Below is the transcript of an interview with Hilton President and CEO Chris Nassetta. The interview will play out in CNBC's latest episode of Managing Asia on 19 October 2018, 5.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan: So Chris, Hilton is going to celebrate its one hundredth year next year.
Chris Nassetta: We are indeed.
Christine Tan: How are you going to celebrate this big milestone? What do you have in mind?
Chris Nassetta: Well I think first of all, it's not a milestone that many companies get to celebrate. The list of companies that make it to 100 years old is pretty short, let alone ones that have been successful over 100 years. And for us, I think it's both a celebration in a sense of our legacy, and I think we should allow ourselves a little bit of that celebration, but it's also very much about looking forward. If you think about Hilton at its core, almost 100 years ago this guy named Conrad Hilton founded the company on a very simple premise which still guides us today. And that premise was travel can make the world a better place. That's literally what he said as he founded the company. And as we look back on the last 100 years and think about the immense impact that we've had on the world it's pretty awe-inspiring. If you think about literally the hundreds of millions of travelers that we've served all over the world and pioneered the business in ways that allowed people to travel and have cultural exchange in a safe and secure way. If you think about the millions of team members that have become part of our system, that have had opportunities to have career development and learn and grow and do bigger and better things, and importantly, the thousands and thousands of communities that we've operated in and contributed to and become part of those environments in such meaningful ways. It's pretty awe-inspiring to think of the hundreds of millions of people over our hundred years that have been positively impacted.
Christine Tan: What are some of the key trends you see when it comes to travel and tourism in the next 100 years? Are we going to look at a new era of growth?
Chris Nassetta: Yeah I think in so many ways we're in a golden age of travel and when I think about it, there's two megatrends that are really driving it. One is the emerging middle classes around the world, just the huge amount of growth in middle-class all over the world with people that have more disposable income and want to travel and see the world and experience their own countries, travel outside their own borders. The other real big mega trend that is driving the golden age of travel is people want more experiences. We think about young people wanting experiences, they would rather pay for experiences more so than products. There's been a lot of research on that, but I think it's true across all age cohorts. People want experiences. They want to see their country, they want to travel outside their borders, and they want to have cultural exchange. So when you put together those really powerful trends of big time growth in the middle class and a big time mega trend of people wanting more experiences, it really means great things for the hotel industry.
Christine Tan: After 11 long years, Blackstone made the decision early this year to sell off its remaining stake in the company. They were the very reason why you were brought in, to turn around the company. After such a long relationship, how did you feel about the exit?
Chris Nassetta: You know I was happy for them and it was a wonderful result for them. I don't think the company would be where it is without Blackstone's involvement. Meaning it really gave us a chance 11 years ago to take a company that had a great legacy of 90 years at that point in time, but that had really become complacent in so many ways. We weren't really innovating or growing in the ways that we could and Blackstone allowed me to come in and build a great team, provide a lot of energy and enthusiasm and a spark, if you will, to transform the company to be able to get back to our prior place and proper place in leading the industry. And so in that way I'm eternally grateful. Blackstone's business model is, as they would tell you, to buy it, fix it and sell it. So they bought it, we fixed it and they ended up selling it in the end. They did phenomenally well in terms of the investment and that's their model. You know, they are not a long term investor in businesses like this. So their exit was, I think, a great day for them in the sense that they accomplished the objective, we transformed the company and they got a great return. An emotional moment, because you know I came in with them as you pointed out, I've had a 25-year relationship with them at the highest levels with Jon Gray, Steve Schwarzman and others. They were tremendous partners for us...
Christine Tan: And Jon Gray still stays on as chairman.
Chris Nassetta: Yeah, Jon Gray is still chairman, he's also now president of Blackstone. So them not being in the investment, in a sense, there's an emotional element to it. Our job was to allow them to be able to make that investment and ultimately deliver great returns for their shareholders which we were able to do.
Christine Tan: Everybody thought it was going to be the worst private equity loss in history but in actual fact it was the biggest private equity profit ever made, about $ 14 billion to be exact. Are you happy you proved the naysayers wrong?
Chris Nassetta: You better believe we were happy we proved the naysayers wrong. I mean the reality is if you go back to 2008, 2009, during the Great Recession, there were headlines all over the place about Blackstone's black eye, the Hilton investment was the last train out of dodge...
Christine Tan: Those were tough times.
Chris Nassetta: Those were tough times. It was going to be, if you look at the headlines, the greatest private equity loss of all time and the fact that when they completed their sell out of the shares this past summer, it ended up being the largest private equity profit in history. It was a wonderful moment. A wonderful moment for them, a wonderful moment for the management team and something certainly we were happy to celebrate. We proved to the naysayers that we had a plan and a great strategy that we set out to execute 11 years ago. I don't think any of us would say that we knew the Great Recession would happen the way that it did, but we not only made it through the Great Recession, we positioned the company in a far better way and took advantage of the difficult times to gain momentum. We exited in a really good place that allowed us to continue to grow the business in an industry- leading way that has allowed for Blackstone to create the largest private equity profit in history and that's what we were there to do. That was what I was brought in to...
Christine Tan: But you were the man who led the turn-around. As CEO, how did you pull it off?
Chris Nassetta: Culture. People. You know the thing that was missing at Hilton, we have a long legacy of having a great culture and leading the industry in so many ways, but probably in the 10 or 20 years, leading up to the buyout by Blackstone, we had become complacent. We had been the king of the hill for a long time and I think with a lot of companies, particularly older companies, it's easy to let complacency sort of set in. And in our case, I think you know Hilton, as you know it today, had been put together by merger and acquisition of three or four different enterprises and it had never really been integrated. We had never really built a common culture. We had never really sort of established the true north -- the purpose of why we all got up every day as an organization now 400,000 people strong, in a way that would energize and motivate and inspire these people to come in and serve our customers in a way where our customers would want to come back time and time again which would allow us to continue to accelerate our growth. And so in the end what we did, we built an incredible culture.
Christine Tan: Well as you lead the company into its 100th year, you're also making a big push to get more direct bookings with the launch of your campaign "Stop Clicking Around". How's it coming along? Have your customers stopped clicking around?
Chris Nassetta: It's coming along pretty well. Yes. We've seen quite a bit of channel shift, from other channels into our direct channels over the last several years. You're going to see another big push on our direct booking campaign. It may have a little bit of a different look and feel than "Stop Clicking Around", but the same message. And the point of the message is this: Where we can have a direct relationship with customers, we want to have a direct relationship. We think it allows better value to our customer and a better experience for our customer. We think that is absolutely the case. And so these campaigns are just about making sure customers have the opportunity to know that. If they then choose to want to buy through other intermediaries, then that's okay. But we wanted to do it on a really informed basis and so that's what all of our efforts have been about.
Christine Tan: How much have you been able to increase your direct bookings as a result? In terms of percentage, what's it like compared to overall business?
Chris Nassetta: It's improved a lot. You know, right now, our direct channels represent about 75 percent of our business.
Christine Tan: Well Airbnb has earned the reputation of being the so-called "great disruptor" in hotel space. But now the home-sharing and rental platform has expanded into hotel bookings. Do you see Airbnb as a threat or as an ally?
Chris Nassetta: I don't see them necessarily as either. I think it's a different business. I think it's a good business. Clearly some of our customers and folks that are not our customers want that type of experience for certain trip occasions. And when they want that, they can they can access that. What we do is fundamentally different. I mean we are effectively the premium player. People come to us for whatever, whether it's a Hampton Inn, a Tru, a Waldorf Astoria, a Hilton, whatever it is, they're coming to us for a high quality and consistent experience where they get a product they can rely on and they get hospitality services connected to it.
Christine Tan: It's a different market altogether.
Chris Nassetta: They get the amenities associated with it and all of that comes with it and they pay a premium for that. There is clearly an element of crossover that exists, but as we do the math scientifically and we talk to customers, it's really not too much difference that we see in terms of competition. Now you know as an ally, time will tell...
Christine Tan: You've recently opened your 100th Hilton hotel in Hangzhou China. You currently have about 150 hotels in China right now. How fast is the domestic market in China growing for you?
Chris Nassetta: Growing at a very rapid pace. We have 150 open and 400 hotels in the pipeline. We're growing like crazy. Same store results are very strong in China. They lead the world for us, the major markets in the world will end up with low double digit same store growth. Our unit growth this year in China will probably be up 50 percent, I expect. It's up a similar amount next year. China is, clearly in terms of where the world is going, the most important travel and tourism market in the world, just because it is it is growing at a very fast pace. Demand is going to continue to grow in that market both for domestic travel and inbound travel into China. But more importantly, China has already become the number one outbound market in the world. So us winning in China and building brand loyalty in China, we think will ultimately translate into us being able to compete more effectively in other markets around the world.
Christine Tan: Oversupply has become a big issue the Chinese hospitality market, is this something that you're worried about?
Chris Nassetta: I'm not worried about it in the long term. Every market is different and I couldn't sit here today and you know walk through each one, we don't have the time. But there will be some markets, as is the case in all markets around the world, that will have oversupply and others that have undersupply. Over the long term, essentially, the way I look at China is, it is way under supplied in hotel rooms relative to the demand that's in place and the demand that we anticipate over the coming decades. Every market will ebb and flow and will sometimes have pockets of undersupply and oversupply, but the long term trend is clearly that there's a need for more hotel rooms in China.
Christine Tan: You're expanding into China at time when there is an escalating trade war between the U.S. and China. Has businesses mulled the impact? Do you think this is going to impact corporate travel into China?
Chris Nassetta: I hope not. You know, I'm optimistic, but you know I'm an optimistic person by nature. There's a lot of sabre-rattling going on between the United States government and the Chinese government. I like to think calmer heads will prevail on both sides and ultimately, accommodations will be made and a deal will ultimately be achieved. But it's early to say. I think this is not going to happen from either side any time too soon. It does appear to me from everything I see on the ground, at least at the moment, the travel and tourism is not sort of caught up in it in any material way, certainly as I talked...
Christine Tan: So it's not going to impact Chinese travel to the U.S.?
Chris Nassetta: It has not yet, and my impression from talking to the United States government at least, is they have no desire to have travel and tourism caught up in this trade war. So we have not seen any impact of it in terms of inbound tourism to the United States. We've not seen any impact on our business in China. So far, things are moving in a very consistent way, in a very positive way.
Christine Tan: As a U.S. hospitality brand, are you worried about a backlash as this trade rhetoric heats up?
Chris Nassetta: Well, I get paid to worry, so of course I'm worried about a backlash. We have not seen it. I'm hopeful that we will not. I mean we are based in the U.S. but I like to think given our 100 year legacy, that we're very much a global citizen and a global company. Again, so far, we've not seen any impact and we're certainly hopeful.
Christine Tan: Earlier this year, HNA group, a Chinese conglomerate that bought a 25% stake into Hilton, was forced to sell its shares after a government crackdown on overseas investors. Are you disappointed the relationship was so short-lived?
Chris Nassetta: Well, we still have a good relationship with HNA. I keep up with their CEO on a regular basis and I think there are still opportunities strategically for us to do things together. They have a big travel and tourism business and they have a big loyalty program. They're big airline. And so I think there were a number of things that we had been working on with them while they owned the company over their 25...
Christine Tan: So that partnership continues?
Chris Nassetta: That partnership is continuing in the sense that we are working on things that are in our mutual interest. In the end, HNA sold for a lot of reasons that were very specific to them. HNA did very well in the stock of all three companies that they bought at pre-split. In about one year, they made about $2 billion. So I think in the end it was a very successful investment for HNA. I think they were quite pleased given the scale of the profits that they made. As I said, the relationship between me and their CEO is quite good. I think there are opportunities to do things together.
Christine Tan: In terms of overall brands, you have about 7 of 14 brands operating here in Asia. You've recently launched Tru in 2016. How's it coming along? How many deals have you signed so far?
Chris Nassetta: Tru is a rocket ship. Tru is the most successful brand launch in the history of our company and I think scientifically, in the history of the hotel industry. We launched in 2016 and we've already signed 500 deals. We'll open I think 40 to 50 Trus this year. If all goes well, we'll open 100 next year. Everywhere around the world, the mid-market brands are growing at a very rapid pace. When you wake up in 5 or 10 or 20 years, the bulk of our growth will be in the mid-market. That's not to say we won't do lots of Waldorf Astorias, and gobs of Hiltons and Double Trees and Embassy Suites and everything else, but because the bulk of the demand is going to come in the mid-market, that's where the bulk of the room growth will be.
Christine Tan: So when you see how fast this mid-market segment is growing, are you tempted to start another mid-market brand?
Chris Nassetta: I think rather than starting more mid-market brands, I think what we're tempted to do, and will be doing, is taking the show on the road, and making sure that the brands that we have are performing well and that they have an opportunity to be experienced by customers in more regions of the world. So China is a great example, we're just talking about China. Tru ultimately should be in China. Tru should be in Asia Pacific. Hampton by Hilton and Hilton Garden Inn can be much more broadly distributed in this part of the world. We have 65 Hilton Garden Inns and Hamptons open in Asia-Pacific, I think 250 in our pipeline. Just to put it in perspective, in the United States between those two brands we have 3000 hotels open. So think about the relative population centers. There's a much higher population density in this part of the world. The sky's the limit with our existing mid-market team...
Christine Tan: So you've got 14 brands, what's next?
Chris Nassetta: Well, we have seven here in Asia-Pacific. We'll probably have 9 maybe 10 here in Asia Pacific by the time the year is out. We're launching three new brands probably in the next two or three quarters. We're very excited about that.
Christine Tan: What are these three new brands?
Chris Nassetta: The three new brands are a luxury-soft brand, which we have not announced a name for. But we'll be doing that soon. A premium Hilton brand, so like Hilton but a little bit higher quality than our core Hilton brand. And then what I affectionately call an urban micro brand. My team hates it when I call it a "hostel on steroids", it's very focused on the urban environment, very small rooms. We're always trying to bring new customers into the system. The thing we know is, it sometimes takes a different kind of brand or a new brand to get somebody new in the system. They have a very high propensity to then trade around in and about our other brands. That continues to drive more loyalty members, more market share and more market share drives more investment by owners and ultimately more growth.
Christine Tan: So when could you launch this "hostel on steroids"?
Chris Nassetta: We will likely launch it by the end of the year.
Christine Tan: Any names?
Chris Nassetta: Not yet, but you'll be the first to know.
Christine Tan: In the last 10 years under your leadership, Hilton has not been involved in this wave of consolidation that's happening in the hospitality industry. Now as the company approaches its 100th year, is that strategy going to change?
Chris Nassetta: I don't think so. Assume we look at every single transaction that's out there; we always come back to being able to do it organically and giving customers more of exactly what they want, rather than buying other brands and having to fix those up. The other thing is, I always try to deliver returns for our stakeholders. So growing organically has a much higher return experience.
Christine Tan: So just to be clear, you're happy with the size of Hilton and you don't feel like you have to be the biggest in the industry?
Chris Nassetta: No. We're very happy with the size. We're plenty big. We were the biggest, now we're the second biggest. We're plenty big with a huge network effect and we have a big platform. Next year, we'll have 100 million Honors members, plenty of capacity to invest in innovation and technology.
Christine Tan: So size doesn't matter?
Chris Nassetta: Well, I think size does matter. I think being at a large scale in our industry matters a lot. What I'm saying is we have plenty of scale. We may be number two but that's plenty of scale to accomplish what we want to accomplish. We have no desire to go out and buy our way to be bigger because ultimately we're not sure that would be the right thing to do for our customer, and we're pretty confident it would not be the right thing to do for our shareholders.
Christine Tan: You've been credited for turning around Hilton, and in the process saved one of private equity's most expensive deals. Looking back at that journey, in the last 10, 11 years, what was the most important leadership lesson you picked up along the way?
Chris Nassetta: The most basic. It's all about the people. In the end, I have the good fortune of running this very big business with 400 000 people that are serving people every day. But that's exactly what it is; it's a business of people serving people. And it was, is, and always will be about the culture of the company.
Christine Tan: Hilton is not the only company you've fixed. In business circles you're known as a fix-it guy. Do you like turning around troubled companies? You get a big kick out of it?
Chris Nassetta: I do like fixing things. Yeah, I've done a few fix-up jobs, Hilton obviously being the biggest and most complex. The nice thing about Hilton now though, we've worked for the last 11 years to get ourselves in a position where we have a tremendous opportunity in front of us, let alone an incredible 100 year legacy. We're poised to be able to do great things. And so while it isn't a fix-up job, we've already done the fix-up. It is now an opportunity to take something that's poised for amazing things and really execute that and make it happen.
Christine Tan: What drives you? What motivates you?
Chris Nassetta: Impact. If you had the opportunity to travel around and see the great things that we do and the effect that we have on people's lives around the world, customers that I get to interact with, hotels that I tour and team members in the back house who's lives we've changed where we've given them opportunities and careers and families that have been built around this business, it's awe-inspiring. It really is. I feel like I'm a very fortunate person to be in the seat I'm in.
Christine Tan: And finally, as you lead Hilton into its 100th year, what new milestones have you set for the company? What else would you like to achieve?
Chris Nassetta: I think, you know, the milestones for the company are to continue to have a positive impact. We've had a hundred years, the Hilton effect will describe what has been a powerful impact that Hilton has had on the world. The world is a better place because Conrad Hilton founded this company and the great works of millions of people over the last hundred years. And those of us that are part of Hilton today, if we do our job in the next hundred years, we're going to have an even more dramatic impact. So I think that's what makes us all love what we do and get up every day. It's about having a positive impact. It's about doing something that matters in people's lives - something that makes our customers a little happier and little safer, and a team member that has a better opportunity and a community that's better for having been there.
Christine Tan: Chris, thank you so much for talking to me.
Chris Nassetta: Thank you.
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