Is a 30-brand Marriott/Starwood viable?

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Marriott CEO Arne Sorenson said that Renaissance and Le Meridien compete “in a fairly near place” in the upper-upscale sector.
Marriott CEO Arne Sorenson said that Renaissance and Le Meridien compete “in a fairly near place” in the upper-upscale sector.

More bottom-line dollars. Bigger leverage against OTAs. Fewer brands.

Those were the advantages that analysts last week said they saw in Marriott International’s acquisition of Starwood Hotels & Resorts for $12.2 billion, creating by far the world’s largest hotel company.

Brand list for Marriott/Starwood

LUXURY
• Bulgari
• Edition
• JW Marriott
Luxury Collection
• Ritz-Carlton
St. Regis
W
UPPER-UPSCALE FULL SERVICE
• Autograph Collection
• Delta
Design Hotels
• Gaylord
Le Meridien
• Marriott
• Marriott Executive Apartments
• Marriott Vacation Club
• Renaissance
Sheraton
Tribute Portfolio
Westin
UPSCALE SELECT SERVICE
• AC Hotels
Aloft
• Courtyard
Element
Four Points
• Residence Inn
• SpringHill Suites
UPPER-MIDSCALE FULL SERVICE
• Protea
UPPER-MIDSCALE SELECT SERVICE
• Fairfield Inn
• TownePlace Suites
ECONOMY SELECT SERVICE
• Moxy

___

Starwood brands in bold

SOURCES: Marriott, Starwood and STR

While questions remain about how travel professionals and nearly 75 million combined loyalty members will be affected, few people with an eye on the hotel industry expected all of Marriott’s 19 brands and Starwood’s 11 to survive in the long term.

Marriott CEO Arne Sorenson said on last week’s conference call with analysts that he expected Starwood’s brands to “remain in place.”  But he also noted that Marriott’s Renaissance and Starwood’s Le Meridien brands competed “in a fairly near place” in the upper-upscale sector.

Analysts were skeptical about the viability of a single hotel company maintaining 30 brands. And since Marriott is far more dominant in the select-service space with brands such as Residence Inn, Fairfield Inn, Courtyard and SpringHill Suites, Starwood’s brands are more likely to be vulnerable to the ax.

“I don’t see 30 brands surviving,” said Jim Smith, a travel marketing expert who served as president of GEM, which became Vacation.com. “There’s just too much cost savings to be recognized.”

Marriott’s announcement that it would acquire Starwood surprised many in the industry who had expected Hyatt to buy Starwood because of the more complementary fit between Starwood’s full-service emphasis and Hyatt’s growth in the select-service sector.

What appears to have sealed the deal was Marriott’s estimation that it could cut the two companies’ combined annual costs by $200 million within two years. Sorenson said most of the savings would be through sales, general and administration costs, which totaled $1.06 billion between the two companies last year. Starwood appeared more top-heavy, spending 6.7% of its revenue on such overhead last year, compared with 4.8% for Marriott.

Fitch Ratings, which last week revised Marriott’s debt-rating upward after the announcement, cited “the elimination of duplicative functions, and economies of scale, which implies that the company will have a permanently lower fixed-cost structure.”

Marriott also could cut distribution costs because of its stronger position vis-a-vis the OTAs, a channel where sales are costlier for hoteliers than direct bookings. Marriott would boost its North American room count by almost a third, to more than 750,000 rooms, or about one in seven North American rooms. Such sway could help reverse OTAs’ share of U.S. online hotel bookings, which was expected to grow to 48% from 46% between 2012 and 2016.

“A larger Marriott is better positioned to operate in an increasingly competitive lodging environment,” Barclays analyst Felicia Hendrix wrote in a Nov. 16 note to investors. “By increasing its scale, reach and negotiating power, Marriott can drive more value by virtue of its size.”

While the fate of the companies’ brands and the actual financial impact of the deal will take time to play out, the agreement makes the combined company the world’s largest in the hotel industry as measured by both revenue and room count.

Combined, Marriott/Starwood will total more than 5,500 hotels with more than 1.1 million rooms globally. They generated $15.1 billion in revenue through Sept. 30. No. 2 in the U.S., Hilton Worldwide, has more than 4,500 hotels and 745,000 rooms, generating $8.42 billion in the first three quarters.

U.K.-based InterContinental Hotels Group has 4,900 hotels totaling 727,000 rooms, while Wyndham Hotel Group has 7,760 properties totaling 672,000 rooms. Both lean more heavily on the franchise model than their competitors.

Less clear is how the combined company will maintain relationships with travel agents and loyalty members. The 53 million Marriott Rewards members stand to benefit from a broader choice of hotels, since Marriott will boost its hotel count by 88%, to more than 1,400 properties.

Starwood’s 21 million SPG loyalty members and some travel agents might not be as sanguine, since Starwood has long had a reputation for catering to both its higher-end, frequent customers and agents, sometimes at the expense of its relationship with hotel owners.

Starwood last fall introduced a loyalty program geared toward travel agents to complement SPG-member demand. The program, called SPG Pro, awards Starpoints, upgrades and potential elite status to travel agents and meetings planners who book Starwood reservations.

In contrast, Marriott’s relationship with the agent channel has grown frostier in the past year. In August, Marriott scrapped a YouTube video campaign that encouraged prospective guests to book directly on Marriott.com after ASTA CEO Zane Kerby called the campaign “misleading” and “disparaging to travel agents.” And ASTA took Marriott to task last November after the hotel company announced a policy offering free WiFi only to customers who booked full-service hotels through Marriott-owned channels. Kerby said the policy discriminated against travel agency customers.

“Starwood has taken care of their high-end frequent user, and Starwood has an undeniable track record of being supporters of the trade industry,” Smith said. “Marriott as a brand has been kind of on-and-off with the trade for a little bit.”

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