Posted on: Wednesday, December 19, 2001

Hilton chief sees signs of industry recovery

By Jeannine DeFoe
Bloomberg News Service

BEVERLY HILLS, Calif. — Hilton Hotels Corp. Chief Executive Stephen Bollenbach said he sees signs that hotel room demand has hit bottom and started to rise, as he predicted it would just after the terrorist attacks.

"By and large the business has come back to where it would have been without Sept. 11," said Bollenbach, 59. "Twelve weeks ago somebody could have concluded there was nothing but a bleak future for the U.S. economy. It was terrible, but it wasn't as terrible as people thought it was going to be."

Bollenbach stood apart from his rivals in September when he predicted the hotel industry would rebound in 12 weeks. He said at the time he wouldn't cut jobs or delay the opening of hotels, even as Starwood Hotels & Resorts Worldwide Inc. and Marriott International Inc. were firing workers and reducing spending.

By deciding to "manage for recovery," Bollenbach may have put the Beverly Hills, Calif.-based company in a better position than other hotel companies to take advantage of the recovery, analysts said.

Hilton "didn't have a knee-jerk reaction to cutting capital spending," said ABN Amro analyst Joseph Greff, who this month reiterated his "add" recommendation Hilton shares, his second highest rating. "It gives them a much better platform for growth when demand recovers."

Revenue per U.S. hotel room fell about 8 percent in November from a year earlier, according to Smith Travel Research, after falling 23 percent in September and 18 percent in October. This figure will narrow to just 0.2 percent for all of 2002, compared with a drop of 6.7 percent this year, according to consulting firm PricewaterhouseCoopers' Hospitality & Leisure Group.

Hilton shares rose 42 cents to $10.48 and are up 23 percent since trading resumed after the terrorist attacks, compared with a gain of 14 percent for the Standard & Poor's Entertainment Index, of which it is a member.

Still, Bollenbach, who earlier predicted hotel rooms would be "full" in 2002, isn't forecasting growth in room demand for Hilton next year.

Analysts and some of Bollenbach's peers said the attacks are more of a factor than the Hilton executive thinks, and his predictions are still too optimistic.

Starwood Chief Executive Barry Sternlicht repeated last week that the attacks were the equivalent of a "1,000-year flood" for the industry, and said business hasn't yet recovered to pre-attack levels.

"Fly-to markets are still well below last year in terms of occupancies," said Chase Burritt, a national partner with the Hospitality Services unit of Ernst & Young. "Markets like the Caribbean, Hawai'i, Orlando and Las Vegas are being affected by the fear factor, which is substantial."

Bollenbach said "soft spots" in the hotel market could be attributed to regional economic factors.