At something approaching the 11th hour the deal between Marriott and Starwood was upended by Anbang, a Chinese insurance house with billions of money to invest. That new deal was then supplanted by a revised Marriott offer which is, once again, the suitor of choice for the hotel chain. The back and forth of the the numbers doesn’t interest me all that much but some of the comments out of the latest announcement have me intrigued.
Among them, the synergies in general and administrative costs – arguably the “low hanging fruit” of merger numbers, increased by 25% from $200mm to $250mm. That increase is based on the past months of “extensive due diligence and joint integration planning” the companies have exerted. Call me a skeptic, but most major travel mergers haven’t hit these synergy targets recently and those which have driven cost cutting efforts do not seem to have come out the other side particularly the better for it from a customer standpoint. I know that’s not necessarily the point of the merger, but I’m skeptical of the numbers overall.
In the murky depths of the deal sits the loyalty part of the conversation. Marriott recognizes the fierce loyalty which SPG members display (and there certainly has been a lot of hand-wringing about this potential merger from that camp) and really, really wants to cash in on it. During the investor briefing call on Monday CEO Arne Sorenson suggested that he knows those guests are staying at SPG properties basically everywhere they possibly can and he can only hope they occasionally spill over into Marriott properties when there are no SPG options in town. The merger would almost certainly secure those bed nights for the larger chain. Assuming the members remain loyal, of course, which is a big risk given the significant differences between the two programs.
But it may be a smaller risk for the combined hoteliers than were SPG to end up run by Anbang. On the one hand, the head honchos might just leave that aspect of the program alone. On the other hand, look only to Hilton HHonors under
TPG Blackstone to see what types of changes show up quickly and often to the chagrin of the loyal members when money guys start looking at the books for the loyalty program. I would be surprised if the Anbang option ended up with a better loyalty scheme for those who currently love SPG than what Marriott and SPG hammer out together.
Marriott also expects to see a nice bump in revenue from new (likely suite of) co-branded credit cards. AmEx has lost a few partners lately and is likely to be very aggressive to try to keep the business. Chase is no slouch and is unlikely to shy away from such a challenge. To say nothing of the potential for cards in other countries as well.
On the hotel operations side of things all 30 brands are going to stick around, at least for the time being; Marriott sees no reason to change that. But some of the overlap is hard to justify. Marriott wants the St. Regis brand. A LOT. It also sees the W hotels as appealing from the perspective of loyal, affluent Gen Y travelers. And it believes that a number of Sheraton properties will need to be deflagged as part of the process to help save that ailing brand. Combining the Luxury Collection and Autograph Collection “affiliated independent” brands (yes, that’s an oxymoron) also makes sense in terms of having them all in one place and a bigger number of them, though not entirely clear that matters.
But the strangest assertion I read and heard in the presentation Monday was that Element hotels would be able to compete with AirBnB, Home Away and other alternatives in the housing rental service space.
Expectation that the Element brand can be a counter to AirBnB, et al. is a stretch, but that's what Marriott seems to think.
— Seth Miller (@WandrMe) March 21, 2016
I get that the brand is supposed to target extended stay guests and I suppose it is more “hip” than a Residence Inn (hard not to be), but that’s not really what the AirBnB experience is about, at least not as I’ve had it or how I’ve seen others take advantage of it. That experience works precisely because it is NOT another big property full of other visitors. It works because it is intimate and local. Those are things which a multi-unit property – especially one large enough to be profitable to cover the operating overhead – isn’t going to be able to do. But, hey, they’re gonna try.
And then there’s the pull of Marriott’s much larger existing footprint and presence in the mid-level hotel space. Those contribute to greater breadth of corporate contracts and the ability to draw in more frequent business travelers than Starwood can.
Maybe Anbang counters, maybe it doesn’t. Either way, I’ve got to figure that Starwood feels a bit like Hoke at this moment:
And, yes, I’m sure it does feel good.
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As someone who is pretty fiercely loyal to Starwood, but also to Marriott (just to a somewhat lesser degree), I’d almost rather have the acquisition go to Marriott than an unknown Chinese insurance company. At least there I feel like I know what to expect. Marriott’s executives have said a lot of the right things about the combination, particularly with regards to the loyalty program. How they execute it remains to be seen, but at least they’ve acknowledged the differences, and the areas where Starwood is particularly strong. With Anbang, who knows what to expect. They’re not a hotel company. I feel like those who say Anbang is the right choice solely on the basis of addiction to SPG as it exists today are in denial, because there’s little reason to believe an outside investment firm is going to leave everything as-is. You make a good point with Hilton HHonors and TPG. To me the Anbang option seems like a lot of frequent flyers who ran to AA and made them sound like the best airline ever when DL and UA devalued, only to then watch the same thing happen at AA once their merger with US had progressed to a point where the company could address the loyalty program.
I’m with @Steven. Better the devil you know, than the devil you don’t.
I know this is a blog, so it’s fine to have unconfirmed speculation, etc. And you may be right about a mistaken Marriott AirBnB strategy, etc.
But to support your statement “But the strangest assertion I read and heard in the presentation…” with a tweet from one Seth Miller that says “that’s what Marriott seems to think” is both lazy and dishonest- next time, Take a photo of the presentation or at least get a quote from someone other than yourself!
That text is what they said in the presentation on the phone. The presentation made includes similar text. It is not me saying it.
To suggest that it is “unconfirmed speculation” based on that is ludicrous. I have plenty of speculation here; I’m very clear when I do. This is not that.
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