Hilton's loyalty to employees pays off
By Jeannine DeFoe
Bloomberg News Service
BEVERLY HILLS, Calif. — Hilton Hotels Corp. Chief Executive Stephen Bollenbach's decision to resist firing workers after the September terrorist attacks is helping the third-largest hotel company now that travel is rebounding.
Hilton has the staff it needs to avoid alienating customers with poor service at a time hotels are filling back up, investors said. As a result, the Beverly Hills, Calif.-based company's shares have outperformed Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc. on expectations it can grab market share from competitors.
"Some of the chains that were forced to have massive layoffs will probably be caught off-guard," said Fran Allen, leisure analyst for the Amsouth Funds, which own 1 million Hilton shares. "They were the only ones after Sept. 11 that said they weren't changing anything."
Bollenbach stood apart from his rivals in September when he said travel would rebound in 12 weeks. He was so sure of his prediction that he boosted the company's capital-spending budget for 2002 to $290 million from $250 million, and limited layoffs. Hilton ended 2001 with 3.8 percent fewer workers than in 2000, while Marriott had 8.5 percent fewer workers and Starwood had 11 percent fewer.
The 59-year-old CEO's predictions are being proved right. Revenue per room, a measure of average occupancy and room rates, will rise 3 percent this year, PricewaterhouseCoopers said this month, revising its earlier forecast of a 0.2 percent decline. When Bollenbach made his call, revenue per room was down as much as 37 percent from a year earlier.
Holding the line on job cuts has come at a cost. Hilton's profit margin in the first quarter is estimated to be 25 percent, compared with 24 percent for Starwood, according to UBS Warburg analyst Keith Mills. That's down from 41 percent over the past three quarters for Hilton, and from 36 percent for Starwood.
At least one investor thinks Bollenbach should have cut deeper. "You're seeing a rebound, but not as strong as you need to get back to levels prior to Sept. 11," said Mark Foster, chief investment officer for Kirr Marbach & Co., which owns 580,000 Hilton shares.
But Bollenbach is convinced he was correct. Sitting in his second-floor office of the company's flagship Waldorf-Astoria hotel in Manhattan, he derided competitors for what he said was shortsighted planning.
"The other guys were ready to dump their employees overnight," he said, as an artificial fireplace glowed in the office he inherited from Chairman Barron Hilton. "We're not going to destroy people's lives based on a few weeks business interruption."
What has been tougher than filling rooms is raising prices, he said. "This hotel is full of business travelers," he said. "What we're lacking is the ability to sell that extra 100 rooms at a higher level. When you don't have demand from your highest-paying customers, it's tough to raise rates."
About 40 percent of Hilton's business comes from independent business travelers, who usually pay the highest room rates, said spokesman Marc Grossman. That business hasn't fully recovered to year-earlier levels.
