By Louise Oakley
Hilton Worldwide president and chief executive officer Christopher J. Nassetta reflects on the six-year journey to the lodging industry’s largest ever IPO, revealing how he fought for the buy-in of 300,000 colleagues in order to wake up a sleeping giant
The year 2013 will long be a highlight on Hilton Worldwide’s 96-year timeline. The company opened 207 hotels, with nearly 34,000 rooms, 64% of which were developed by current owners. Another 72,000 rooms were approved for development, growing the pipeline to more than 1100 hotels, consisting of 195,000 rooms as of December 31. Close to 102,000 of these are under construction, representing the largest number of rooms under construction in the industry in every major region of the world, according to Smith Travel Research.
The financials were strong too, with RevPar, margin and net unit growth leading to adjusted EBIDTA growth of 13% on a year over year basis to $2210mn for the full year. The crowning glory came in December, when backed by private equity and real estate firm Blackstone Group, Hilton Worldwide raised approximately $2.34bn in its initial public offering, rejoining the New York Stock Exchange. The IPO was the second biggest float in 2013 and the largest ever offering for a hotel company, with the record previously set by Hyatt in 2009. Hilton Worldwide sold 117.6mn shares priced at $20 each on December 11, five million shares more than it had offered and at the upper end of the $18-$21 price range it had set.
There’s no doubting it was a stellar year but the journey to the IPO started back in 2007, when Blackstone bought Hilton Worldwide and “airlifted” in Christopher J. Nassetta, formerly president and chief executive officer of Host Hotels and Resorts, to transform the “sleepy and complacent” hotel chain. Speaking to Hotelier Middle East six years after his appointment, and six weeks after the IPO, Nassetta recalls he had “quite a task” on his hands.
“There’s no question I came in with sort of a view of what was possible; I wouldn’t have taken the job if I didn’t think there was a lot we could do and I had a pretty good perspective. I was an industry guy. I competed against Hilton in my Host Marriott days, I certainly competed against Hilton for money in the public environment and I thought I had a pretty good perspective on what the opportunities were,” he says.
After spending his first 90-120 days in position “flying around the world, talking to our people, our customers, our team members, our major owners”, essentially doing a SWOT analysis of the company, Nassetta remembers the situation being both “worse and better than we thought”.
“Worse in a sense that we were further behind than I think we would have guessed, better in the sense that it meant better opportunities, to an extent we could change the trajectory in the organisation, totally transform it,” he explains.
The “under-riding thesis” driving these changes, which in hindsight Nassetta says was “right in spades”, is that back in 2007, Hilton Worldwide was a “very dysfunctional organisation” — put together largely through merger and acquisition and not yet aligned. The history is well known: in 1964 Hilton International (HI) and the original domestic US business, Hilton Hotels Corporation (HHC), became separate companies, not reunited until 2006, when HHC reacquired HI. During this 40-year period, HHC had bought brands such as Hampton, Doubletree, Embassy Suites and Homeward Suites, creating what Nassetta describes as a “very siloed organisation”.
There were other problems, related to performance, brand and growth, says Nassetta, painting a fairly bleak picture.
“Performance was mediocre, sort of average to slightly worse than average; that meant top line performance across the enterprise, that meant cost structure, ultimately bottom line performance was average,” says Nassetta.
“The next part of the under-riding thesis was brands. The brands were good but they had room to be better in terms of market share of the brands, and we had segments that we weren’t serving. If you believe, which I do, that the underlying philosophy is to serve customers for any type of travel need they have, anywhere geographically within reach, we weren’t doing that as well; we had huge opportunities in terms of being able to serve customers better. So the brands were good, but not great, and last but not least from a growth point of view, our growth was anaemic, particularly internationally … we were anywhere from fourth to eighth in terms of where we stood in pipeline rooms under construction. We had the number one brand in terms of customer awareness in every region of the world yet we weren’t doing anything about it, so the fourth of the priorities was really to accelerate growth.”
In a nutshell then, Nassetta had four priorities: align the culture and organisation, improve basic performance, enhance and strengthen and expand the brands, and then expedite growth.
Central to achieving change in all of these areas — and the revolution that Nassetta thinks will sustain and develop the business going forward — was creating a company culture that all Hilton Worldwide’s 300,000 employees would buy into.
“It wasn’t that we didn’t have culture, it was that we had lots of cultures, the companies had never truly been integrated or aligned,” explains Nassetta. “I do a lot of things, I work on deals and talk to the press and our people, but the primary thing I do, the most important thing I do, is really set the tone for the culture. It actually is quite simple, hard to execute, but the concept is really simple, which is getting intense alignment around the principles of who you are, how you behave and what your most important priorities are, and when I say intense, I mean intense — everybody from a housekeeper to the most senior person in every geography around the world, 300,000 people, [must] know what you are doing. And the power of the force of will of all of those people headed in the same direction is massive.”
The key, he says, was to establish “the four corners — mission, vision, values, key priorities” and “distribute leadership out throughout the organisation.” He explains: “The businesses that succeed in the next 10 or 20 years are going to be the businesses that do that well. Businesses that try and centralise too much decision making in one place, wherever that is, in my opinion are going to struggle, but having those principles — the mission, vision, values, and what those key priorities are — well established and having people really aligned around those is critical, or in a big organisation it would be anarchy.
“When you are running a company that has 300,000 people in 100 countries, you can’t know everything, you can’t do everything and to the extent you think you do and you can, you will fail,” asserts Nassetta. “The fact is your teams on the ground, on the front line, are better suited, have more knowledge and information with which to make good decisions to serve your customers, to ultimately propel the business.”
He speaks here not as a finance or real estate expert, but as a hotelier. Nassetta’s first job as a teenager was in the engineering department of a Washington DC hotel, “literally at the lowest level”.
“My primary job at that time was the sort of job of plunging toilets and doing other things that nobody else wanted to do,” he laughs. “It’s a great way to figure out behind the walls what’s going on in a hotel. These are very complex businesses, they are lots of moving parts, the work is very hard, and I think the best way to start in any business, is to start from the ground up, to build up an understanding in a way that you can relate to the people who are doing all this hard work.”
It’s for this reason, Nassetta believes, despite “morphing” into various aspects of real estate following his degree in finance that “he kept coming back to hotels”. When he joined Host Hotels, now the world’s biggest hotel owner largely down to Nassetta’s leadership, he says he made a commitment to stay in the business. “I kept gravitating back and finally, I said I think I’ve figured out what I’m meant to be in life, which is I’m meant to be a hotelier”.
This passion for the business — from management and franchising to branding and operation — informs a lot of the principles Nassetta has strived to instil in his colleagues, inspired also by Hilton Worldwide’s father, Conrad Hilton. The “lofty” vision Nassetta refers to, comes from Hilton: “to fill the earth with the light and warmth of hospitality”.
“That means delivering exceptional guest experiences,” says Nassetta, adding that this applies not just to those colleagues actually meeting guests, but to everyone back of house or in corporate office too.
“They’re not serving customers every day but without having everyone rally around that vision you can easily forget the business you’re in. We’re in the business of serving customers. I don’t really care what you do in the organisation, I don’t care if you’re the CEO, housekeeper, or anybody in between, that’s what we’re here to do, so having people focused on that and making sure that resonates, I think is as important as anything,” says Nassetta.
Following on from this, he says the team needed to know Hilton Worldwide’s “behaviour set values” and understand the “strategic priorities” — so as to answer the question of “‘we feel great, we know what we do and we know how we do it, but hey boss, where are we going? What exactly does that mean? Give me the things I gotta do’”.
He admits that at times, “I felt like if I had to talk about these things one more time it would be the end of me”. But now, though Nassetta still enforces the message —preaching to me much as if I were a colleague —he says it is easier.
“It’s more ingrained and people buy in and then they take ownership, so it starts with somebody, in this case it had to be me, not because I’m special, but there had to be somebody to start a cultural revolution, but then the people take over eventually, they love it, and those that want to be part of it take the mantle and they run with it and then it becomes very special and sort of feeds on itself.”
He’s confident that this culture will now help attract the talent international hotel giants like Hilton Worldwide so desperately need. Nassetta estimates Hilton will create 200,000 new jobs in another three to five years, something he’s excited about through various projects he is currently working on with the WTTC, World Economic Forum and the International Youth Foundation to target and reduce youth unemployment.
“The majority of jobs we’re going to create are going to be in the youth age cohort, entry level in the travel and tourism business. Today there’s 75 million youth unemployed around the world … when you look at the whole supply chain, there are 75 million jobs in travel and tourism that are going to be created over the next 10 years. So there’s a real opportunity and a need..., so personally, and as an organisation, we spend a huge amount of time matching that up,” he says.
The main challenge is raising awareness generally of the opportunities for careers — and career progression — in travel and tourism, which is why Nassetta launched ‘Open Doors’ at the start of the year, a programme which pledges to help one million young people “reach their full potential” by 2019. Through this, Hilton Worldwide seeks to “connect” people with the industry, “prepare” them for work, and ultimately “employ” them. He says that while awareness of the size of the industry — the world’s single largest employer comprising one in 11 jobs —is getting better, connection to it is not improving.
“[We need to make sure] that people know that these are good jobs; in many cases if you work hard and you get in the right company and the right culture, with training and development opportunities, there’s a lot of upward mobility. I do not think in the world today, not just here, everywhere, I do not think there’s an appreciation for that,” Nassetta laments.
While talent is high on the agenda in 2014, Nassetta says that the rest of the company strategy is the same for the new public company. He admits his own allocation of time is slightly different, informed perhaps by many years of experience heading a public company previously, but that “inside the company, in terms of the four walls, of what the strategy is and what we’re doing, it remains the same”.
“Those underlying principles that are driving our growth, better serving customers, creating opportunities for owners, creating more opportunities for our team members, they’re all exactly the same, there really is no difference,” comments Nassetta, adding that the goal now is “to accelerate those”.
Looking at the Middle East and Africa specifically, there are currently 66 hotels operating with 20,145 rooms and 67 pipeline properties with 20,306 rooms.
“In the next three to four years our plan is to double in the region, in the UAE, we’d obviously like to see something similar. I think we have 14 hotels in UAE and we’ve got seven in the pipeline but we’re working diligently to continue to enhance that pipeline so in the next three to five years, we certainly want to double.”
Part of growing the pipeline will include bringing new brands to the region, most likely Hampton by Hilton followed by Embassy Suites, reveals Nassetta.
“Star systems don’t mean anything anymore but to use the vernacular, if Hilton Garden Inn is four-star then Hampton is in this part of the world three-star, it’s an amazing product but it’s a little bit lower price point and I think as the lodging market matures in the Middle East it will allow us to continue to serve more customers.”
Currently, Hampton has 1937 hotels open in 15 countries and more than 350 hotels in the pipeline, with the 2000th property expected to open this year. All-suites brand Embassy Suites is smaller, with 215 hotels open in five countries and 25 hotels in the pipeline.
“[Embassy Suites] has been primarily a North American experience but increasingly my sense is customers want that product. The opportunity to do Embassy is much more limited because there are only so many of those that you do in terms of demand for an all-suites product but I do think the demand will be there. In terms of a Hampton and Garden Inn, I think there’s a much bigger opportunity in terms of number of units,” says Nassetta, referring to a recent partnership with Wasl Hospitality to bring mid-priced hotel brand Hilton Garden Inn to the UAE for the first time, following a signing agreement for two new hotels in Dubai.
Nassetta reveals the industry can expect the announcement of “at least one new brand in the not too distant future”, expected to be in the lifestyle sector, after the demise of Hilton Worldwide’s Denizen brand back in 2010 following an industrial espionage suit by Starwood. He’s unwilling to be drawn on this, merely saying “we are working on some ideas”, but expectation is that a boutique brand will be unveiled soon.
Nassetta also promises more innovative integration of technology to give “customers across the whole system more choice and control in how they interact with us”. He acknowledges that hotels can’t possibly get ahead of the technological innovators, but says it is time to put what already exists to better use.
“I think like anything in business you keep steady hands on the wheel, you don’t take sharp turns left and right at every exit, there’s so much happening technologically you can’t keep up with it and I think if you try to you’re going to veer off the road and make mistakes, so I think [we must] keep it simple. In my mind what’s most important to customers is making their life easy, giving them more control,” he comments. “With a hotel experience think of all the things that have been the same since you were a kid, they’ve been the same for 100 years, why do they need to be that way, why can’t they just be easier, why can’t you be in control of it and why can’t technology enable that?
“The short answer is it can, it exists. Somebody just has to actually do it and do it at scale, so we’re going to do that, we’re certainly going to try,” he claims, hinting that a technological revolution could be the next change at Hilton Worldwide.