hotel construction and repair, etc., secondary activities such as car rental, casinos, etc. are on partners’ shoulders, then their own main area is the brand management. Since the Hilton is the world's best‐known hotel brand, it is also a sign of quality and reliability to the customer. This brings the customers to the hotels. This increases the company's turnover and revenues. It is also the reason why many hoteliers have decided to continue to operate under the Hilton brand. Although they must give up part of their revenues, while being in Hilton chain their income is much bigger that it would have a positive impact on business development. As Hilton chain has an unique bonus points system and cooperation with many aviation, car rental, credit card, etc. companies, it also ensures that the number of customers is constant and continuous. If the hotel booking till the arrival and on‐site services are made to the customer so easy and convenient, then most likely he chooses Hilton hotel chain. Essentially, Hilton Worldwide offers to the other hotels the top‐level management. The management of the whole chain goes as a single unit, as all of one type hotels must measure up to the same standards and contract conditions. This provides an opportunity to the hotel owners, who belong to this chain, saving management costs, which are usually very high. Of course, the hotel must have its own management team which solves the problems that are not related to the overall strategy, which is common in the chain. Such mutual cost savings, good reputation of the large hotel chain, an extensive and diverse customer bonus program and very skilful strategy with the skillful management is Hilton`s success.
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Strategical alliances of 1950.
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Strategical alliances of 2010.
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Strategical alliances 2010 with outside partners.
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1947 Hilton becomes the first hotel company to have its stock listed on the New York Stock Exchange. This lasted until 2006. Hilton Worldwide isn’t planning an initial public offering in the near term, nor does president and CEO Chris Nassetta expect the company to divest any of its 10 hotel brands. Company’s rock‐solid balance sheet gives it “the flexibility to do what we need to be able to compete in the marketplace.” (C. Nassetta). Nassetta said to tap the brakes on the notion that Hilton and parent company Blackstone Group are preparing for an IPO any time soon. “In terms of an IPO … it’s premature to talk about it,” he said. “We’re owned by private equity. They’re terrific partners. In April, we announced that Blackstone and their co‐ investors invested another (US)$800 million into our enterprise, which I think suggests a strong level of support for what we’re doing and where this company is going. “They feel great about the long‐term prospects of the business,” he added. “As a private‐ equity entity, at some point they will look for an exit opportunity somewhere down the road and that could involve an IPO, but at this point there’s nothing on the immediate horizon and it’s premature to discuss it.” (C.Nassetta)
Chris Nassetta President and CEO Hilton Worldwide
The study group 31 www.hilton.ee
3.1. The Blackstone Group
Experience shows that the most compelling opportunities to create value often arise at the bottom of an economic cycle. We believe that 2009 was a case in point. And so, across Blackstone’s businesses, we committed our capital, knowledge and talent to identify new investments, protect existing investments and build value for the long term. Much of our value‐creation reflects our established role as stewards of private capital in the public interest. Our Private Equity business realized proceeds from the sale or IPOs of several portfolio holdings and made new investments in quality companies with strong growth potential. In Real Estate, we began late in the year selectively using our substantial resources to buy assets with the potential to benefit as property markets stabilize. Our Blackstone Alternative Asset Management (BAAM) business became the world’s largest fund of hedge funds manager, in part due to its unmatched success in preserving the value of clients’ assets. Our Credit business has provided financing at attractive returns in a debt‐starved marketplace. Additionally, our Financial Advisory business advised on high profile restructuring and M&A transactions to create healthier, more competitive enterprises. We also invested in our own businesses, expanding our global footprint, launching new initiatives and adding talented people to strengthen our position and leadership for the future. Through our efforts, we will strive to create a positive impact and long‐term value— for our investors, shareholders, clients, portfolio companies and the broader economy. (The Blackstone Group Annual Report, 2009) This report begins with the line „Finding it. Investing in it. Protecting it. Building it...“. It provides a broader understanding of their activities. They buy together companies and mainly deal with their management. As their motto says „finding it“, they must firstly find a company that has enough potential that this buying‐up would eventually pay off. There is no point of buying together all the possible companies, but those which are capable producing profit and have enough good prospects for the future. „Investing it“ – investment in company purchase and its further development. „Protecting it“ – protect the corporate interests and place in tough competition on the market. Due to its high dynamic capabilities, Blackstone has many ways and resources contributing its businesses in to well‐being. „Building it“ is most long term and dynamic capabilities requiring part of their doings. If the company is found, taken over and has the position on the market, then must begin develop
The study group 32 www.hilton.ee
it. This is a very long time, if not to say a continuous process that the company develops, expands and also produces revenue to the owners and shareholders, while same time providing the best maximum product or service to the customers. To find this key, which would be maximally profitable and offering to the customer maximum satisfaction, is the primary goal to The Blackstone Group management company. All their doings are future‐ oriented. Everything is planned today and dealt will be only with the long term lasting and valuable projects. Hilton hotel chain belongs to The Blackstone Group. The Blackstone Group acquired Hilton chain in October 2007. The amount of the transaction was $ 26 932 M. The Blackstone Group is an investment company that is one of the largest private equity based investment companies in the world. Their main fields of activities are alternative asset management and financial services. They specialize in real estate, credit and alternative investment strategy, financial advisory, merger and acquisition (M&A), restructuring, etc.
The study group 33 www.hilton.ee
3.2. SWOT analyse
Strengths Strong brand image ensures steady revenue growth. The strong brand image of the company has led to a strong customer base for Hilton Worldwide. It enjoys a strong brand awareness and brand recall in most of its key markets where it operates, which gives it a distinct competitive advantage over its peers. The company is also named as the number one hotel brand in some of its operating regions. For instance, in August 2009, the brand Hilton ranked Number One Hotel Brand and the Leading Choice Hotel Brand in Australia, according to survey results provided by Asia Pacific Business Hotel Guest. Additionally, during the same period, Hilton Worldwide was voted as the most recognized hotel brand in both the United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA) according to Maktoob Research Travel Monitor. Furthermore, Hilton Worldwide was recognized as number one hotel brand in the Middle East, according to a survey conducted by Business Development Research Consultants’ (BDRC) in Hilton Worldwide.
Weaknesses Exposure to the premium market increase the operating cost of the company Hilton Worldwide has significant level of exposure towards the premium end market (in the hotels, and resort business).The company incurs high costs to maintain and operate its premium hotel and resort business, which could be cause of concern in the current weakening economic situation. For instance, in the premium or luxury hotel segment, the company operates over 15,300 rooms located in its 38 hotel properties through its brand Waldorf Astoria and Conrad. The company incurs a huge amount of cost every year to maintain these hotels and resorts, but with the current economic downturn, where in, customers are reducing their expenses on luxurious services, could hurt the Hilton Worldwide.
Opportunities Expansion plans likely to boost the top line growth The company announced a number of overseas expansion plans in the recent times. For instance, in January 2010, Hilton Worldwide signed an agreement with Saudi Arabia’s Granada Investment Centre to establish a 20‐storey 480‐room hotel tower, and a 14‐storey tower with 350 hotel apartments in
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Riyadh which would be operational by FY2013. It also signed an agreement with Saudi Arabia’s King Saud University Endowment in August 2010 for the establishment of 241‐room Hilton Riyadh King Saud University and the 155 ‐room Hilton Riyadh King Saud University Residence – both expected to open by FY2012. The company’s expansion plans through signing of new agreements is likely to increase Hilton Worldwide’s brand presence in the Saudi Arabia, which in turn, provide significant growth to the company's top line besides diversifying its revenue base. Strategic agreement with AT&T The company in order to enhance and improve its service offerings to a large customer base entered an agreement with AT&T, one of the largest providers of hosted internet access in the hospitality industry in July 2010. Under this agreement, AT&T will offer premium online service to the company’s guests in more than 3,200 properties located in the US, Canada and Puerto Rico. Furthermore, this agreement is likely to strengthen the company’s ‘’Stay Connected" program started in FY2005, by providing its guest with access to high‐speed internet services, making it more convenient for its guests to access internet from their hotel rooms, meeting spaces and public areas. Therefore, the strategic agreement with AT&T is likely to enhance the company’s online service offerings to its customers which will increase the customer traffic enabling Hilton Worldwide to maintain its leadership position in its key markets. Launch of iPhone and iTouch applications. The company launched a comprehensive iPhone and iTouch applications in the lodging industry in November 2009, observing an increase in the hotel reservations made through mobile phones. The new application is spread across seven of its hotel brands including Conrad, Hilton, Doubletree, Embassy Suites, Hilton Garden Inn, Homewood Suites and Hampton Inn brands in the US. The launch of the new applications offers special features which will help the company to attract more customers. For instance, the new applications have features like “Request Upon Arrival” service that enables a traveler to place an order for room service and have a meal in the guestroom upon arrival. Additionally, the new applications also offer “e‐check in,” a feature that provides remote check‐in up to 48 hours in advance. The launch of iPhone and iTouch applications will provide more convenience to its existing and new customers who usually make hotel reservations on mobile devices. Therefore, the company’s readiness in adapting the latest technology changes in the hospitality segment through launch of new applications such as iPhone and iTouch, could help it to stay competitive through increased revenue and customer base. Growing global hotels and motels industry The global hotels and motels
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industry has witnessed a significant growth in recent past. According to the Datamonitor's report on "Global Hotels & Motels", the global hotels and motels industry generated total revenues of $509.4 billion in FY2008, representing a compounded annual growth rate (CAGR) of 7% for the period spanning 2004–2008. Moreover, by FY2013, the global hotels and motels industry is forecasted to have a value of $623.8 billion, an increase of 22.5% since FY2008. As the company operates in the hotel industry with a wide geographic presence, it is strongly positioned to gain from the growing global hotels and motels industry, which would positively impact the top line growth of the company.
Threats Intense competition may lead to pricing pressures The hospitality industry is characterized by a large number of players, with many of them having a worldwide presence similar to Hilton Worldwide. There are many large hotel chains similar to the group such as Accor, Marriott International and Hyatt, who are also expanding in potential growth regions such as Asia. In addition, the wide presence of independent hotels especially in the US region provides scope for consolidation, which would increase competition further. Furthermore, some of the company's competitors have greater financial esources, resulting in greater purchasing power, better financial flexibility and more capital resource for expansion and improvement, which enables them to compete more effectively. Therefore, intense competition could lead to pricing pressures, thereby decreasing the profitability of the company. Terrorist attacks and natural calamities The tourism industry is affected by threats from terrorist attacks and natural calamities. Although the industry has made a good recovery over the last couple of years, subsequent threats of terrorist attack in major cities is likely to continue. Similarly, natural calamities like the earth quake in China in May 2008, Hurricanes like Rita and Katrina in the US, Tsunami in Asia, also affect the tourism and hotel industries adversely. Events like these lead to low customer traffic and hence could potentially affect the profitability of the company.
The study group 36 www.hilton.ee
4. Financial statement overview
Here the study group presents the Net Income development of Hilton Worldiwde. After the sell to the Blackstone Group in 2007, it is not possible to analyse separately the Hilton share of Net Income, and as the Blackstone Group owns several companies there was no aim to add the result to this analyse.
Net income development
700
600
500 USD 400 of
300 Millions 200
100
0 1991 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year
The exceptional step from 2004 to 2005 is mostly explained by the increase in hotel purchase and higher investment costs. However it has been stated clearly in the Annual Report analyze that franchising is the future way for their development. Already in 2005 have been stated their plan to develop and concentrate more on the luxury brands and this development. However there is not a good overview of following years in financial statement prospect we can count that Hilton has staid faithful to their promise to develop luxury brands and concentrate on franchising. The record year the company had in development term in 2008, they had the next best year in the company’s 91‐year history in 2009. This is a clear indication that they are investing and developing their branches.
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5. Competitors
Here the study group gives an overview of the main competitors for Hilton in order to have a wider picture and wider understanding of the business itself.
Hyatt: Hyatt was founded by Jay Pritzker in 1957 when he purchased the Hyatt House motel adjacent to the Los Angeles International Airport. Over the following decade, Jay Pritzker and his brother Donald Pritzker, working together with other Pritzker family business interests, grew the company into a North American management and hotel ownership company, which became a public company in 1962. In 1968, Hyatt International was formed and subsequently became a separate public company. Hyatt Corporation and Hyatt International Corporation were taken private by the Pritzker family business interests in 1979 and 1982, respectively. On December 31, 2004, substantially all of the hospitality assets owned by Pritzker family business interests, including Hyatt Corporation and Hyatt International Corporation, were consolidated under a single entity, now named Hyatt Hotels Corporation. Now days Hyatt Hotels Corporation manage, franchise, own and develop Hyatt branded hotels, resorts and residential and vacation ownership properties around the world. As of March 31, 2010, the company's worldwide portfolio consisted of 434 properties
Orient‐Express Hotels Orient‐Express Hotels was founded in 1976 with the purchase of Hotel Cipriani in Venice as the leisure division of Sea Containers Ltd. and was later incorporated as Orient‐Express Hotels Ltd., a Bermuda company. Today Orient‐Express Hotels owns 40 hotels world wide.
Pan Pacific Hotels and Resorts Pan Pacific® is a leading brand in Asia and the Pacific Rim, situated in key cities of distinguished destinations offering upper upscale accommodations and services. The portfolio consists of 18 hotels, resorts and serviced suites and the brand has earned esteemed accolades such as World’s Leading Business and Airport Hotel in Asia by World Travel Awards, Condé Nast Gold List and AAA Four Diamond Award.
The study group 38 www.hilton.ee
St. Regis Starwood Hotels & Resorts Worldwide, Inc. is a hospitality ownership and management organization, headquartered in White Plains, New York. One of the world's largest hotel companies, it owns, operates, franchises and manages hotels, resorts, spas, residences, and vacation ownership properties under its nine owned brands. As of December 31, 2009, Starwood Hotels & Resorts Worldwide, Inc. owned, managed, or franchised 992 properties employing over 145,000 people, of whom approximately 34% were employed in the United States
Four Seasons 1960s Max Sharp – constructed his first hotel. Over the course of this decade, he opened three Four Seasons hotels. Sharp’s experience would pave the way for the creation of a new kind of hotel, one focused solely on the guest. As its fifth decade began, Four Seasons continued to grow – in both size and recognition – around the world. The company now welcomed guests to 50 properties, on every continent except Antarctica. More than ever, Four Seasons Private Residences, Residence Clubs and other branded residential offerings were integrated with urban and resort Four Seasons locations. The strength of the brand had become a promise of a quality of life.
Marriot Marriott International, Inc is a worldwide operator and franchisor of a broad portfolio of hotels and related lodging facilities. Founded by J Willard Marriott, the company is now led by son J.W. (Bill) Marriott, Jr. Today, Marriott International has about 3,150 lodging properties located in the United States and 67 other countries and territories.
The study group 39 www.hilton.ee
6. Industry analyse and future development
6.1. Industry overview
After 9/11 there was a clear sign that the world is not what it used to be, and people will from that point onwards not consider only money when planning a trip. Although the industry has recovered itself slowly by now, there was a new drop after 2008, with the beginning of Financial Crisis. Until that point one of the most prosperous are in accommodation and travelling were business travellers. With the collapse of the financial markets and one of the most trusted and highly rated companies, the sector’s travelling costs decreased remarkably. Even when the industry recovers from one challenge, there is mostly another one just around the corner. In addition the family travellers have started to consider more the currency effect when planning a new destination. For example with the current currency war when the USD value has dropped the families consider more in‐country trips than oversee ones. The same applies to UK residents, and of course to European Union. In the current financial situation one can not overlook those impacts. Secondly it seems the segments of expectations and the needs of tourist are changing. For example people are not so keen to pay a fortune for a stay in one of the metropolis – London, New York, Paris. They wish to stay in those destinations with a reasonable price. This development does not mean that people are not willing to pay for what they wish, but their wishes have changed. Luxury tourists are more willing to pay for a get‐away package. It has been founded that people are ready to pay for a relaxing and private time in one get‐away resort more that they are willing to pay for a stay in metropolis. This is also a new developing area in the industry. The tendency that tourists expectations are changing and prices are dropping does not apply only for accommodation, but for all related services. The same goes for car‐rentals, plane tickets, etc. Compared to 2008 during 2009 the prices dropped 14%. That is a high drop, and it has been stated that when there was a time when tourists needed to pay a fortune to get a high‐level service, then nowadays in order to survive it is possible to get a full service for quite a reasonable price.
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6.2. Industry development
It seems that the industry will start to recover itself. The strongest will survive, and that will culminate with the price increase. However the industry will have to keep in mind in the current world the impact of catastrophes, terrorists and unexpectedness to the area. For example as the natural disasters are getting more and more common it is clear that people will consider those when planning a trip, the same applies for epidemics, political changes and financial situations. All the threats do not mean that the tourism industry will decrease to zero, it just means the world is changing, and it will let live only the ones coping with it the best. The study group finds that Hilton has already taken very strong steps in order to survive in the changing world. The strongest example is the establishment of Travelagents.com. It allows people to plan the whole trip in one page, and allows Hilton to benefit for every taken step. The webpage combines the possibilities to arrange from a cab from your front‐door to every little detail which may bother you during your trip. There is an overview of restaurants in destinations, entertainment possibilities, etc. A person will not have to bother itself with simple questions like what to do in the destination. The page offers all options. In our point of view the difference of segments will also become more and more important. The unique experience. People are not willing to pay for big tourism trips; they wish to have an unique approach to their trip. Get the experience. With the current life tempo, a person wishes to have something different every so often. In our perspective this is what the Hilton is working towards to. Of course this is also supported by Travelagents.com webpage, but also with the clear statement what was said out – they will develop more the luxury brands and will concentrate on GetAway packages. This is the future. People wishes to get away from every day life, and are willing to pay for it, and also they are willing to invest to get a personal service in luxury resorts. An important developing field in industry is in addition to different segments in life style also the generation. The youths and old people wish not to be treated the same way and in the same place. We found that Hilton has made good steps already when developing so many different branches. This selection will let the people possibility to choose according to their desire the best accommodation. In addition to the generations
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there is also an extra are of families. Parents travelling with kids look for an accommodation, which will offer something for them as well as for the little ones. It is only a plus if it also offers an opportunity for the parents to spend some alone time. This is also covered in Hilton case with the wide branch selection. What Hilton has already done and is doing continuously is the finding of new markets. The yet‐not discovered markets, which will become the places to be in years to come. This requires from a company free capital to be able to invest in the markets which may not be profitable within the next year, but will make a fortune after that. For that the merger to Blackstone Group was a right move, because it gave to Hilton more free capital and possibilities to develop those fields. In the current green‐thinking era it is more important that this is emphasised and considered also in hotel industry. The sustainability, green thinking and as small as possible footprint in the world is gathering its strength as a way of thinking and living. If a hotel wishes to reach all client segments, it has to also consider this. Also this is covered in the Hilton, and they have taken the first step, because they have stated in their homepage their development in sustainable way of thinking. The same way of thinking also covers some of the most innovative solutions in the room buildings and also in the area to which the hotel is established. With the wide branch and destination selection that Hilton provides they have accomplished to reach also to that client segment. With presented future vision we found that the Hilton hotel chain has established themselves already well in the industry. Also the stated investment and development plans support to be continuously successful and one of the leading companies in the industry.
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Conclusion
In our research we investigated the prosperous and continuous growth of Hilton hotel chain, and how it has developed to be one of the leading companies in the industry. Regardless of the 91‐year existence the Hilton chain still continues to grow and invest to its business, even when some of its competitors have died out. What we learned from the case of Hilton is that it is extremely important for a company to adjust with new situation fast. To accept the changes and new challenged, instead of fighting against them. Hilton chain has changed its Business Model with those 91 years several times. In our paper we split the models to three different era and three different main versions, though it is also possible to analyse in more details, but with such a historical company, we found the split to three different eras gives an overall overview. The Hilton started as a classical hotel company – purchased hotels, and concentrated to real‐estate. With that model they would have never accomplished the level they know now. It would not have been possible to purchase and manage all their current destinations. That kind of business model would require too high investments nowadays. Though their approach to one segment during the 1960’s – 1980’s paid off, it would not have been lasted forever. During the decades mentioned before the chain concentrated on casino hotels. That was a beneficial business and grew their profit intensively, but that wasn’t a long term developing plan. Luckily this was not their approach. Already the prosperous casino era, Hilton owners noticed the need to organize more thoroughly the management service. They have made several oversee investments, and the management was getting too complicated. That is why it was decided already in 1960’s to give up on the daily operation, and concentrate on management and franchising. Their great success from 1919 – 1960 allowed them to start with franchise business, because their trade mark was already well known and trusted. The growth in franchising and even higher pressure on developing different brands under one company started with the ’90’s. They concentrated more on the development of luxury brands and selling its brand. Even though Hilton also nowadays still owns some of the hotels, the highest pressure is on selling the brand, which is trustworthy and proved. Finally we analysed also the future vision of industry, future vision for Hilton as well as the aspects of latest alliance with Blackstone Group. We found that to combine the future
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vision of the industry then it lies in unique and personal approach. In addition to that the success hangs up also on new markets, and on luxury brand development. We found that Hilton has already taken several steps to survive in this market. The survival is also supported by the alliance with Blackstone Group, which will give more capital and possibilities to concentrate more on investments. All in all Hilton chain has survived for decades for being able to cope with new market situations and for establishing new business models. The company makes right alliances supporting their business. With their current developing model they are surely able to survive also in the future challenging market.
The study group 44 www.hilton.ee
Addendum
In addition to the classical research methods we made an interview with an employee in previous HHRC Tallinn call centre.
From which countries most of the calls came? For info: Great Britain Edinburgh ‐ there was another call center where came all England calls, often also from America. When there was overburden, the England calls came to Tallinn. The center was open till 2 am at night and the calls from America and Canada came at night. Typically the Americans were very nice, but the hotels they wanted to book were unknown to us (a small town somewhere in Texas, who knows how to write it?!) 'Could you spell it, please?' Then the American thought, are you a fool to not know this place, or what? Sometimes they got nervous too. But most of the calls came to Tallinn call center from Europe – Germany, France, England and of course Northern Europe. In Hilton existed so‐called clusters. It means if someone calls to the hotel to book a room, his/her call comes automatically to our center. I worked at German line and if I heard "Hilton Frankfurt", it meant I had to answer. We had all the info about the hotel, but sometimes it was very difficult to say if there is a free room with balcony or not. In this case we called the hotel and asked them. At the same moment the customer was waiting on the line. We helped many hotels all over Europe: Germany, Finland, Sweden and France. It was 2006 World Championship in Germany, where we got many calls and each customer hoped we have a free room, but they were already booked...
What were the native languages of the workers? From which countries the workers were from? There were many Estonians as well Russians. Usually there were university students who worked half‐time. Also people from Italy, Belgium, France, Finland, New Zealand, Switzerland and Turkey. Nobody did not have special education, only customer service skills
The study group 45 www.hilton.ee
and great language skills. Every week we had workshops, where we got good tips how to sell the rooms, etc.
What was the level of their command of language and how many languages the workers could speak on average? How the calls in various languages were selected, in order to reach the right person, who speaks that language? First work interview was by the telephone. Someone called and spoke firstly in English. Then someone else called and spoke in the different language. I had in German and Italian. I was called three times. Then I had the primary interview with Human Resources Manager, who spoke with me in English, because it is the main language in the company. He/she asked: what do I know about Hilton, what is king size bed, etc. There were few people like me (with three language skills). Usually one person had English skills and for second language Finnish or French or Italian. Also there were people who spoke only in English. I was pleased to talk in German and Italian, because English calls were very boring. And they (from England) made a few reservations, asked only for info. Your bonus depended on how many reservations you did. It was paid in the end of the month. I cannot say that the language level was perfect. We did mistakes, but it was okay. I think everything depended on how long have you been worked, because all the calls were alike. That is true, that we were told that Tallinn call center speaks better language than any other center (for example, Cairo in EgyptEvery post (where I sat) owned its own telephone, computer and log‐in. When you logged‐in, everyone had to be punctual, you got automatically your language calls
Are there any other interesting facts that I do not know how to ask? By the way, the corporate culture was very characteristic of American culture. Our director was an American woman, who talked to us in English and only if something important happened. We had also managers, who had the authority to listen and track our calls, to be sure that everything would be alright and we could call them if we had any problems. Every team had its own team leader, who explained how to work and listened our calls. Every week we had a meeting with our team leader, where we listened our calls, to figure out how to do better job and what needed to improve. Every week came out Hilton Tallinn center magazine; we
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got it to our e‐mail. There was all the info and also the best bonuses, new workers, birthdays, etc. My wage was every time different, it depended on bonus. If I remember well, it was 7000 EEK at the beginning. But when I left the company in the end of 2006, their wages rose to very high. In addition, everyone who was travelling had the luxury to stay in Hilton hotel only for 250 EEK per night. Unbelievable, only 250 EEK per night and additionally you had free breakfast. Hilton also organized a trip to Germany and France, to show their hotels, so you can better sale them by telephone. The center grew rapidly and sharply it was closed. I was told that it was very expensive for Hilton Group, because the customers could call for free. Hilton had to pay the customers calls` price difference (one call that comes from Germany and goes to Estonia). Many who worked in Hilton went to work in Skype.
(Interview with Julija Pilipenko, HHRC Tallinn call center employee 2005‐2006, France, 2011)
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References
[WWW] http://www.referenceforbusiness.com/history2/76/Hilton‐Hotels‐Corporation.html [WWW] http://en.wikipedia.org/wiki/Conrad_Hilton [WWW] http://hiltonworldwide.com/ [WWW] www.hilton.com [WWW] http://www.hiltonworldwide.com/ [WWW] http://en.wikipedia.org/wiki/Hilton_hotels [WWW] http://en.wikipedia.org/wiki/Hilton_Worldwide [WWW] http://hhonors1.hilton.com/en_US/hh/home_index.do [WWW] http://hiltonworldwide.com/ourbrands/index.htm [WWW] http://www.fundinguniverse.com/company‐histories/Hilton‐Hotels‐Corporation‐ Company‐History.html [WWW] www.blackstone.com [WWW] http://www.postimees.ee/070907/esileht/majandus/281662.php [WWW] http://www.expatexchange.com/expat/index.cfm?frmid=205&tpcid=3326292 [WWW] http://www.ap3.ee/?PublicationId=6f06b96f‐463c‐4945‐ab62‐71a9481e6651 [WWW] http://www.facebook.com/group.php?gid=14143035226 [WWW] http://www.cv.ee/a‐z/index.php?show_id=24927&what=pr [WWW] http://hiltonhhonors.com/ [WWW] http://hhonors1.hilton.com/en_US/hh/about/index.do?it=Not,TnavAbout [WWW] http://hhonors1.hilton.com/en_US/hh/about/memlevels.do Hilton Reservations & Customer Care, Mozhova, 2006 The influence of customer relationship management on the Hilton Hotel Group, Lindvall, 2008, Muudatuste juhtimine Hilton Reservations & Customer Care (HRCC) süsteemioperatsioonide osakonnas, Laipea, 2006 [WWW] http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?hid=8&sid=a1c0e845‐92d1‐ 4a1e‐bd90‐24c684e3701d%40sessionmgr15&vid=7 [WWW] http://www.slideshare.net/ [WWW] http://www.wikinvest.com/wiki/Hilton_Hotels
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[WWW] http://www.hiltonfranchise.com/ [WWW] http://www.facebook.com/#!/pages/Organization‐and‐Management‐ Theories/137534756287734 [WWW] http://www.fivestaralliance.com/luxury‐hotel‐brands/92/hilton‐conrad‐ international‐hotels [WWW] http://www.brainmass.com/libsearch/index.php?process=1&keywords=hilton%20hotels [WWW] http://www.encyclopedia.com/searchresults.aspx?q=hilton [WWW] http://www.hotelworldnetwork.com/ [WWW] http://uudised.err.ee/index.php?0549527 [WWW] http://www.arabianbusiness.com/mapping‐hilton‐s‐growth‐plan‐146980.html [WWW] http://conradhotels1.hilton.com/en/ch/home.do [WWW] www.hiltonhhonors.com/services/PointsCalculator_pop.aspx [WWW] http://www.hospitalitynet.org/organization/17000754.search?query=hospitality%20in%20hi lton [WWW] http://www.hiltonmanagementservices.com/support‐functions/supply‐ management.html [WWW] http://www.hotelnewsnow.com/articles.aspx/4086/Hilton‐CEO‐No‐IPO‐no‐sales‐of‐ brands [WWW] http://dealbook.nytimes.com/2007/07/03/blackstone‐fires‐back‐with‐26‐billion‐ deal‐for‐hilton/ [WWW] http://www.bizjournals.com/washington/blog/2010/09/hilton_ceo_downplays_ipo_rumors. html [WWW] http://www.referenceforbusiness.com/history2/76/Hilton‐Hotels‐Corporation.html [WWW] http://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1091&context=jhfm [WWW] http://www.caterersearch.com/Companies/33955/hilton‐international.html Hilton Worldwide Annual reports 2000 – 2007 Blackstone Group Annual reports 2008 – 2009
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[WWW] http://phx.corporateir.net/phoenix.zhtml?c=88577&p=irolnewsArticleOther&ID=1378513&h ighlight= [WWW] http://www.hyatt.com/hyatt/about/our‐company/company‐history.jsp [WWW] http://www.orient‐ expresshotelsltd.com/web/oehc/investors/investors_corporate_overview.jsp [WWW] http://www.panpacific.com/en/hpl.html [WWW] http://en.wikipedia.org/wiki/Marriott_International [WWW] www.fourseasons.com [WWW] http://en.wikipedia.org/wiki/Starwood_Hotels_&_Resorts_Worldwide [WWW] www.hotels.com Anneli‐Harju Autti Toimiala raportti: Majoitustoiminta 2010
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