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July/August 2017
For Business, Corporate Travel & Meeting Buyers & Arrangers

Mystery buyer: size does matter

Our buyer has fears over the recent surge in hotel consolidation...

HAVING FINALLY CLEARED ALL THE ANTI-TRUST HURDLES, Marriott International’s merger with Starwood Hotels and Resorts – a takeover in all but name – has been confirmed as by far the world’s largest hotel company by room-count.

Marriott now has around 1.1 million rooms in more than 5,700 properties under 30 separate brands, in more than 110 countries, compared with Hilton’s 775,000-plus rooms and the Intercontinental Hotel Group’s mere 750,000. 

Initially, at least, it seems unlikely this mega-merger will have much impact on the travel buyer and management communities. Amalgamating the two companies will take a very long time, and the focus is likely to be on internal affairs.

Marriott calculates the one-time costs of implementing the merger will be around US$140 million, after which it is confident it can achieve US$250 million in annuals – no mean return on investment.

Primarily, those savings will be made behind the scenes – in accounts, in the HR and IT departments, and so on. Corporates and their travel buyers will be largely unaffected.

The big question is: what happens after that? Despite its enormous size, Marriott probably won’t be able to dictate average daily rates in more than a handful of destinations (although that’s still a pretty big handful).

According to hotel data specialist STR, there are an estimated 13 million hotel rooms in the world, which would give Marriott only around eight per cent of the global total. I suppose that means there’s still sufficient competition to keep Marriott on its toes –  although share would obviously be much higher in key business cities. 

Battle for business
In fact, rates may even come down as the hospitality giants battle for business, but that sets off the first of a number of alarm bells. Individual independent properties and smaller groups, with less ability to weather the financial storm, will inevitably be the most vulnerable in any price war. As they become ‘collateral damage’, and new entrants are deterred by potentially lower revenues, occupancy rates at the surviving properties will rise.

In that scenario, the number of alternative suppliers – and even the number of rooms – available to corporates will inevitably be diminished. 

One has only to look at the European aviation market for evidence of that potential trend. As the low-cost carriers slashed fares, any number of hitherto solvent (if not actually thriving) national carriers turned to their governments for help. As more stringent competition laws were enforced, that support waned. Many airlines went spectacularly bankrupt.

European aviation is now dominated by four ‘legacy’ carrier groups, operating alongside, but not necessarily in direct competition with, two major low-cost airlines.

If the hospitality industry’s future follows a similar path, and business travel buyers are confronted with fewer supplier alternatives, room rates will start to climb.

How that manifests itself remains to be seen. Recognising their iron grip in key markets, the hotel groups could simply push up prices across the board. Where demand outstrips supply, that is already happening.

Another possibility – and another alarm bell – is that the global hotel groups just stop offering enhanced rates to corporates who are simply incapable of producing pre-set room-night volumes. 

Again, this already happens – a few hundred room-nights mean little in Boston or Beijing, but represent significant negotiating clout in Brazzaville or Bamako. Depleted supply and increased demand would enable the ‘big boys’ to raise the bar as to who gets to the negotiating table – corporates with even marginally smaller volumes will go straight to voicemail.

Booking and billing
Another area of possible concern in the future is the booking and billing process. The days are long gone when a reservation involved a string of telephone conversations and an exchange of faxes, and reconciliation came in the form of an illegible handwritten receipt in the original Serbo-Croat.

Today’s major hotel groups have highly-sophisticated (albeit sometimes hack-able) online systems that eliminate all that palaver, but if prices do go through the roof, ‘total cost of transaction’ could become as important a consideration as ‘total cost of trip’.

Finally there is the question of corporate creature comforts. When Marriott eventually pockets the first annual synergy savings of US$250 million, it may come over all altruistic and invest the lot in fleecier bathrobes and the latest Nespresso coffee-makers. But its shareholders may have other ideas – savings made in one area could be replicated in others. 

Unlikely, but – as with all the foregoing – entirely possible. Right now nobody, possibly including the hotel companies themselves, knows. However, caveat emptor – let the buyer beware.  

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