Hilton Hotels Corp. (HLT) Monday posted a 29-percent drop in second-quarter earnings as vacationers filled many rooms but failed to pay the hefty rates of business customers or make up for an overall decline in travel.

Hotel business declined the most at the company's high-end brands such as Hilton and Doubletree, while highway stop Hampton Inn saw the least erosion.

Cautious executives of Beverly Hills-based Hilton said they did not plan to increase the 2-cent-per share quarterly dividend and would pay down debt with extra cash.

The company said it was focused on filling rooms rather than raising rates. As it prepares to negotiate corporate deals for next year, an annual process, Hilton expects to get contracts for more rooms at flat room fees.

"It is difficult, as in difficult to raise prices," Chief Executive and President Stephen Bollenbach told investors on a conference call, saying the quarter was "somewhat disappointing" due to the weak economy and the effect of the war in Iraq on travel.

Hilton reported a profit of $54 million, or 14 cents per share, compared with $76 million, or 20 cents, a year earlier.

Wall Street on average had expected a profit of 15 cents per share, according to a poll of analysts by Reuters Research, a unit of Reuters Group Plc.

The profit included a gain of about $5 million, just over 1 cent per share, for a one-time decrease in depreciation to make up for previously booking more depreciation than it had needed, Hilton said.

Hilton dropped its outlook for the year by a shade, but shares fell only 8 cents to $14.93 for the day on the New York Stock Exchange.

That left intact the 18-percent gain the stock has made this year, largely on expectations that the lodging industry will profit handsomely from a long-awaited rebound in the economy as business travel surges and margins honed by cost cuts during the downturn begin to fatten up.

Fulcrum Global Partners analyst Joe Greff upgraded Hilton to buy from neutral just before the report and said its comments mirrored those of rivals and met expectations. Hilton's shares were cheaper than rivals on an enterprise value to earnings basis, justifying the upgrade, he said.

"No one wants to touch the question of what's your outlook for 2004," but Hilton's stock price risk was limited, he said.

Hilton reported that revenue per available room, a key barometer of lodging industry health, fell 6.9 percent at comparable owned hotels in the quarter.

It forecast that room revenue would drop about 3 percent for all of 2003, against its April outlook of a decline of 1 percent to 2 percent.

Hilton's prediction that room revenue would shrink this year, third year in a row, is similar to that of rivals Marriott International Inc. (MAR) and Starwood Hotels (HOT), which reported earlier and have been cautious despite some signs of improvement such as increased booking enquiries.

The company also predicted full-year earnings per diluted share of 35 cents to 37 cents, compared with its previous forecast of profit in the high 30-cent range.

Bollenbach said the chief problem was the lack of business travelers, but with relatively few new hotels being built, he forecast a quick recovery, once it happens.

"We don't have enough people prepared to pay the highest rates in the hotels so we sell to the marginally profitable but still profitable leisure segment," he said. "I would think that like always happens in business cycles, we will just wake up one morning and it will be over."