Business Model of Hilton Hotels

© Shutterstock.com | happydancing

Among the top hotel chains in the world, Hilton Worldwide has a large number of hotel brands within its portfolio. In this article, we will look at 1) introduction to Hilton, 2) history, 3) business model, and 4) the USP of Hilton Hotels & Resorts.

INTRODUCTION TO HILTON

Hilton Hotels Corporation, now known as Hilton Worldwide, is a global hospitality business. The American company is now owned by the Blackstone Group, a multinational US private equity, investment banking, alternate asset management and financial services corporation. The company was created by Conrad Hilton in Cisco, Texas. The headquarters were in Beverly Hills, California from 1969 till 2009. After that, the headquarters moved to Fairfax County, Virginia.

Until 2013, Hilton was ranked 38th in terms of size among privately held company by Forbes. In December 2013, the company returned to being a publicly held company in a second IPO worth an estimated $2.35 billion. As of 2014, the company has over 4000 hotels under all the Hilton brands. These have an estimated 680,117 rooms in 91 countries.

There are several brands that operate under the Hilton brand portfolio. These are either owned, managed or franchised by the company. Some of the hotels under this portfolio include Waldorf Astoria Hotels and Resorts, Conrad Hotels and Resorts, Hilton Hotels and Resorts, Embassy Suites, Hampton Inn and Hampton Inn and Suites, Doubletree by Hilton, Hilton Garden Inn, Home2 Suites, Homewood Suites, and Hilton Grand Vacations.

Since 2005, the company is among the sponsors of the United States Olympic Team.

HISTORY

The Early Years

Through most of its history, the hotel chain was managed by Hilton family members since the company was created in 1919 by Conrad Hilton with the purchase of his first hotel. Hilton was born in New Mexico and was one of eight children. He worked as a trader, a clerk, a bellboy and a pianist all before he was 18. In another few years he did turns in politics and banking. When his father died in 1919, he left the army and went to Texas with the intention of buying a small bank to capitalize on the oil boom at the time. Finding banks too expensive and hotels overbooked, he made a deal with a property owner looking to sell. He managed to gather the necessary investment and The Mobley, Hilton’s first hotel, was born. Within a year, he bought two more properties in Texas and in 1925, the first hotel with the Hilton name was set up in Dallas.

Hilton managed to survive the depression in the US with 5 out of his 8 hotels and went on to buy his first hotel outside of Texas. This was the Sir Francis Drake in San Francisco. He later sold this at a profit to raise money to purchase the Stevens in Chicago which was the largest hotel in the world at the time. Through World War 2, he continued his acquisitions in LA and New York and by 1942 had presence from coast to coast in the US. His goal at the time was New York’s Waldorf Astoria. He continued to carry a photo of the hotel with him since the hotel opened in 1931. In 1946, he created the Hilton Hotels Corporation and became the first hotel company to list on the New Work Stock Exchange.

By the 1940s, the company had expanded to a worldwide chain of premium hotels. Hilton pushed his board for international expansion and opened the first hotel in Puerto Rico. At the time, a wholly owned subsidiary was created, called Hilton Hotels International and the first European hotel opened in Madrid in 1953. Hilton also purchased the lease on the Waldorf Astoria in 1949, converting it into a profitable venture within a year. The expansion continued with the biggest hotel merger in the industry when Hilton purchased the Statler Hotel Company at the price of $111 million and with international hotels in Turkey and Mexico City.

International Operations Divestment

During the 1960s, the company divested its international operations, creating a separately traded company called Hilton International Co. This spin-off was a publicly traded company with Conrad Hilton as its president. He also became chairman of the Hilton Hotels board at the time. This period was marked by change in leadership when Hilton’s son Barron became president of the company. On his persuasion, Hilton agreed to exchange his stake in Hilton International for shares of Trans World Airlines. This investment did not pay off as expected and claims over the Hilton name were lost internationally.

In 1967, this new company was acquired by Trans World Corporation, a holding company for Trans World Airlines. This business was sold again in the eighties to UAL Corp, the holding company for United Airlines. This company made attempts to position itself as a holistic travel company that included the Westin Hotels and Hertz rental cars along with Hilton International and United Airlines. Corporate tussles led this business to be sold again soon after to a British leisure and gambling concern called the Ladbroke Group. By 1999, the company was renamed as Hilton Group plc.

These separate evolutions of the domestic and international businesses meant that two simultaneous yet autonomous Hilton companies were operating in the world. Both companies were contractually forbidden to operate in each other’s territory under the same name. To manage this, hotels run globally by the American Hilton company were called Conrad Hotels while those run by the international company within the US were called Vista International Hotels. This was an understandably confusing situation for consumers so in 1997, the two companies developed a joint marketing agreement. The terms of this agreement allowed the two companies to share a logo, promote both brands and maintain a joint reservation system. Around the same time, the Vista Hotels were slowly closed and the Conrad converted into a Luxury brand under the Hilton umbrella with hotels operational in both the US and around the world.

The Casino Business

During the early seventies, the chain expanded into casino hotels in Las Vegas, Nevada and by the late eighties this area was bringing in close to 44 percent of the company’s total income. Barron Hilton worked the franchising model during this time and the launch of a computerized reservation system, nicknamed the HILTRON. This system was later adopted by other hotels in the industry, adding to the company’s revenue stream. In 1975, 50 percent share in six major hotels was sold off with the agreement that Hilton would continue to manage the properties for a percentage of returns. This was a unique business model at the time and later became a standard practice within the industry.

In the late seventies, the company finally completed the purchase of the Waldorf-Astoria land and building and in 1979, Conrad Hilton died at the age of 91. His son succeeded him as the chairman of the board. The company continued to stay afloat during years of recession by relying on revenues from casinos, leasing and management and franchise fees.

Renewing international expansion, the company created a new subsidiary by the name of Conrad International Hotels in 1982. Hotels were opened in Australia. Turkey, Egypt, Hong Kong, Uruguay and New Zealand in the decade that followed.

In a change of management, Barron Hilton handed over the reins to Stephen F. Bollenbach in 1996. Bollenbach was the first non-Hilton to lead the company. He took some bold steps to revitalize the company and among these was the decisions to spin-off the gaming side of the business. In 1998, this arm of the chain became Park Plaza Entertainment Corporation after growing this business substantially. This concern is now called Caesar’s Entertainment Inc. A year later, he drove an acquisition of the $3.7 billion Promus Hotel Corporation, adding further brand names to the company’s portfolio. These included, Doubletree, Embassy Suites, Hampton Inn, Homewood Suites and Harrison Conference Centers.

During his tenure, he also reunified the divided Hilton concerns by purchasing a stake in the British owner Ladbroke. The two companies agreed to work together to develop new hotels as well as joint plans for marketing and honoring frequent stay plans for each other.

In 2007, the company agreed to a buy-out from Blackstone Group. The transaction meant that the new owner had to deal with a $20 million debt in an economic downturn. This debt was restructured in 2010 with Blackstone investing further equity into the company. In 2013, the company filed for a $1.25 billion IPO.

BUSINESS MODEL

Business segments & its Products and Services

The company, through expansion and acquisitions over the years, caters to a large number of business segments and consumer types. Some of their segments include:

  • Luxury
    • Hotels under this segment are the luxury flagship brands of the hotel chain. These high end hotels cater to clients looking for the highest standards of luxury and service. The two hotel chains in this area include:
      • Waldorf Astoria Hotels and Resorts
        The Waldorf Astoria Collection of luxury hotels were created after the original Waldorf Astoria in New York City. Other Hilton hotels often have the Waldorf name attached to them but are not necessarily part of the flagship brand. The hotels have presence in the US, China, the UK, Saudi Arabia, Italy, France, Germany, Israel, the Netherlands and Panama, with further development underway in China, UAE, Indonesia and Canada.
      • Conrad Hotels & Resorts
        These hotels began as the international arm of the American Hilton Company. Later, they were retained as a Luxury brand. Currently, they operate worldwide with presence in North and South America, Australia, Asia Pacific, Europe, Middle East and Africa.
  • Full service
    • Full service hotels cater to business and leisure travel and locations are often in major city centers, near convention centers as well as at major vacation destinations globally. This segment includes the following brands:
      • Hilton Hotels & Resorts
        • These hotels are among the flagship brands of the company and one of the biggest and most recognizable hotels around the world. They are owned or managed by Hilton Worldwide or franchised to independent operators. The company has an extensive guest loyalty program with partnerships that range from airlines to car rental companies. These programs are applicable in all Hilton Worldwide hotels.
      • DoubleTree by Hilton
        • Most DoubleTree hotels are franchised though some are managed by the company itself. These hotels came under the Hilton Umbrella after the purchase of the Promus Hotel Company.
      • Embassy Suites
        • These are upscale hotels under the Hilton brand name. By 2011, there were 200 in the US with 8 operational internationally. Competitors include Cambria Suites and SpringHill Suites by Marriott.
  • Curio – A Collection by Hilton
    • These are unique hotels, different in every area they operate in. They aim to maintain the history and character of the city that they operate in.
  • Select service
    • These are mid-prized full service hotels that cater to both business and leisure travelers
      • Hilton Garden Inn
        • These hotels include basic amenities such as an onsite restaurant and a Pavilion Pantry that serves as a 24 hour convenience store. Most hotels will feature a pool and a fitness center along with high speed wifi access and a business center. Breakfast is usually not complimentary but bed and breakfast packages may be available.
      • Hampton Inn
        • These are limited service hotels and cater to more budget oriented business and leisure travelers. There are no restaurants onsite pr bell and concierge services. The chain had 1800 hotels by 2011 with a majority within the US. Some international locations include Canada, Costa Rica, Ecuafor, Mexico and the UK.
      • Hampton Inn & Suites
        • These hotels offer the same service as the Hampton Inn with the addition of suites. These are mid-prized full service hotels that cater to both business and leisure travelers.
  • Extended stay suites
    • As the name suggests, these hotels are for extended stays.
      • Homewood Suites by Hilton
        • This chain had 310 hotels in 2012 with more under development. Most are managed by franchisees. These are upscale hotels are compete with Staybridge Suites and Residence Inn by Marriott.
      • Home2 Suites by HiltonHomewood Suites by Hilton
        • These are a mid-range chain of hotels that offer a more adorable price tag for both business and leisure travelers. All hotels in this range are franchised.
  • Timeshare
    • In this category of hotels, people will jointly own resort villas. These people are members and can use these facilities for limited periods of time the brand name for this segment is:

Franchising

Over the years, Hilton Worldwide has made a shift from a traditional hotel company to more of a consultant. This shift in business model was driven aggressively by the new owner, Blackstone Inc. Out of 4,080 Hilton properties, less than 4 percent are directly owned or leased by the company itself. Instead, the company will merely manage it for a share of the profits or it is completely operated by a franchisee.

This model takes away real estate fluctuation concerns from the Hilton management. Problems such as property values and capital investment into building development and maintenance are no longer a concern. And keep the business growing despite global economic downturns. Instead, the focus is on developing the brand, the customer service and working on occupancy. Franchise fees keep up the revenue and consultant privileges ensure that a keen eye can be kept on compliance to hotel standards. Hilton retains control of most of its flagship properties, airport properties, and largest resorts.

The downside of this arrangement is that during good times for business, the company will make less than the franchisee. This is not a major concern for the company at the moment. This model is popular among the hotel industry.

Competitors

The company competes globally with major industry players such as Marriott, Hyatt, Starwood Hotels and Resorts, ACCOR group, Choice Hotels, and Intercontinental Hotels. Key criteria for competition among these companies include locations, quality of rooms and services and global operations and presence. A 2006 comparison of major players shows how Hilton ranks among competitors.

Comparison to Competitors
Hilton Hotels
Marriott InternationalStarwood Hotels
Number of Hotels2,9352,832871
Number of Rooms (Thousands)501514266
Geographical Presence (Countries)7868100
Occupancy (Percent)72.574.471.2
Average Daily Rate (USD)115.4154.0191.6
RevPAR (USD)82.5114.6136.3

USP

Though all top tier hotel chains aim to offer similar service as competitors, Hilton manages to deliver on service standardization, integrated IT systems and a keen focus on customer satisfaction. Apart from this, the company is not afraid to question itself. A few years ago, the company launched a global research program to support a brand reinvention activity. This helps the company stay relevant.

Conrad Hilton Biography

Share your thoughts and experience

E-mail is already registered on the site. Please use the Login form or enter another.

You entered an incorrect username or password

Sorry, you must be logged in to post a comment.