Hilton Steps Up To Global Plate

By BTN / October 29, 2000

Hilton Steps Up To Global Plate

David Michels, CEO of the Hilton Group plc, which includes the 220-property portfolio of Hilton International, recently spoke with BTN hotel editor Bruce Serlen about challenges travel buyers face in putting together global hotel programs.

BTN: Do you think of Hilton International as a global company?

David Michels: In our business, if you want to offer a full range of product to a customer, you need to be in a range of locations. We're in 67 countries and think we're fairly global. But no hotel group has a presence in more than 100 countries today, which means that no hotel group is truly global. Yet, there are many that are international and that includes us.

In such a region as Europe, there are probably 15 to 20 major cities where, if you're missing more than one or two, you can't offer the corporate customer sufficient coverage that they'll choose you. The 20 are the obvious ones, the Parises, the Romes, the Berlins. We're not yet in Madrid, Lisbon or Stockholm. As far as major Europe goes, these are the destinations where we'd like to be.

BTN: Can you make an argument for a hotel company having saturation in a particular city?

Michels: By all means. In London, for example, we have a lot of visibility--nine hotels presently open and two more opening soon. There are three cities in the world where having a large number of hotels has historically paid off: London, New York and, arguably, Paris. Nothing has ever seemed to change that for them. You can always have more hotels in these cities because there are lots of business people and lots of tourists. A large concentration of hotels allows you to meet demand. It becomes critical mass. Between us and Hilton Hotels Corp., our American cousins, we cover London and New York pretty well. We're a little short of hotels in Paris.

BTN: Do you think of these cities as a collection of submarkets?

Michels: Certainly, you can subcategorize. In London, there's a lot of development around Paddington Station, for example. In Paddington, where a rail link to Heathrow Airport now operates, we've got two rather unique kinds of hotels opening: a five-star historic renovation being built right above the station and, about a three-minute walk from that same station, we're building the largest convention hotel outside the United States.

BTN: Specifically, how does this benefit travel buyers who are putting together a global program?

Michels: Corporate buyers have two main objectives in life, right? Get me the room and get it for me cheaply. Both reasonable statements when you're on that side of the fence. When you're talking about a major corporate destination, such as London with its financial institutions and being a stepping stone to the rest of Europe, it just helps when you can get the space you need.

BTN: So, availability is an issue?

Michels: I'm delighted to say that, at the moment, it can be very difficult to get rooms at all, especially midweek. I can't guarantee that it will stay that way. Having lived through three up-and-down cycles in the course of my career, I can't. But right now it can be very difficult. It creates a challenge at the property level to satisfy our clients when they need availability. The corporate purchasing process is getting more sophisticated. There's more knowledge held centrally, not just in the United States but in Europe as well. There's probably more power in the hands of the corporate travel department than there used to be. Things are more policy-driven and people are more scared to break the policy than ever before, certainly at the low and intermediate levels. But for all that, a relationship with the hotel locally still counts. If you know the name of the reservationist, you're more likely to get a room. It's a human business.

BTN: Is the bulk of your sales effort, therefore, geared to your global accounts?

Michels: Actually, there's a misrepresentation out there as to how many global accounts a hotel company like ours truly has, meaning the number of accounts that are truly global and wish to buy globally, because the two don't always go hand in hand. The number is in the hundreds, not in the thousands, and not that many hundreds; less than 250 that truly use us and bring enough market share to warrant the designation. Similarly, every hotelier will tell you they deal with the IBMs of the world, and some will pretend it's exclusive, but by definition it can't be.

BTN: What's the role then for the national, or even local, account?

Michels: Nationally, we have thousands and thousands of accounts--that is where the greatest amount of business still comes from. U.K.-based companies for the U.K., French-based companies for France, on and on, 67 times. Specifically, 90 percent of an account's business will be in the country of origin, with the remaining 10 percent overlapping to other countries. This is how business travel tends to work. People visit their home offices and do most of their training and exhibitions in the country of origin. Yes, companies have executives or salespeople traveling the world, which is why we'll do an add-on deal. Most of the business and relationship, however, is from within the country. This explains why the local relationship is so important. It's why the hotel across the street from the company gets a lot of room nights. We all vaunt global relationships because they sound sexier--hey, everyone wants to be in charge of the IBM account. But the most important thing in this business remains national and local relationships.

BTN: Many travel buyers complain about the strict revenue management practices being implemented by hotels. Is this an issue for you?

Michels: The integrity of negotiated rates is almost impossible to ensure in this business, because the customers themselves don't stick to negotiated rates. Let's say you're a large global company and you have a $170 rate. That rate is fine and you will demand it, particularly when it comes to last room availability. Then all of a sudden, that same company has 50 people for you in January in London, which is the slow season. The travel manager now wants a lower rate, but I'm not criticizing it. The world of commerciality overrules rate integrity when either side thinks it can benefit. It's just supply and demand. If hotels are full on a Tuesday, they will try to maximize the revenue. In the end, the hotel will decide if it's a good enough customer. We'll stick to the rate, even though we can get a higher rate. But, at the same time, that customer with 50 room nights is bright and knows they can get a better rate than $170 in January. So they're going to say, "hey, c'mon." Consequently, in theory, rate integrity is immune from change. In practice, however, both sides know that they both actually want flexibility and I think there's a rate accommodation that's made. Now, if you overdo it, then there's no integrity at all and why have a deal? I'd say 75 percent of the time, the rate is secure in the middle. The system works and with better communication and technology, it will work better than it ever has before. The two 12.5 percents on the ends, that's where rate integrity will be an issue.

BTN: Are you receiving most RFPs electronically this year?

Michels: We're just beginning to get companies coming to us, saying they're going to buy everything through the 'Net. Up to now, it hasn't been working that way. It's really been more talk than action. From our point of view, you really can do an awful lot of work on completing RFPs when the customer isn't serious. You can load thousands of rates that then aren't used. We're relying on the local salespeople to know the difference between an RFI and a final set of RFPs where rates have to be loaded, because there is a lot of confusion when major companies ask for particular rates. What they're asking for is information to compare one rate with another to decide who they want to go with. Traditionally, the industry has loaded the lot. And that's expensive, it's time-consuming and it confuses the hotels to no end. We have to use our common sense to know which is simply a request to see the brochure, if you will, and a firm deal.

BTN: What's your view of business travelers booking hotels online?

Michels: When it comes to booking on the 'Net, the world is not quite as advanced as everybody pretends it is. It's not going away for sure, and it will happen. Take direct links to customers' intranet sites: We don't have the technology yet, but it is being developed. If a large number of companies say they will only buy through their intranets, they want the complete folio electronically, then that's that. They likely want to save all the transaction costs. If that's what companies want, it's our job to deliver it. It's very expensive and, having done it, you're not necessarily going to meet all their needs. We're also taking the risk that we'll remain their primary provider.

BTN: Where do you see all the tech going in the next three to five years?

Michels: I wish I knew. It's impossible, for us at least, to forecast the pace of change. The danger is trying to forecast it because you might make an investment the customer doesn't want. But technology is great when you're buying a commodity. I want to buy a TV, one is pretty much the same as another. Even buying an air ticket, at the end of the day people know what they're going to get with a ticket from New York to London. Travelers know what they're going to get, the planes are all the same, the service does differ, the price doesn't differ substantially and there are only six choices.

BTN: You're right that travel managers typically have more trouble driving compliance to hotels than they do to airlines. Why do you think that is?

Michels: I may be prejudiced, but when it comes to a hotel, it's still a very personal choice. People still care enormously. They want to be near where they want to go, and they sleep in a hotel, eat in a hotel, bathe in a hotel, put their heads on hotel pillows, so it can never be a commodity in that sense. Companies may try to commoditize the purchase of it, but their customers, the people who are traveling, who have to wake up in the morning and do the deals, are never going to look at the hotel as a commodity. And that's always going to complicate the computerization of the whole business. In the final analysis, people do so much in the hotel, they won't be forced to stay where they don't want to stay, not repeatedly. Ultimately, the corporate policy will tend to come back to what the customer wants.

BTN: Does this differ with domestic business travel versus international?

Michels: If I'm an American being sent to Omaha, I'm a bit sensitive, but I'm in my own country and I know the brands. I've got a pretty good idea of the kind of hotel I'm going to get, even if I've never been to Omaha before. But if I'm an American being sent to Singapore, I'm a lot more nervous about the hotel I'm going to get, where it is. And that's where the brands come into so much of their own strength. You want a brand where you know you're going to be comfortable, where there's a degree of security and consistency of service.

BTN: How much of a challenge is it trying to provide that consistency across different cultures?

Michels: The internationalization of the world has helped us get better at this, and we swap so many employees between countries anyway that it helps us come up with consistent standards. There are still different demands in different places, but the most important thing at the end of the day, given that the hotel is physically okay, is still how our staff interacts with that customer, regardless of the culture.

More