In Good Company with Nicolai Tangen - Hilton Group CEO: What makes a good hotel?

Episode Date: November 22, 2023

Christopher Nassetta became the CEO of Hilton in 2007, at a time when the company was acquired by the private equity firm Blackstone. He navigated through challenges such as the impact of the recession, the rise of online travel agencies, and the emergence of new competitors. Through his successful restructuring of the company, launching new brands, and expanding into new markets, Hilton has become one of the world's largest and most valuable hotel companies. However, this raises questions about current trends: Are people using hotels as much post-COVID as they did before? And how is Hilton adapting to new competition like Airbnb? The production team on this episode were PLAN-B's Nikolai Ovenberg and Niklas Figenschau Johansen. Background research was done by Sigurd Brekke with input from portfolio manager Stephanie Werner Vardheim Links:Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

Hi everyone, and welcome to our podcast, In Good Company. I'm Nicolai Tangen, and the CEO of the Norwegian Submarine Wealth Fund. In this podcast, I talk to the leaders of some of the largest companies we are invested in, so that you can learn what we own and meet these impressive leaders. Today, I'm speaking to Chris Nassetta, the CEO of the Hilton Group, the world's second largest hotel chain. Hilton operates in 123 countries, owns more than 7,000 properties and has 1.3 million rooms. Wow, that's a lot of rooms. We own 1% of Hilton, translating into 3

billion Norwegian kroner or 300 million US dollars. Chris has done an amazing job getting Hilton back to success. And in this podcast, he shares some unique insights and stories. Stay tuned. Hi, everybody. Super excited to be here with the CEO of Hilton Hotels, a hotel group with 1.3 million rooms. Wow, that's a3 million rooms. Wow. That's a lot of rooms, Chris.

Nikolaj, thanks for having me. I'm honored that you'd have me on your podcast and look forward to catching up on a wide ranging set of topics. What makes a good hotel? You know, most of your listeners probably could answer it better than I could because they're hopefully all customers of Hilton. I think it's the really quite basic things that make for a great hotel. Number one, location. People still select, you know, first and foremost by location.

But then, of course, product, product quality, amenities in the product. And then last but certainly not least, because I think it is the real differentiator, is service. You know, we have to be really proud of our ability to deliver incredible, authentic service, you know, delivered by what is one of the best cultures on earth and recognized as such by a great place to work and the like. recognized as such by a great place to work and the like but it really is a combination of a great location a great product with all the functionality that people need with um heartfelt service that delivers customers you know a bespoke experience and you know that meets their stay occasion and there are a lot of stay occasions so you know so when you so chris when you come into a hotel room what do you look at um well when i come into a hotel room, what do you look at? Well, when I come into a hotel, which I do every day of the week, I mean, my biggest issue is trying to remember what room number I'm sleeping on on any particular night because I'm in a different hotel almost every night.

So I always say to the team, and then the team is quite nice about taking me to my room. You know, the general managers, you know, like to get time with me and I like to get time with them. And if I forget to look at what room I'm in, it's a problem later after I get back from dinner. But to me, when I walk in a hotel, again, I'm looking for the basics. I look around and I'm looking for basic, you know, the product. Is the product modern and fresh? Is it clean? What is the vibe of the team? And I know that's hard for your typical customer to figure out, but this is what I do for a living. And there's a difference. You know, are people happy? Do they look me in the eye? Are they attentive not just to me, but do I see them being attentive to the needs of our guests? And I say this and it's a bit of an overstatement, but I really believe this to be true.

I can tell within five minutes of walking into a hotel where it stacks in terms of customer satisfaction. And I'm very, very rarely wrong. What is it that you note? What are the signs? Well, the signs are the things that, you know, first of all, of course, when I'm walking into a hotel, I know what the location is. So, you know, that goes without saying. but I can see what the product's like. I can really sense, you know, is this a product that's up to snuff? Is it well kept? I mean, people, cleanliness is a real thing. And then the heart and soul of a hotel, you know, beyond the

physical is always the people in it. And the things that customers remember most are the experience they have with our teams. And you can tell very quickly, do you have a team that's well led? Do you have a team that is inspired by the work that they do by how they act? Are they engaged? Are they happy? Are they, you know, communicating with guests and satisfying various guests' needs. And so it's really easy to know a great hotel. You mentioned to me when we met in Boston that one of the things that clients look at is the quality of the towels. I did. You know, it's funny.

I've had a lot of feedback on that. You know, a lot of the media likes to pick up on sensational things and towels has been one of them. And so I've had some interesting feedback on that. But the reality is we use AI and a lot of other tools to understand customer insights across the world in our hotels. And the number one thing, there are a whole lot of things I think customers want us and everybody in the industry in our hotels. And the number one thing, there are a whole lot of things I think customers want us and everybody in the industry to do better. But the number one complaint, particularly in the United States, which is still the largest piece of our business, is the quality and quantity of towels, which is obviously something, you know, very,

very simple to fix. So I'm very proud of the fact that we have a whole new terry program that's just starting a rollout the next couple weeks and our entire system across the world will have upgraded quantity and quality of towels uh and i take it seriously enough where i've i've used them all i took them home while we were testing things and i was using i made my wife use the towels, you know, and so we get into the granularity of these issues. Chris, one of my favorite books is called Unreasonable Hospitality. You may have read it. What's the most extraordinary piece of hospitality you guys have offered? Well, you know, the most extraordinary piece of hospitality that we offer

is not that exciting. It's getting the basics right, right? I mean, if you really, and I suggested it in my earlier comments, if you really dive deep with customers, which we do through all sorts of data and focus groups. I just sat a month ago for 12 hours in front of focus groups from all segments, all geographies to figure out what do they want? What are we doing well? What are we not doing well? What's the competition doing well? And what are they looking for? And I'm going to grossly oversimplify it. But I think, Nikolai, sometimes that is the right way to think about these things is not make them too complex. What our customers tell us is what I said to you before. What they want is a consistent, high-quality experience. They want the product, the amenities, the functionality

to meet their needs, whatever their stay occasion is. And they want it done consistently all the time. And they want friendly service that doesn't treat them like an honors number or a room number, but treats them like a human being. And when you put those two things together, they will be very, very loyal. What's the latest trend in hospitality that you're excited about? Well, listen, you know, coming off of COVID, which was, let's just say, a challenging time, you and I saw each other, I think, sort of in the, you know, later stages of that, where I think everybody had thought that the travel trends were going to be permanently altered, that, you know, people weren't going to, once you got out of COVID, which restricted travel, the people weren't going to

travel because they were going to find different ways to have meetings and events. They were going to find different ways to connect with people on business travel. And, you know, they were going to be so impacted from COVID, they weren't going to be as interested in leisure travel. Well, I mean, quite the opposite has happened. So the most exciting trend in hospitality and travel and tourism generally is that we are entering what I would say is a golden age of travel, where, in fact, COVID took pre-existing trends, which is people wanting more experiences and spending money on more experiences and less on things. And it accelerated that in the sense that people got locked up for a period of time,

depending on where in the world you were. And they really decided that they wanted to live their lives and they wanted these experiences more than ever. And so they're out traveling for leisure. They're out traveling for business. They realize they need to build relationships and network and to collaborate and innovate. They have to meet in groups. And so you really are seeing a golden age of travel where for all segments of travel, people are out and about. And I think it's picking up momentum. What about some of the new models such as Airbnb on the leisure side of things? Airbnb is a good business, but it's a different, you know, you sort of listen to what I said about

being the premium player. You know, we coexist with them and what they do, they do well, but it's a different trip occasion that they're satisfying. I mean, what we're doing, as I said, is we're taking consistent, high-quality product with amenities, with service by trained people. We're connecting it with loyalty, technology, and delivering a very reliable, friendly experience. And as a result, we get a premium. No offense to Airbnb, but they're the opposite, right? You don't have the consistency of quality. You don't have the amenities. You don't have the service delivery

because there is limited, if any, service. Don't have the technology that bands it all together. And at the moment, don't have loyalty either. bands it all together, and at the moment don't have loyalty either. And so that's not to say it's not a good business. For a certain trip occasion, people use it. By the way, in those 12 hours of focus groups, that was a question I asked or indirectly asked and witnessed from every one of those focus groups which validated my view, which is that is a value play. So from a customer point of view, when they use home sharing, Airbnb is typically leisure related,

typically higher occupancy by number of people, you know, a little bit longer stay, and they need a different type of facility, kitchen, another type of facility, and a value proposition, meaning they have a bunch of people generally of different means, and so they're looking for a reasonable value to get incrementally more space to satisfy that trip occasion. The fact that airfare is going up a lot, is that holding back the level of business travel? It hasn't. I mean, what's been interesting is it's shifted it a little bit during COVID for sure because of health issues and inability to get flights. But it's been sticky, which is we've sort of flipped around where if you looked at our global business pre-COVID, two-thirds of

people were flying to locations and one-third were driving. It's absolutely the opposite still. Two-thirds of people are driving and one-third are flying. And so I think during COVID, people retrained themselves. They started to travel, but they traveled within driving radiuses and not quite as great a distance. And so the fact that airfares have gone up has not really hurt us. And the fact is people, businesses are making more. I mean, the reality is why have airfares gone up? Inflation's gone up, fuel, all the input, labor costs, fuel costs. You know, broadly around the world, we have inflation. Well, I mean, that's helped businesses and individuals.

So people are making more money. Their salaries went up. Businesses are more profitable. And so the reality is everything is sort of moved up. Airfares haven't been the only thing moving up. Everything's moved up, including profitability and people's pay. And so we have not seen any real impact. But again, part of it is a shift out to a more incremental drive too.

Now, one of the interesting things with Hilton is that you have been owned by private equity, by Blackstone. Yes. How was that experience? The experience I had was spectacular. I came in as part, I was not with Blackstone, although I had done other things with them. They were a majority share or a major shareholder of a company I had run before I got to Hilton. And so I had some real experience with them. And so when they decided they were going to buy Hilton in 2007, they called me and said, you know, we should do this again. And so I had a great deal of familiarity with them. And I had a lot of knowledge having competed against Hilton on the company from the outside looking in. And I, you know,

I found that we were very aligned in our view of what the opportunity was. And they were, you know, the perfect partner for me to be able to enable the massive amount of change that needed to occur at the company to get it, you know, get it going in a proper direction. I mean, the truth is Hilton's been around a long time. At that time, we'd been around 85 plus years, but we were a very middle of the road performer. So what did Blackstone do when they owned Hilton? Well, Blackstone, number one, completely transformed the business from a cultural point of view, from a brand point of view. We had nine brands at that time. We have 22 today. We completely transformed ourselves from a technology and innovation point of view. We took a company that was a mediocre grower, probably

fifth to seventh in the pack, even though we had invented the business to some degree that you know is the hospitality business today. And we've become the number one growth of the majors. And at the same time, on behalf of our owners, and we can talk about the model because we don't own the real estate, so driving returns is important. We drive the premium market share and the premium returns to owners.

How much do they invest in the business? They invested at the beginning $5.6 billion and then another billion-ish during the Great Recession. you know, with John Gray and others on the Blackstone team who, John, by the way, is still the chairman of the board of our company, even though Blackstone sold out many years ago. John is still the chairman of the company. It's an incredible asset, loves the business, knows a lot about the industry and loves the industry. But Blackstone's, you could ask them, Blackstone's, you could ask them, but Blackstone's entire mantra is buy it, fix it, and sell it, right? And so they bought this at a time where everybody thought they were paying way too much. I mean, it was an asset that had never sold, right? You can't buy brands like this.

And they bought it, and I came in with the acquisition with a fundamental belief that it was the most undermanaged company we had ever seen. And so we went about fixing it, but it wasn't for the faint of heart, right? You know, even without the Great Recession, okay, it was a lot to do. It was a big global business that was really sort of limping. But Blackstone, as a partner, basically gave me carte blanche to do the things that we needed to do and supported it. It wasn't just Chris, go do it, but we're going to give you the resources. We're going to help you with people, particularly in the beginning. We didn't really have the talent base. And so we went about it. Then the Great Recession hit. And everybody thought, by the way, that Blackstone had just lost five and a half or six billion dollars. The headlines and all the period, the journal and everything were horrific. But to their credit, and this is an important part of the story, they doubled down. They invested over, you know, another billion plus in the business because they believed in what we were doing,

even though that was a huge concentrated bet already that they doubled down on. And they stood with the team and I to sort of help us push through the Great Recession. And the end of the story is it's still, I think, to this day, the largest private equity profit in the history of private equity. So what specifically do they do to support you and what kind of resources do they provide to you? They provide, I mean, resources across the board. So they have a, you know, they have broader resources on the cultural side and, you know, and the like. They have specific resources because they're very knowledgeable in the hotel space. We owned a lot of real estate then. They had a lot of

resources in that arena. So it was really across the board. It was help on the strategy side, help on the HR side, help on the branding side, help on the global growth side in terms of relationships and knowledge and partners that they had around the world. I would say it would be fair to describe it as a full-court press. How concerned are the private equity players about ESG? I would say pretty concerned. I mean, I think I can speak to Blackstone, who I think, I can't speak for everybody that has a lot of efforts going on within their portfolio companies.

I'm less up to speed because I'm not one of the portfolio companies anymore. But I go back 16 years ago when we got started and I said to them, listen, we're in an industry that sort of depends on the environment without taking care of the environment. We don't really have a business. You know, if we're not responsible, then all of a sudden people can't fly around and drive around and visit all these amazing destinations and do business all over the world. It might crimp the business a bit. it might crimp the business a bit. So I said, we need to not only, you know, have an ESG strategy, which we built many years ago, but we need to lead it and we need to be collaborating because

no one company, even as big as we are, can do it. And they were super supportive of those efforts. You know, and as I say, we were way ahead of our time. A lot of people want to say PE, you know, they don't want to invest in anything that's not going to drive revenue. But that's just not true. I mean, with Blackstone, we had a very concerted effort on this front because our view, my view, and I think they shared it was it got to the very sustainability over the long term of the business.

Chris, moving on to leadership, what are your most important leadership principles? Culture and strategy. So, you know, from my point of view, that's the job of a CEO is, you know, you have to ultimately create the right ecosystem so that people are empowered and inspired to do great things. And then, you know, you wind them up and you get them moving in the right direction and you've got to give them, you know, a really, really good strategy to, to sort of go with it. So, um, you know, that's, that's been my, um, been my view on leadership. I mean, the truth of the matter is I've lived through a lot. So I think that gives me, you know, a lot of experience and calmness, but it's also something I work really

hard on is just to be steady, to have a steady hand on the wheel. It's really easy to jerk the wheel. It's real. There are a lot of things going on in the macro environment your competitors are doing thing you got generative ai you got this you know got so many shiny objects um that are flashing by you all the time and if you try and chase them all you're likely to do very you know you're likely to do a lot of things and none of them very well and so my leadership philosophy is about steady hand focus. Talking about experience, what are the things you wish you knew when you were younger? You know, I was not as calm when I was younger as I am today,

and I had less experience. So, you know, I wish if I could tell my young self, you know, I wish I could, if I could tell my young self, you know, what to focus on, it would be steadiness. It would be, you know, look at the big things. Don't worry about the small things. Don't let, you know, don't let, you know, so many things coming at you intimidate, because it can be intimidating, both the macro things that are changing, but the micro things, all the shiny objects. If I go back and tell my, you know, 30-year-old self, you know, how do you advance your leadership skills? It would be, you know, recognize, like, pull the big levers, like, just keep focusing on building a great culture.

Make sure you have a spectacular strategy. Make sure if it's a big business, you've got a reasonable balance sheet. And keep pushing and chunk it out and grind. I mean, that's the thing. A lot of our success, and I think my success, is being all of those things, but being very scrappy, entrepreneurial, scrappy, gritty. If you've got a plan, work the plan. And I would tell my younger self, don't get caught up in all the extraneous stuff. So how do you get this balance right between delegation and hands-on leadership

in a group like that? It's a constant battle. And it depends on the rhythms of the team. I mean, in the end, for a CEO to really be at his or her best, you need to be delegating almost everything. And if you're not, I think you either stylistically have a problem or you have the wrong team. Stylistically means some CEOs like to diddle

and get in the middle of everything. And I think that can be super disruptive, particularly in a very large global organization, or they feel like they absolutely have to and they may be right because they haven't built the right teams for whatever reason. They haven't changed people they need to change. They're insecure about their own position in the company and they don't want people that are smarter, faster around them. Whatever the point, you know, the results the same, which is dysfunction.

And so in the end, if a CEO's primary job for, you know, is culture and strategy, and those are way up high to get them right. By definition, the more that you allow yourself to get sucked down in the business, the more risk you don't see the forest through the trees. And so I am constantly pushing myself to delegate and get out of the weeds. I say this to our board all the time, and it's sort of related to this a little bit. We've gone through 16 years of evolution here. And I'd say we probably have gone through five or 10 different big iterations. And what got you from A to B is probably not what's going to get you from B to C, and it's definitely not what's going to get you from C to D. And so as a CEO, I'm preaching to myself, Nikolai, because I'm constantly reminding myself of this.

You have to be able to reinvent yourself so you can reinvent your organization, because the world is changing around you. The competitive landscape is changing. And I think that one of the pitfalls all of us fall into is comfort. You get a team around you, the competitive landscape is changing. And I think that one of the pitfalls all of us fall into is comfort. You get a team around you, you've had great success, and you just keep repeating the rhythms with the belief that if it worked for the last five years, it'll work for the next five years. And how are you reinventing yourself just now? What are you working on?

I'm working on a bunch. I've been retooling our team a little bit in some areas, in technology, innovation, in some of the categories of brands, in the lifestyle space, all of which I think we do pretty well, but I think we can do better. And so I've been spending a lot more of my time not micromanaging those things, but as we've gone through this strategic planning process, personally spending a lot more time talking to customers, doing these focus groups, trying to get a much more precise view of how we want to sort of focus our resources. And then, yeah, some of it will ultimately lead to some organizational changes because we've, I think, demonstrably had unbelievable success and delivered great growth and returns and all the things that hopefully as a shareholder you appreciate. But the truth is, I think we can be much better. And the day that I don't think that, you will see me leave the business. Because the truth is,

we have a great business. The model is one of the best business models on earth. And we've run it well, but there's opportunity. There's a whole bunch of pockets of opportunity in different segments of customers and thus within the brands. Tons of opportunities in terms of different geographies, all of which we're pursuing. But I'd say just I think there's some that we can do even more better, faster. Talking of geographies, you're a customer. What is your favorite destination? I don't have one. Everybody always asks me that as a hotel guy, you know, with 7,300 hotels.

Everybody thinks I have to have a favorite. The truth is, I do this trip. Well, now you have a week. You have to take a week holiday. Where do you have a week now you have you have to take a week holiday where do you spend it well the one place i want to go i admit it i wouldn't say it's my favorite because i haven't been to this hotel's uh walter astoria maldives uh would be nice but here's the thing and i really mean this i love what i do and i love what i do because the places are cool but it's really more the people.

Talking about people, the most famous Hilton, of course, is Paris Hilton. How does she fit into things? Paris is a big partner of ours. Do you know Paris? Everybody loves Paris. It's funny, particularly in the first like five years, there wasn't a meeting I went into anywhere in the world where people didn't ask me, do you know

Paris Hilton? Literally. And my kids, of course, were young. They're now 20 to 30. I have six daughters, but they were young. And my kids thought I worked for Paris Hilton. They used to say, Dad, what's it like to work for Paris Hilton? And I gave up trying to explain that I didn't. And I just said, she's great. We didn't really have much of a relationship till about four or five years ago. And my belief was that it was a, it was silly that Paris has an unbelievably large following, uh, and a very, very, uh, positive brand, uh, not just here in the U S but all over the world. And her name's our name. Like, there's no getting away from it. She's going to use the Hilton name, and we're going to use the Hilton name.

And we ought to be trying to find ways to get her more actively engaged, and we have. So you can see she's a partner with us in all of our campaigns. She does a lot of our TV ads, social media. She DJs all over the world for us. She's doing some advisory work. I mentioned lifestyle was a category that I want us to push harder on, and she's doing some advisory work there to help us in that. And so we have an extraordinary relationship. I'll see her tomorrow. We're opening the first Tempo in Times Square at TSX, and Paris is going to DJ in Times Square.

Wednesday, excuse me, Wednesday night. So I'll see you Wednesday. Well, I'm sure you're set up for a cool Wednesday night then. Yeah. What is your advice to young people? What should they be doing? You know, this is what I would say to my kids, but my kids, like most kids, don't listen to their dad. So I'll say it to whoever might listen on your podcast.

I would say my best advice and sort of what is if you want to find happiness and joy in life is find something you like to do for sure. If you can love it, that's great. But find something in your professional career that you have an interest in. But more importantly, find a company and or a group of people that you love being part of. A group of people that is purposeful. A group of people or a company that will invest in you, a group of people where you feel like you are part of something bigger than yourself. I think if you can find that, you will find a lot more happiness and joy in your career than being in something you like without the other parts of it. In fact, I'd argue you could be in a lot of different things in terms of industries.

But if you were with a group of people doing something that you thought mattered to you and that inspired you and made you feel like you're part of something bigger, you have a much higher probability of happiness and joy and that's you know I say to my six daughters I want two things in your life I want you to be I want you to have happiness and I want you to be able to sustain yourself and finding a great

career in a great company with a great group of people you can connect those two and accomplish both. Really, really nice place to end, Chris. It's been great to have you on. A big honor and a big thanks for your time. Yeah, I was happy to do it, Nikolaj. Great to see you.

Look forward to seeing you in person soon. Thank you.