Marriott's takeover of Starwood might be bad news for business travellers
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Loading... - TRISTAN LAHM
- 18 Oct 2020
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YOU ARE taking a business trip to Washington, DC, and need to book a hotel. You survey your options for good deals and amenities. There’s the W right by the White House, and the JW Marriott a block away. But you’ll be spending time at the convention centre, so it is worth considering the new Marriott Marquis there, as well as the nearby Renaissance. Then again, the Four Points and Courtyard have slightly better Metro access. Or you could treat yourself to somewhere posh, like the St. Regis on 16th Street or the Ritz-Carlton in Georgetown.
For now, at least some of these hotels will be vying with one another for your custom, so there ought to be reasonable deals and competitive service. But soon all of the above will be owned by the same company.
On Tuesday, Marriott cleared the final regulatory hurdle in its $13.6 billion takeover of Starwood Hotels and Resorts, creating the world’s largest hotel company. The deal was nearly derailed when Anbang Insurance Group, a Chinese conglomerate, made an all-cash offer that exceeded Marriott’s initial $12.2 billion bid, prompting a bidding war that ended this spring when Anbang pulled out. But the Chinese Ministry of Commerce said it needed more time to review the terms, and the process dragged out through the summer. On Tuesday, regulators there finally gave their approval.
So how will the creation of this new mega-company affect business travellers? There are two main consequences.
The first, as noted above, is a decrease in competition. With Marriott and Starwood combined, 30 hotel brands will be under the same corporate umbrella. A report by CWT Solutions Group, a business-travel consultancy, shows just how dominant the company will become in certain markets. In Minneapolis, Marriott controls about 30% of corporate hotel spending; with Starwood added to its portfolio that will rise to a half. In Mexico City Marriott’s share will climb from about 20% to 48%. In Philadelphia and Los Angeles, it will control 46% of the market. Even in cities where Marriott has had a much smaller presence, such as Paris and Tokyo, its market share will more than double, giving it a substantial foothold.
“With daily room rates and occupancy levels at all-time highs in many major markets, basic economics dictate that less competition will only lead to even higher prices and more challenging negotiations, especially in markets with limited options for corporate travellers,” the report states. That will make it harder for companies to negotiate room rates and could put a crimp in travel budgets beginning around 2018.
Reduced competition will also mean less choice. It will not make sense for Marriott to retain 30 separate brands, many of which compete for the same customers. The future of Sheraton, for example, Starwood’s alternative to the Marriott brand, is uncertain.
The other big impact on business travellers will be on their loyalty programmes. Starwood Preferred Guest is perhaps the premier hotel rewards club in America. Wanderbat, a travel website, gives it a perfect 100 rating, compared with 88 for Marriott Rewards. The site also values its points at $22.68 per 1,000 versus $8.92 for the Marriott programme. For existing Starwood members, a new combined club could mean a devaluation of existing Starwood points; for Marriott members, the effect could be the opposite.
Ben Schlappig, an expert in such matters, writes on his One Mile at a Time blog:
When you look at member impressions of the merger, the general sentiment is that Marriott Rewards members are quite excited about it (“we’ll be able to redeem points at cool Starwood hotels soon, and might even pick up some elite benefits”), while Starwood Preferred Guest members are dreading it (“SPG is special precisely because they’re not Marriott or Hilton or IHG, so like every other merger up until now, things will get worse”).
Starwood’s programme is so good that it is credited with forcing other hotel groups—and Marriott in particular—to improve their versions just to compete. The combined company might no longer feel the incentive to be so generous. Still, it is worth pointing out that Marriott’s rewards programme is considered one of the better ones and, crucially, doesn’t have "blackout dates” (periods of high demand when points cannot be redeemed), so Starwood members won’t lose that perk. Plus, loyal members of either existing programme will find a slew of new hotels at their disposal.
The question for Starwood’s loyal customers is whether the smaller, more innovative brand will lose its charm and become subsumed by the Marriott behemoth. That is possible, but the opposite might also be true. As Travel & Leisure notes:
Starwood is a champion of innovation in the hotel industry. They’ve introduced all sorts of mobile features from concierge services to room keys, as well as ground-breaking hotel products like robotic butlers and in-room streaming services. And yet, Marriott has been able to take some of those ideas and implement them on a brand-wide scale quicker than Starwood could. Together, they can push the envelope further and faster—assuming red tape doesn’t get in their way.
