The Trickle-Down Effect: Hotel Mergers and Their Impact on Business and Customer Experience

On November 16th, Marriott Hotels announced its intent to acquire Starwood Hotels & Resorts Worldwide. This $12.2 billion merger will create the world’s largest hotel company. Marriott’s aims are threefold: first, to streamline costs; second, to attract more customers in the expanding market; and third, to increase competitiveness against rising giants such as Airbnb. Though hotel acquisitions occur firmly in executive boardrooms, they generate effects all along the chain, for top executives and investors, individual hoteliers, brand loyalists and casual travelers alike. Below is a tentative guide to the impacts, both positive and negative, for these parties as a result of the deal with Marriott and Starwood.

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Level One:  How Top Executives and Investors See Hotel Mergers

Top executives and investors in the Marriott portfolio see hotel deals such as Marriott’s acquisition of Starwood as a way to guarantee Marriott’s stake in the global hotel market and fend off competition from OTAs and Airbnb. Consider this: as Marriott expands its global reach, customers looking for hotels from Jakarta to Astana and from Johannesburg to New York City can simply search Marriott for their travel needs without the need to visit an OTA. This will prove a critical tool to fend off competition from OTAs.

While the impact of hotel mergers on OTAs is straightforward, the claim that global hotel companies will be more competitive against Airbnb is less clear. Airbnb offers unique qualities that will be difficult for hotel chains to rival, including diverse holdings from individual bedrooms to tree houses, and the promise of an authentic, “like-a-local” experience that some travelers crave. Though it will be difficult to compete with Airbnb, it should be noted that Marriott’s acquisition of Starwood will expand its portfolio of unique boutique hotels, along with their built-in appeal to experience-oriented travelers. Additionally, Marriott’s expanding market may allow it to streamline costs and thus offer more competitive prices to customers.

Level Two: Hotel Management Companies

The benefits for hotel management companies may be mixed, but it should be business as usual for most hotel management companies and individual hoteliers. Jeff Weinstein, the editor of Hotels magazine, asserts that Marriott hoteliers will continue to benefit from “’savings on procurement, savings on cost of reservations, (lower) OTA (online travel agency) fees, (having) best of class revenue management’” (see article). Furthermore, markets with existing Marriott properties but no Starwood properties will soon be able to offer perks to Starwood Preferred Guest (SPG) members. In these markets, this means that a new slice of the guest market will choose to book at Marriott hotels.

However, competitive markets with both Starwood and Marriott properties may see increased competition and divided guest loyalty as guests find that their respective rewards programs apply to all these properties irrespective of brand.Economics of the Marriott and Starwood merger

Level Three: Hotel Merger Impact on Brand Loyalists and Avid Travelers

For brand loyalists, benefits are also mixed. On the positive side, the Marriott or SPG rewards plan will reap points for customers in many more locations worldwide. As the available range of hotel options increases, so does the range of places to earn points and spend them.

On the negative side, the Starwood SPG and Marriott Rewards schemes offer vastly different benefits, including different values of points and ways to spend them. Avid Starwood guests claim lavish perks such as guaranteed 4 p.m. check-out times and personal travel ambassadors who handle bookings and special requests. However, the merged system will eventually combine Marriott’s 54 million members with Starwood’s 21 million members, making such benefits increasingly infeasible. Guests who profit from these types of benefits fear a “race to the bottom” in which perks are eliminated entirely or made more difficult to earn.

Level Four: Hotel Merger Impact on Casual Travelers

Casual travelers will find it easier to find and book hotels worldwide without the need to trawl through OTA websites. Furthermore, those travelers who seek lifestyle- and experience-oriented stays will be able to consider the Starwood hotels among their choices.

However, Marriott’s increased market share does not necessarily mean decreased prices for consumers. As Marriott acquires an increasingly larger share of the hotel market, it may have greater sway over hotel prices. While Marriott claims it will be able to benefit from savings from economies of scale, there is no guarantee they will pass these lower prices on to consumers, though they will likely need to in order to remain competitive.

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alarson@valetinteractive.com'

Addison Larson