Hilton SWOT

Hilton Worldwide

Company Profile Publication Date: 14 Oct 2011

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Hilton Worldwide

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Hilton Worldwide TABLE OF CONTENTS

TABLE OF CONTENTS Company Overview..............................................................................................4 Key Facts...............................................................................................................4 SWOT Analysis.....................................................................................................5


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Hilton Worldwide Company Overview

COMPANY OVERVIEW Hilton Worldwide (or ‘the company’) formerly *Hilton Hotels Corporation (HHC) is one of the leading global hospitality company. The company operates more than 3,750 hotels in 84 countries around the world. It is headquartered in McLean, Virginia and employs about 130,000 people. Hilton being a privately owned company and hence is not obligated to release its financials in the public domain. *In 2007, HHC was acquired by Blackstone and subsequently HHC became a privately held company

KEY FACTS Head Office

Hilton Worldwide 7930 Jones Branch Drive McLean Virginia 22102 USA

Phone

1 703 883 1000

Fax Web Address

http://www.hiltonworldwide.com

Employees

130,000


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Hilton Worldwide SWOT Analysis

SWOT ANALYSIS Hilton Worldwide (or ‘the company’) formerly Hilton Hotels Corporation (HHC) is one of the leading global hospitality company. The company offers a wide range of boarding and lodging services across luxury, upscale, mid-priced, extended-stay or vacation ownership. It has a strong brand awareness and brand recall in most of its key markets where it operates which gives it a distinct competitive advantage over its peers. However, intense competition could lead to pricing pressures, thereby decreasing the profitability of the company. Strengths

Weaknesses

Strong brand image ensures steady revenue growth Wide range of hotel services Debt restructuring improves liquidity position

Exposure to the premium market increase the operating cost of the company

Opportunities

Threats

Strong growth in the hotel and motel industry in emerging markets Strategic agreement with AT&T to enhance the company's online service offerings Launch of iPhone and iTouch applications

Intense competition may lead to pricing pressures Sluggish global economic recovery Terrorist attacks and natural calamities

Strengths

Strong brand image ensures steady revenue growth Hilton Worldwide has strong portfolio of hotel brands. The company operates more than 3,750 hotels in 84 countries around the world. The company's portfolio of hotel brands include Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton, Doubletree, Embassy Suites Hotels, Hilton Garden Inn, Hampton Inn & Suites, Homewood Suites by Hilton, Home2 Suites by Hilton and Hilton Grand Vacations. The strong brand image of the company has led to a strong customer base for Hilton Worldwide. It has a strong brand awareness and brand recall in most of its key markets where it operates, which gives it a distinct competitive advantage over its peers. Hence, the company’s widely recognized brands provide it with a competitive advantage in attracting customers over its specialized rivals in the market place. Hence, an extensive portfolio of hotel brands enables the company to reach more customers which in turn positively affects its top line growth.


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Wide range of hotel services Hilton Worldwide is one of the world's largest hotel groups. The company offers a wide range of hotel services across luxury, upscale, mid-priced, extended-stay or vacation ownership. For traveling for business or leisure, Hilton Worldwide offers city center hotels such as The Waldorf-Astoria Collection and Conrad Hotels and Resorts for luxury segment. It offers convention hotels like Hilton Garden Inn and Hampton Inn which focus on mid-priced services. For extended stays the company's portfolio offers Homewood Suites. Furthermore, the company has Hilton Grand Vacations which offers high-quality vacation ownership resorts in selected vacation destinations. Therefore, the company's wide variety of services would not only enhance its market share, but it also limits its exposure to the risks associated with a particular segment. Debt restructuring improves liquidity position The company has restructured its debt position which significantly improved its liquidity position. In April 2010, Hilton Worldwide considerably reduced its debt position by almost $4 billion by bringing down its outstanding debt from $20 billion to $16 billion on its balance sheet in FY2009-10. Additionally, the company also extended the maturity period of its post restructured debt outstanding which is $16 billion by two years to mature in FY2015. The restructuring was done through purchase of $1.8 billion of debt and also the conversion of $2.1 billion of junior mezzanine debt to preferred equity. With this restructuring and extended debt maturing period, the company's liquidity position improved significantly which puts Hilton Worldwide in a strong position to capitalize on the recovery in the hospitality industry.

Weaknesses

Exposure to the premium market increase the operating cost of the company Hilton Worldwide has significant level of exposure towards the premium end market (in the hotels, and resort business). The company incurs high costs to maintain and operate its premium hotel and resort business, which could be cause of concern in the current weakening economic situation. For instance, in the premium or luxury hotel segment, the company operates over 39 hotel properties through its brand Waldorf Astoria and Conrad. The company incurs a huge amount of cost every year to maintain these hotels and resorts, but with the current economic downturn, where in, customers are reducing their expenses on luxurious services, could hurt the company's premium hotel's segment. Therefore, a high level of exposure towards the premium segment would increase the operating costs of the company which in turn negatively impacts the profitability.

Opportunities

Strong growth in the hotel and motel industry in emerging markets


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The global lodging industry has seen remarkable growth from emerging markets like India and China over the past few years. The GDP growth, economic prosperity and the rise in disposable income in these countries have contributed to the growth of lodging market. The GDP growth has increased the number of business travelers travelling within these countries while growth in disposable income has resulted in increased leisure travelers. According to the Datamonitor's estimate, the Indian hotels & motels industry generated total revenues of $3,800.4 million in 2009, representing a compound annual growth rate (CAGR) of 11% for the period spanning 2005-2009. The Indian hotels & motels industry grew by 4.3% in 2009 to reach a value of $3,800.4 million as compared to $3,645.3 million in 2008. The performance of the industry is forecast to accelerate, with an anticipated CAGR of 13.7% for the five year period 2009-2014. In addition, China, the world's fastest growing economy, has also registered strong growth. The Chinese hotels & motels industry generated total revenues of $24,500 million in 2009, representing a compound annual growth rate (CAGR) of 10.4% for the period spanning 2005-2009. The Chinese lodging industry, in the long run, is expected to grow with an anticipated CAGR of 13.9% for the five-year period 2009-14 and reach a projected value of $46,800 million by 2014. According to data available from the Chinese authorities, the GDP growth was up about 7.5% annually from CNY18.2 trillion in 2005 to CNY26.1 trillion in 2010 and Per capita disposable income of urban residents was approximately up 5.0% annually in five years, from CNY10,493 in 2005 to CNY13,390 in 2010. This trend of growth is expected to continue in the near future. In order to tap the growing hospitality industry in India and China, the company has signed various new management and franchising agreements. For instance, in July 2011, Hilton Worldwide signed an agreement with Nehru Place Hotels Limited, an Eros Group company, to take over the management of its landmark hotel located in Nehru Place. The hotel is rebranded as 'Eros Hotel. Further, Hilton Worldwide signed eight management agreements with Shimao Group, a leading China-based real estate development conglomerate, for eight new hotels in eight key Chinese cities in October 2010. These agreements would result in Hilton brand hotels in Tianjin, Nanjing, Wuhan, Shenyang, Yantai and Wuxi, and Conrad brand hotels in Xiamen and Qingdao. The properties are scheduled to start operations between 2011 and 2014. In addition, in March 2011, the company signed a management agreement with Zhuzhou Dahan Real Estate Development Co., Ltd for a new Hilton Hotels & Resorts hotel in Zhuzhou, the second largest city in China's Hunan province. In the same month, Hilton Worldwide signed a new management agreement with Greentown China Holdings Ltd., a leading property developer in Zhejiang Province. The agreement linked with its subsidiary, Beijing East Greentown Real Estate Co., Ltd to open a new Hilton Hotels & Resorts hotel in China's capital city with 310 rooms is scheduled to open in 2013 in Tongzhou New City, southeast of Beijing. Further, in April 2011, Hilton Worldwide signed three management agreements with New Huadu Industrial Group for a Waldorf Astoria-branded resort and a Hilton Hotels & Resorts property in Hainan and a Hilton Hotels & Resorts property in Hunan.The company announced that the properties are scheduled to open between 2013 and 2014, Waldorf Astoria Hainan Baoting Resort, Hilton Hainan Baoting Resort, and Hilton Changsha East would add another 930 hotel rooms to Hilton Worldwide's fast-growing pipeline in China. In the same month, Hilton Worldwide signed a management agreement with Suzhou Chinaing Real Estate Co., Ltd for the first Conrad hotel in Jiangsu, China. The hotel is scheduled to open in 2013. Furthermore, in July 2011, Hilton Worldwide signed a management agreement with Yunnan Chengjiang Great Eagle Resort Co., Ltd. for the first Hilton Hotels & Resorts hotel in Yuxi city, Yunnan Province, China. Comprising 350 rooms, Hilton Yuxi Fuxian Lake Resort is scheduled to open in 2013. Hence, the expanding property base and strong brand recognition


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associated with the company brands would give it a unique positioning to the company to compete effectively with the local and international players in the emerging markets. Strategic agreement with AT&T to enhance the company's online service offerings The company in order to enhance and improve its service offerings to a large customer base entered into an agreement with AT&T, one of the largest providers of hosted internet access in the hospitality industry in July 2010. Under this agreement, AT&T would offer premium online service to the company's guests in more than 3,200 properties located in the US, Canada and Puerto Rico. Furthermore, this agreement is likely to strengthen the company's ''Stay Connected" program started in FY2005, by providing its guest with access to high-speed internet services, making it more convenient for its guests to access internet from their hotel rooms, meeting spaces and public areas. Therefore, the strategic agreement with AT&T is likely to enhance the company's online service offerings to its customers which will increase the customer traffic enabling Hilton Worldwide to maintain its leadership position in its key markets. Launch of iPhone and iTouch applications The company launched a comprehensive iPhone and iTouch applications in the lodging industry in 2009, observing an increase in the hotel reservations made through mobile phones. The new application is spread across seven of its hotel brands including Conrad, Hilton, Doubletree, Embassy Suites, Hilton Garden Inn, Homewood Suites and Hampton Inn brands in the US. The launch of the new applications offers special features which will help the company to attract more customers. For instance, the new applications have features like "Request Upon Arrival" service that enables a traveler to place an order for room service and have a meal in the guestroom upon arrival. Additionally, the new applications also offer "e-check in," a feature that provides remote check-in up to 48 hours in advance. The launch of iPhone and iTouch applications will provide more convenience to its existing and new customers who usually make hotel reservations on mobile devices. Therefore, the company's readiness in adapting the latest technology changes in the hospitality segment through launch of new applications such as iPhone and iTouch, could help it to stay competitive in the industry and also enhance its revenue generation capacity and customer base.

Threats

Intense competition may lead to pricing pressures The hospitality industry is characterized by a large number of players, with many of them having a worldwide presence similar to Hilton Worldwide. There are many large hotel chains similar to the group such as Accor, Marriott International and Hyatt, who are also expanding in potential growth regions such as Asia. In addition, the wide presence of independent hotels especially in the US region provides scope for consolidation, which would increase competition further. Furthermore, some of the company's competitors have greater financial resources, resulting in greater purchasing power, better financial flexibility and more capital resource for expansion and improvement, which


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enables them to compete more effectively. The trend of rising competition in the hospitality industry, may potentially impact Hilton Worldwide fee structures, forcing the company to lower its fees or prices, which could affect the top line growth of the company. Sluggish global economic recovery The current economic environment has significantly deteriorated consumer confidence and discretionary spending. The slowing of the domestic and global economies has increased unemployment and reduced the financial capacity of both corporate and leisure travelers. Although global economic conditions have begun to improve, prospects for global economic recovery remain uncertain, reflecting concerns about the weakening effects of stimulus policies in advanced countries. According to the World Economic Outlook projections June 2011 by IMF, the global activity expanded by 5.1% in 2010 and is forecast to expand by 4.3% in 2011 and the downside risks continue to predominate. Furthermore, due to the sovereign debt crisis, Euro zone has experienced a recessionary trend in the recent past and is still struggling from the crisis. In the US, the consumer confidence is down and is affected by both property slump and rising prices of food and fuel. Americans seem cautious and are not willing to increase spending, one of the reasons why the pace of the recovery is estimated to be more subdued than in the past. According to the United States Department of Labor, the unemployment rate in the US averaged to 9.6% in 2010. Higher unemployment rates strains discretionary spending, which in turn reduces the leisure travel by the customers. Sluggish wage gains and credit crunch are all expected to keep customers relatively cautious in 2010-11. Thus, a weak economic outlook for the important markets of Carlson would put pressure on its top line and bottom line growth. Terrorist attacks and natural calamities Lately, the tourism industry across the world has been prone to anti-social activities such as terrorist attacks. Although, terrorist attacks were not on the Hilton Worldwide’s hotels; however, such events reflect the visibility of top hotel brands and vulnerability of the hospitality industry. Further, the hospitality industry is also prone to situations arising from natural calamities. Natural calamities like earth quake and tsunami in Japan in 2011, the earth quake in China in 2008, Hurricanes like Rita and Katrina in the US, affect the tourism and hotel industries adversely. Growing instances of natural calamities makes the company’s properties vulnerable to the natural calamities, which could in turn negatively affect the occupancy levels and the aftermath of such events tend to impact consumer confidence. Hence, such incidents could reduce domestic and international customer traffic which in turn would affect the top-line growth and profitability of the company.


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