It's check-in time at the Hilton

David Michels, chief of the international hotel and betting group, reckons the closure of racetracks due to farming woes has had little impact on his gambling interests, but after spending £600m on revamping the hotel division, he could do without a slump in British tourism
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The Independent Online
Somewhere in his video collection, David Michels keeps an episode of the Sixties satirical sketch show That Was The Week That Was, which devotes a full five minutes to lampooning the opening of the London Hilton on Park Lane. That an outpost of the glamorous American hotel empire, linked to the playboy former husband of Elizabeth Taylor, could bring its iced water and piped music to Mayfair ­ and to a site that overlooked no less than the Queen's own back garden ­ was roundly mocked as a US cultural invasion too far. Four decades later, it's hard to imagine the company being a big enough part of the public consciousness to merit a similar mauling on Have I Got News For You. The company owns more than 220 hotels in 57 countries, but these days the movie-star guests have been replaced by holiday-makers and mid-ranking travelling salesmen.

Somewhere in his video collection, David Michels keeps an episode of the Sixties satirical sketch show That Was The Week That Was, which devotes a full five minutes to lampooning the opening of the London Hilton on Park Lane. That an outpost of the glamorous American hotel empire, linked to the playboy former husband of Elizabeth Taylor, could bring its iced water and piped music to Mayfair ­ and to a site that overlooked no less than the Queen's own back garden ­ was roundly mocked as a US cultural invasion too far. Four decades later, it's hard to imagine the company being a big enough part of the public consciousness to merit a similar mauling on Have I Got News For You. The company owns more than 220 hotels in 57 countries, but these days the movie-star guests have been replaced by holiday-makers and mid-ranking travelling salesmen.

"The point is that Hilton was powerful enough to get a five-minute skit on what was then the most watched programme on telly," says Mr Michels, who became Hilton Group chief executive two years ago. "It was the first international hotel company and it had tons of glamour attached to it. Since then some others ­ Sheraton, Marriott ­ have caught up. The marketplace itself has become vastly more sophisticated. And on both sides of the Atlantic there was a lack of investment."

Reviving such a well-known brand, as well as rationalising a sprawling leisure empire that encompasses not only the Hilton properties and the 54-strong former Stakis hotel chain, but the Ladbroke betting and gaming businesses and the LivingWell health club operation, is a sizeable task even for a man as experienced in the hotel and leisure trade as Mr Michels. Another complication is the division of the Hilton label between Hilton Hotel Corporation, an entirely separate company which owns the name in America, and Hilton Group, which holds the rights through the rest of the world. Over the next few months the man who began his career as a waiter at Simpsons-in-the-Strand in London before stints with Ladbroke and Hilton International, will also have to deal with the inevitable effects of the foot-and-mouth epidemic on income from racing and tourism. And any global recession could have an incalculable impact on leisure spending.

"Hotels are complex products and they are bought for complex reasons," says Mr Michels. "They're not like Coca-Cola which will sell in tons as long as it tastes good. People stay in hotels for lots of reasons that are nothing to do with sleep. Hotels are a place where people can have things that home life absolutely prohibits. In the Western world life is so frantic no one has time for breakfast in bed any more. The kids and mother-in-law aren't there. You can throw your clothes on the floor and have the TV on as loud as you like."

Mr Michels has no intention of offering Hilton visitors the limitless designer luxury that marks out the Shangri-La, Ritz-Carlton and Four Seasons chains. But neither will the name be seen above the door of a three-star British hotel and conference centre somewhere on a provincial bypass. Back in 1987, when Ladbroke Group acquired Hilton International, its hotels were rebranded under the Hilton name. Mr Michels admits that was a mistake, and most of those "mid-market" hotels have been sold. "We may one day go into three-star hotels but we won't use the Hilton brand," he says. "When we did the amalgamation of Stakis and Hilton we sold 20 of the hotels that couldn't be Hiltons and spent on refurbishing the rest. That time we enhanced the brand and last time with Ladbroke we screwed it." Over the past three years the company has put more than £600m into new hotels from Buenos Aires to Budapest, and into refurbishing many of its existing operations. Nineteen new premises will begin spinning their revolving doors for business this year and a further 30 are on the drawing board, many of which will abandon the chintz and reproduction mahogany decor so inexplicably beloved by international hotel chains in favour of a more contemporary feel.

"We're not exclusive," Mr Michels says. "What we want to be is up-market and friendly so travellers can buy the product as a regular habit." A few years ago the company struck a marketing alliance with Hilton Hotel Corporation in the USA, reuniting the Hilton brand for the first time in nearly 40 years since Hilton International was demerged from its American parent. The partners have the same logos and run joint reservation systems and loyalty programmes. "I've been around when we've been at war and when we've been at peace and I can tell you peace is a lot nicer," Mr Michels says. "As far as customers are concerned, it's now seamless."

Ironically, Hilton no longer owns the flagship Park Lane hotel that caused such a stir when it opened back in 1963. With 10 other UK properties, it was sold to the Royal Bank of Scotland last month as part of an innovative and widely-praised sale-and-leaseback deal that raised £312m to expand Hilton's £3bn global property portfolio overseas. "The reasons for doing it were almost as important as the deal itself," says Mr Michels. "It showed the hotels were valued at more than the figure we had in the books, and that the group was worth more than the city valued us at. Finally it proved that the Hilton name wrapped around a lease is very powerful." Late last year Hilton raised a further £256m to pay debts by selling its casino business to leisure group Gala.

Mr Michels is a hotelier by inclination but he has also spent a handful of his 33 years with the company working for the Ladbroke gaming division, which accounted for just less than a third of the group's operating profit last year. At present he is having to bend all of that experience through the prism of his knowledgeable directors at Ladbroke to deal with some of the pressing issues now facing the British gaming industry.

Surprisingly, the foot-and-mouth epidemic, which has led to the cancellation of the Cheltenham Gold Cup and scores of other race meetings, does not head his list of concerns. "Foot-and-mouth is hurting me far more in hotels than in racing," says Mr Michels. "I believe in the last six months we've lost more racing to bad weather than to foot-and-mouth. I have absolutely no complaints about the betting income ­ it's been a very good year so far." Only two-thirds of bets placed in a typical bookies' shop are on the horses. Dedicated punters can find alternative sporting events to bet on, but the domestic hotel trade is being shunned by UK tourists and overseas visitors. "It's short-term but it's unpleasant," says Mr Michels. "We've already noticed fewer people are taking weekend breaks and if it carries on much longer the hotel industry is going to have a pretty hard second quarter. People will bet on alternative racing like the Dubai Gold Cup if they can see the pictures. And they'll bet more and more on football ­ this century's fashionable sport."

Gambling on the beautiful game and indeed just about anything that moves is likely to grow substantially from next January when betting duty is scrapped. The decision, announced in last month's budget, to replace the 6.75 per cent levy on all betting shop wagers with a 15 per cent tax on bookies' profits, will have a far bigger long-term impact on the business than the current livestock disaster. "Will turnover go up? Definitely. For our sake it had better go up enough to cover the extra duty that we'll be paying on this occasion ­ and it probably will," says Mr Michels.

When the Irish government halved betting taxes from 10 per cent to 5 per cent some years ago the industry's turnover rose by around a third. "It's amazing the Government has been that commercial. Their investment has been in bringing back an industry in which we are world leaders and bringing the expertise home."

But even though the changes will have a profound impact on the offshore betting industry, Mr Michels believes they are unlikely to have a significant impact on Hilton's £100m online gaming business, which makes around 40 per cent of its income from foreign punters. "We think the internet customers are different to those who go into the shops; it's a totally different experience," he says. The online venture, like the hotels division, is soaking up cash but fortunately the bricks-and-mortar betting business generates up to £90m each year, which is the best reason for Hilton to ignore persistent City speculation that a demerger of the hospitality and gaming arms would make sense.

"Yes, there are no synergies but there never have been," says Mr Michels. "Now the casinos have gone we have never had fewer businesses in the portfolio. For the next three years we have no intention of selling off the gaming business. But the odds are we'll look at it again one day."

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