Different Strokes for Starwood and Hilton
On Sept. 19, Hilton Hotels (HLT ) CEO Stephen F. Bollenbach held a conference call with Wall Street analysts to update them on what his company was doing in the wake of the terrorist attacks. He said the sharp fall-off in travel that hoteliers were experiencing would last only two to three months. "I have to believe that the American people are not going to live in a hole in the ground," Bollenbach said.
Four days later, analysts heard a different message in a conference call with Starwood Hotels & Resorts Worldwide (HOT ) CEO Barry S. Sternlicht, whose company owns Sheraton, Westin, and other hotel chains. Sternlicht told the financial types that all nonessential capital expenditures at his company were on hold, that he would lay off 10,000 people (23% of the company's domestic hotel staff), and that he was on his way to Washington, along with other other travel industry leaders, to lobby for federal aid, as the airlines have done. "I don't think it's business as usual," Sternlicht told the analysts. "I hope the world returns to normal in six to nine weeks, but I wouldn't expect it."
The two different approaches represent a huge bet on how well -- and how soon -- the hotel industry can recover after the September 11 attacks, which devastated the travel business and drove occupancy levels at high-end hotels down from 80% to 30% in a matter of days. Since then, the share prices of Hilton and Starwood, both among the industry's leaders in terms of revenues and number of rooms, have been cut in half. Sales are down, and both companies -- each with around $5 billion in debt -- are trying to develop strategies that will allow them to quickly take advantage of a recovery as well as manage during the downturn.
Their divergent views on how to do that seem natural for two men who have no love lost between them. Bollenbach is an avuncular 59-year-old who jokingly suggests during a recent interview that the whole room take advantage of low-price packaged deals and travel to Hawaii together. Sternlicht, by contrast, is a wiry and intense 40-year-old-who in recent years has seen a string of high-profile executive departures from his company, among them his own brother.
Bollenbach and Sternlicht first clashed in 1997 when their companies vied for control of ITT's hotel operations, a battle Sternlicht won. They've been bitter rivals ever since. These days, Sternlicht is hunkering down, hoping to conserve as much cash as possible, while the laid-back Bollenbach is out for the kill. "Now is the time," he says, "to take market share from our competitors."
No one, of course, can say precisely when business travel, and by extension hotel occupancy rates, will recover. But so far, Sternlicht seems to have the edge, finding ways to fill rooms even as he minimizes costs, though most analysts believe an airline-style bailout for the hotels isn't likely. Says Bryan Maher, an analyst at Credit Lyonnais Securities: "On managing costs and cutting discretionary spending, I'd side with Starwood. It's a natural matter that you manage for demand."
One of Starwood's first moves was to lease empty hotel space to businesses displaced by the attacks. Lehman Brothers took the entire New York Sheraton. New York University also leased space. Sternlicht says about 25% his company's New York City rooms are now occupied by nontraditional customers. He's also aggressively cutting costs. Whole floors and wings of some hotels have been closed to reduce energy expenses. Staff has been cut in restaurants, health clubs, laundry facilities, and business centers. Chefs are taking steps to simplify menus. Prerecorded wake-up calls are replacing live humans. "We're reviewing all of our expenditures," Sternlicht says.
Bollenbach, by contrast, is chasing only traditional customers. "Hotel rooms don't make great offices," he says. He also has no plans to seek assistance from Washington. "Our first priority should be to keep the airlines flying and make them safe," he says. "Anything else is distracting. It's counterproductive."
Bollenbach won't say how many Hilton people are out of work as a result of the slowdown. "Those numbers are only important if your objective is to go to Washington and get money," he says. Hundreds of Hilton employees have been asked to take furloughs and nonpaid vacations, but Bollenbach is trying to keep as many working as possible.
"JUST A THEORY."
Hilton has cut capital expenditures only marginally and instead is using the slow time to accelerate its usual maintenance schedule. "We are painting rooms and laying new carpet," says Dieter Huckestein, the president of Hilton's hotel operations. Bollenbach has waived cancellation penalties for two months for all meetings and group bookings, but he has told his sale staff to rebook many as soon as possible.
Those moves win Bollenbach high marks in some quarters. "I've always admired Hilton's discipline," says Thomas Carney, whose money management firm, Wallace R. Weitz & Co., owns about 18 million Hilton shares. Bollenbach has told his staff and investors that he thinks the business will soon bounce back to the levels seen in 1999, when hotel occupancy averaged around 70%. "It's just a theory," Bollenbach admits. "But it gives you an anchor, something you can plan around, something that reduces fear."
In these uncertain times, reducing fear is a good thing.
By Christopher Palmeri in Los Angeles, with Diane Brady in New York and Lorrainne Woellert in Washington