Guest services: Stephen Bollenbach, chief executive of the Hilton Hotel chain, is consolidating operations and cutting prices to bolster the company's bottom line. (People).

THERE'S plenty of room at the inn, and Stephen Bollenbach can get you a pretty good deal, too.

Bollenbach, chief executive of Hilton Hotels Corp., oversees 2,000 hotels operating under the company's name, as well as its Embassy Suites and Hampton Inns brands. After suffering devastating cuts in business travel as a result of the recession and the terrorist attacks, he says business is only now getting back to its 1999 levels. While occupancy rates across the chain are in the 70 percent range, filling the rooms has come as a result of competitive pricing.

Ever the optimist, he predicted last year that things would be practically normal by the first part of 2002. it didn't happen, although the $48 million in net income for the third quarter ended Sept. 30 was substantially better than the $21 million reported for the like period a year earlier.

Contributing to the relatively steep improvement in third quarter net income was aggressive cost cutting, including closing some poorly performing hotel restaurants. The avuncular 60year-old CEO, who commands a hotel empire from a quiet Beverly Hills office overlooking the Santa Monica Mountains, is still upbeat about the future of the hospitality industry.

Question: Last year you were optimistic that things were going to rebound this year. Are you surprised they haven't?

Answer: I thought we would have been at 1999 levels by now, though we are actually very close. I think people quickly forgot how they felt after 9111. Everyone is waiting for strong business travel to come back. But compared to where we were, this is fabulous.

Q: What is it going to take for business travel to come back?

A: People need confidence in their businesses. Every business in America is looking to see where They can cut costs. What they find in the short run is that you can reduce business travel. You can only do that for a while. Companies that need to be out with their customers can skip a couple of sales calls, but when their competitors start making those sales calls they are going to have to go out on the road again or they are going to be out of business.

Q: What has been the average occupancy rate of your hotels in the past year?

A: It depends on the city. In New York it would be in the high 80s and across the chain in the mid-70s. Occupancy is not the problem. It's rate. Our revenue per available room is flat over last year, and last year it was flat over the previous year. We have cost pressures all the time that are difficult to control. We have big health care costs. And energy is still a major cost. We need to be able in the long term to raise our prices.

Q: What are you doing in weaker cities, such as San Francisco, to draw customers?

A: Reducing room rates. There are no fancy thoughts about that. Cut the price.

Q: What steps have you made in terms of cost reductions?

A: Some hotels had really fancy restaurants that weren't being used that much by the guests. In some cases we closed them and converted them to other uses. We have also consolidated operations in various functions, such as our reservation functions. And at the hotel level we are combining job functions.

Q: Are you using technology to reduce costs?

A: The Internet is becoming a very important distribution channel for us. We can cut the costs of doing reservations by 85 percent by getting people to use the Internet. And there is a tremendous competitive advantage for us, because these systems are enormously expensive. We will spend $40 million this year alone on our computer system. That gives us an advantage over smaller hotel companies that simply can't afford to do that. This is our best competitive tool against Marriott or against Starwood. We are the only company that by the end of 2003 will have all our hotels on the same computer system.

Q: What has been the impact of third-party agents like Hotels.com or Travelocity.com?

A: We use third-party Internet providers as a buyer of last resort. In the old days, when you were worried about two weeks from now, you started immediately selling out your inventory. The idea was that when you got to that day you didn't have a room left. Now we. know we can sell it in 24 hours through a third-party Internet source at a cheap price. What it does is allow us to keep our prices firm until we get close to the date rooms are to be occupied. And hopefully we get it all sold out.

Q: Hilton has special deals for United Airlines frequent flyers. How have United's financial problems affected business?

A: The entire airline business impacts us dramatically. Speaking about United specifically, my guess is that someone will operate those routes. So from our point of view, whether it is United or somebody else, we are going to be fine.

Q: You have been trying to reduce your debt.

A: What we have said is when we have excess cash flow we will use it to reduce our debt rather than buy back our stock. That's the objective for our extra money after we take care of all our 'properties and after we make some new investments to the existing properties.

Q: What is your debt right now?

A: It is about $4 billion.

Q: What is your goal for reducing it next year?

A: It might be down a couple hundred million dollars.

Q: Do you feel over-leveraged?

A: No. A lot of our business is the real estate business, which carries a good deal of debt. You need that tax deductible interest to get a return, and you can afford to have a lot of debt with real estate because the earnings are stable relative to other investments. What we do like to do is keep an investment-rate credit rating.

Q: Last year had said you were going to hold off on the time-share business. Are you still doing. that?

A: We postponed the development of timeshare projects in Las Vegas and Orlando for six months but we have now gone forward.

Q: Are you going to continue to expand that market?

A: It turned out to be a terrific business and currently makes up about 7 to 8 percent of our Ebitda (earnings before income taxes, depreciation and amortization). The limits to expansion are really finding terrific locations and how much capital we want to put in. We will probably keep the business growing, but it will probably always be less than 10 percent of Ebitda.

Q: What are good markets for timeshares?

A: 'Hawaii is a good market, and we have a huge project in Las Vegas, which is probably a 15-year project we will continue to build out. We will continue to expand in Orlando. We also have an interesting time-share project where we have taken two floors in the New York Hilton, a huge hotel on Avenue of the Americas and 53rd Street. If it works there in a classic big hotel, we've got a lot of those.

Q: How are your New York properties doing?

A: Great. One of the surprises for everyone is how strong the New York market is. Iris probably our best market. We are doing very well in Washington, D.C. Our weakest city is San Francisco.

Q: What's your take on Los Angeles?

A: L.A. is just okay. It's a funny hotel market because there is no center to the city. We don't own any big hotels here, so for us it is not that big .of a market.

Q: There has been lots of talk about building a big downtown convention hotel. Is that a good idea?

A: If it were profitable to build a big hotel in downtown Los Angeles, there would be one. The reality is if we want to have a city center, you need to build the infrastructure. I think a convention hotel would be a great piece of infrastructure, but there is lots of stuff that needs to be done to the downtown to make it a true .city center. It is still a place that is a ghost town at night.

Q: During the year how much do you travel?

A: Probably about half the time.

Q: Do you always stay in Hilton hotels?

A: Always. The service is great.

Q: Which is your favorite?

A: That's like asking, "Which is your favorite child?" Everybody would be mad at me.

Q: How about naming your top five?

A: Well, the Waldorf-Astoria has to be there. The Hilton Hawaiian Village. We certainly have some terrific hotels in Chicago, like the Hilton Towers. I like going to Chicago, except in the winter. And I like our big hotel in San Francisco down by Union Square.

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Stephen Bollenbach

Title: Chief executive, president and director

Organization: Hilton Hotels Corp.

Born: 1942, Los Angeles

Education: Bachelor's degree in finance from UCLA and a master's degree in management from California State University, Northridge.

Career Turning Point: Moving to Australia in 1969 to work outside. of the United States, working for Daniel Ludwig, the shipping magnate who owned the Ludwig Group.

Most Admired Person: J.D. Salinger

Personal: Married, two sons

Hobbies: Travel and golf