Scale Matters

By David Kong

Thursday January 28, 2016
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Marriott International’s acquisition/merger with Starwood has created the world’s largest hotel company with 30 brands, about 5,500 properties and about 1.1 million available rooms in over 100 countries. The new company will offer a huge variety of locations, property types, and price points.

The acquisition creates tremendous synergy and efficiency:

  • Marriott’s already strong loyalty program will become even more powerful with more earnings and redemption opportunities. Its combined 75 million member user base will be huge. Just imagine the partnership (and revenue) opportunities.
  • Marriott’s powerful franchise engine will enable the Starwood brands to grow exponentially, creating pressure on all competing brands, e.g., Four Points has not grown much under Starwood, but under Marriott, it will likely be far more attractive for developers.
  • The overlap in sales efforts could be eliminated and the new sales team will become even more productive with additional products to close the deal.
  • Investments in technology and other areas can be spread across many more hotels.
  • There are lots of efficiencies to be created through the elimination of redundant overheads.

Perhaps the most disconcerting benefit of the acquisition could be this…

The new Marriott/Starwood does not need to work with any OTAs. With its scale in distribution, the new entity will offer enough choices to satisfy most travelers. Combined with the new loyalty program, the new entity can be like Southwest Airlines and stop working with OTAs. Imagine what an attractive value proposition that would be to prospective franchisees?

Even if the new entity continues to work with OTAs, imagine the leverage they will have and the terms they will be able to negotiate. Where will that leave the rest of us?

The major OTAs are publicly traded companies. They have to meet their revenue projections. So how will they make up the difference? You guessed it – the rest of us who don’t have the same scale will probably be asked, or demanded, to shoulder the difference. Our commissions will go up. Our marketing fees will go up. After all, if we don’t have scale, we don’t have leverage.

Creating scale has many advantages. It’s no wonder of late there have been plenty of announcements and rumors of other mergers….

Short of actual mergers and acquisitions, it seems the hotel industry might consider taking a page from the airline’s playbook. Why were the Star Alliance, One World Alliance and Skyteam Alliance created? What benefits have been created? It seems there are plenty of opportunities brands can co-compete.It will be interesting to watch how the future unfolds.