Is another iconic world brand in its twilight? If profit for investors has leveled out, Hilton Worldwide may be nearing sunset as a whole entity.
Hilton Hotels & Resorts seems to be shrinking their Europe presence. Recent luxury hotel disputes, and some other fairly mysterious moves show, even the world’s most recognized hospitality brands can just be down right inhospitable these days. Hilton Hotels, the world’s most recognized stay of excellence, may well be the next player to fall victim to the need for big profits.
Hotels changing hands, particularly in troubled financial times, this is no big surprise. However, Hilton giving up or losing hotels across Europe, at any time, should be fodder for some kind of sincere scrutiny. Interestingly though, aside a few localized reports of divestitures and court cases or acquisitions, any sense that the world’s most famous luxury hospitality brand has withdrawn from Europe at all – does not really exist. An associate of mine clued me in the other day with news that seemed to me to be – anti-the-Hilton you or I ever experienced.
Two key luxury hotels in Brussels, one in central Paris, another on the shores of Lake Geneva in Switzerland, and a whole chain in Scandinavia being divested of by Hilton should have been cause for big financial news in Europe. Somehow it was not. The impact of the world’s biggest hotelier dumping one luxury hotel after another was nil. My first case in point, Hotel Arc de Triomphe (The Hotel du Collectionneur] in the center of Paris, is a nightmarish tale if all the rumors are true.
Hilton Paris – Not the Other Way Around
The Hilton at Paris’ heart, a court case, and lots of bad feelings later, and the owners of this luxury establishment apparently feel cast out rather than vindicated. The story I heard recently at the water cooler of the web suggests Hilton fairly well filled this high class executive affair with sky miles families and their kids. The ensuing breach of contract case between owners SIHPM (under Albert Cohen) and Hilton, left the hotel in a mess. Cohen told reporters in August 2012:
(Hilton Hotels had) “changed its commercial strategy which led it to seriously violate its obligations.”
To make matters worse, it appears the court’s order removing Hilton’s brand from the establishment involved a three month grace period for a “transition” of sorts. Well, if the stories are true Hilton basically yanked the rug out removing the hotel from every sales channel they had allegedly overnight. What struck me most about this story was a vision passed to me of the executive lounge of this hotel brimming with little kids and their water pistols amid corporate decision makers with an 18 year old Macallan in one hand, and a Montecristo Edmundo in the other. A ghastly imagery for said hotelier.
Hilton rewards guests comprised of primarily families represented, at the point of contention, a big part of the guest list. SIHPM wanted Hilton five star status, and essentially got a swift kick in the pants according to some.
If you look at the hotel’s website now the owners seem to have done a nice job of patching up their web presence, but the image above is a world away from the hotels current visibility. And make no mistake, when Hilton pulled the plug, SIHPM’s online channels dried completely up. You would not even know about this luxury hotel save for news and articles like the one you are reading.
Imagine, one can hit the Champs-Elysees with a baseball with a decent bounce from this hotel. Of course this is hearsay from one side only, so I wanted to hear Hilton’s side. Unfortunately, while Hilton social media seems to love when we write complimentary stories, a request to talk to someone about this one ended in silence – total silence, I might add.
On Tuesday of last week:
Hi Phil – Thanks for your inquiry. May we ask a little more about your story so we may be able to put you in touch with the correct person?
Of course. An associate mentioned in passing some Hilton news concerning this unfortunate set of circumstances.http://www.travelweekly.com/Travel-News/Hotel-News/Hilton-loses-Paris-hotel-in-court-ruling/
Dead silence. Rude by Hilton’s and my standards.
Now let me stress something. Hilton is one of the most “wired” companies in the world, social media wise. If I write something positive about them, or ask a question suggestive of any kind of news, their response time is relatively immediate. While we are only a small travel media company, Hilton and the others are influenced by “everything” said about them. To not answer this request in come fashion, is completely uncharacteristic. But let’s move on.
Brussels & Geneva – Chopped Livaah Destinations?
A quote by Kempenski President & CEO Reto Wittwear back in 2006, when his company took over the Hilton International in Geneva, begs an important question and answer:
“We are simply delighted. Our guests will now be able to experience Kempinski’s distinctive services in a unique setting in Geneva. This is a particularly important for us, as Kempinski’s worldwide operations are managed from Geneva.”
The question is; “If this hotel has such obvious value for one hotel brand, why not another?” Certainly Hilton did not donate this five star hotel to Kempinski just for old time sake. Excuse me, but the image below of the Kempinski Grand Geneva foretell of luxury hotel accommodations for generations to come. The suite you see is overlooking one of the world’s most picturesque scenes. And the world’s most famous luxury brand dumped this hotel in the lap of another hotelier? True Kempinski did a pretty massive upgrade, but this sort of thing is cyclical in the business.
Hotel Brussels is another curious story. If you look closely at the Google Street image below, the Hotel Brussels is just visible as the only high rise situated steps from such shopping wonders as; Cartier, Ralph Loren, Gucci, Bulgari, and two dozen others luxury brands along Boulevard de Waterloo. To even the most obtuse observer, Hotel Brussels seems a picture perfect spot for one of those Hilton logos atop it. Well it was, but not any more. What Swedish hotel group Pandox AB took over from Hilton management
This story from 2011 speaks of hotel employees losing their jobs, even some Hilton employees at risk. Unfortunately, TripAdvisor reviews for the hotel do not extend back to Hilton management, but in general the place’s rating is on par with most four and five star affairs in the region. It is the weekend, I could not reach upper management for comment here, but I will.
Interestingly, a few hundred meters away at The Conrad, Hilton not only pulled the plug on one Brussels luxury stay, but their namesake. The screen below shows Hilton still gets search juice from Google to their Conrad site, even though the hotel is reopened as the Steigenberger Grandhotel. A look at the Conrad website tells of a Hilton Hotels that has divested themselves to a degree, of most luxury presence on the old continent. You can stay at a Conrad in the USA, Uruguay, and even Puerto Rico, but not in Europe.
Hilton Gets Cold Feet in Scandinavia
Right before the economic meltdown we are still suffering from, Hilton also divested themselves of Scandic Hotels (Facebook imagery below), a group of what now consists of 160 hotels throughout Scandinavia, and one that employs 6000 plus people. CEO Anders Ehrling’s chain grossed something on the order of € 842,6 million in 2011. While 2012 numbers are not out yet, with the chain’s expansion into other areas of Europe, it seems safe to assume Hilton lost revenue by divesting of this group.
It seems significant at this juncture to mention Hilton was acquired by Blackstone Group just before many of these European divestitures began. While we cannot speculate as to the exact strategic motivations of the group where Europe is concerned, it is safe to suggest a great many conversions took places after the acquisition. A new trend referred to as “asset light” strategies has become popular again for the move’s elimination of hard assets and the ensuing fixed costs of doing business.
Without the economics lesson, companies like Hilton can begin to use such strategies, without the ensuing negative press and value judgement, simply by being very incremental. The reason for doing so, is quite obvious.
Moving on, in this report Hilton boss Chris Nassetta talks about their so called “asset light” agenda for the far reaching term. What this alludes to is the vast real estate assets Hilton owns – apparently, selling real estate in a depressed market has taken a back seat to divesting of management of chains owned by other entities. This report “Hilton Hotels Corp – Travel and Tourism”, from Euro Monitor International (PDF) gives clues to why Hilton and Blackstone may have elected to divest in Europe, whoever quietly. I quote fr the section entitled “Threats”:
“Downturn in business travel – Hilton Hotels is heavily reliant on business travellers, meaning that the negative impact of a deterioration of economic conditions in business coupled with the ongoing pressure to push costs down.”
The Money Behind Hilton
In fairness to Hilton Hotels & Resorts, the complexities and overbearing hardship the economic downturn caused cannot be overlooking in all this. This news release in 2007 is about Hilton beginning to divest themselves of the so called “mature” European market. Accordingly, Hiltons in Düsseldorf, Dresden, Paris Charles de Gaulle, Strasbourg (image below) and Zurich were to be transferred to Morgan Stanley were part of an agreement whereby Hilton probably intended to manage the properties, while Morgan Stanley possessed ownership. Five more hotels in Europe were part of this deal.
Robert M. La Forgia, Executive Vice President and Chief Financial Officer of Hilton Hotels Corporation, acknowledged Hilton was pursuing an “asset light” position in this same article. Given the economic situation now, not at all a bad moved business wise. However, what is of some interest is how this deal in June 2007 predates what is considered the “active phase” of the Financial Crisis of 2007-2008. A selling off to a key player in the Wall Street meltdown right before Morgan Stanley borrowed a record sum of $107.3 billion from the Fed and , of capital assets such as these, seems an “ultra-prudent” $770 million dollar move by Hilton.
All curiosities aside, what makes Hilton’s strategic moves here the least bit curious is way in which old friends appear to have become unwanted allies at a point. If Europe had feelings for its luxury brands, Hilton sure has gone a long way toward hurting them. With Russian hotel developments professed for the near future, and Waldorf Astoria variants in Berlin and elsewhere, at best Hilton (or Blackstone maybe) should have a bit of a black PR eye here. But the money behind Hilton is not exactly what you would call “warm and fuzzy” money.
Characterizing Blackstone Group is pretty simple. The firm sold Extended Stay Hotels just before the crash in 2007 for $8 billion dollars, then bought the chain back out of bankruptcy when it tanked for only It sold Extended Stay for $8 billion in 2007, later joining an investor group to buy back the hotel chain out of bankruptcy for $3.4 billion. Now Extended Stay is reportedly prepped for unloading at an estimated value of $4.82 billion (November 2012). But there is some evidence Blackstone Group is already “parting out” Extended Stay, selling some of the properties in small groups or individually.
Finally, this whole editorial may wash out to be nothing more than another world famous brand on the brink of being chopped to bits for Blackstone profit. This story via Hotel Management Net talks about just this. Blackstone is the largest U.S. owner of hotel properties, Hilton being only one. The rub for Blackstone is about the only really transparent factor in hotel investing – high profile “winners” like Blackstone have to maintain big margins of profit for investors.”
That said, the paltry billion or so Scandic or other former Hilton hotels can win in Europe, simply are not enough for the likes of Blackstone’s leadership, Stephen A. Schwarzman (left) and his co-founder Peter G. Peterson, are two of the wealthiest and more powerful men in the world. When all is said and done, Hilton scuffing the shoes of SIHPM’s (Société Immobilière et Hôtelière du Parc Monceau) Paris hotel may end up just end up as bad karma for Conrad Hilton’s legendary brand started as the Mobley Hotel in Cisco, Texas in 1919. Blackstone may just pull out of more than Europe.
Let me hear your thoughts.