More bottom-line dollars. Bigger leverage against OTAs.
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
• JW Marriott
• Luxury Collection
• St. Regis
UPPER-UPSCALE FULL SERVICE
• Autograph Collection
• Design Hotels
• Le Meridien
• Marriott Executive Apartments
• Marriott Vacation Club
• Tribute Portfolio
UPSCALE SELECT SERVICE
• AC Hotels
• Four Points
• Residence Inn
• SpringHill Suites
UPPER-MIDSCALE FULL SERVICE
UPPER-MIDSCALE SELECT SERVICE
• Fairfield Inn
• TownePlace Suites
ECONOMY SELECT SERVICE
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
“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
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
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.”