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For Business, Corporate Travel & Meeting Buyers & Arrangers

Is more hotel consolidation bad news for buyers?

CONSOLIDATION WITHIN THE GLOBAL HOTEL INDUSTRY has been gathering pace over the last 12 months, with the headline deal being Marriott’s whopping US$12.4 billion acquisition of Starwood, while Accorhotels has snapped up the Fairmont Raffles group of properties and Chinese firm HNA has purchased Carlson Hotels.

But what does this mean for travel buyers and their negotiations with hotel chains? Will fewer global players streamline the process and make it easier to drive bookings to preferred partners – or will bigger hotel chains be able to push up their rates in key markets because of reduced competition?

It’s a subject that has been increasingly on buyers’ minds since the Marriott-Starwood tie-up was first announced in November 2015. Greeley Koch, executive director of the Association of Corporate Travel Executives (ACTE) says that members have been constantly asking him about the potential impact of hotel consolidation in recent months.

The Marriott-Starwood merger has also led Carlson Wagonlit Travel’s Solutions Group to issue a white paper on the potential impact – the travel management company (TMC) says it “may be a game changer” when it comes to corporate hotel negotiations, and buyers should start thinking about how they approach the request for proposal (RFP) process in the coming years.

“Many questions remain unanswered about how the Marriott-Starwood merger will change both entities,” says CWT in its report. “As the size of the deal is sure to change the supplier landscape overall, negotiations may become more challenging in some cases, while new opportunities may be created for others. Buyers would be wise to simply expect the unexpected and review their programme in-depth now to ensure they know their options.”

Despite the deal going through late-August, not everybody thinks it will have such a dramatic change. One UK-based buyer says: “Having fewer big hotel companies will hopefully mean fewer painful RFPs. The hotel sector is very competitive anyway so hopefully it will not push up prices. There may be some destinations – particularly in North America – where they have a competitive advantage, which could be a potential issue.”

IMPACT ON BUYING PROCESS

The changes are unlikely to have a major effect on the current 2017 RFP season – particularly as the Marriott-Starwood deal was delayed over the summer as Chinese competition authorities took their time assessing the merger.

Marwan Batrouni, senior director at BCD Travel’s consultancy arm Advito, agrees there will be no “immediate impact on the sourcing process” for the 2017 RFP season as it will take time for an enlarged Marriott to develop a combined pricing strategy. He adds: “From a pure buying process – with one less competitor, suppliers will have more power. With more consolidation, the number of markets where a single chain is dominant will increase.”

Many in the industry ultimately see that having fewer major hotel groups to deal with will be beneficial to travel buyers – not only with fewer contracts to negotiate but also by having the ability to drive more bookings through a smaller pool of preferred suppliers who are able to offer a wider choice of hotel brands and global coverage.

ACTE’s Koch says the current trend for consolidation could help to make the hotel procurement process “faster, smoother and better” for buyers. He adds: “The current hotel buying approach seems like it never ends. The RFPs start around the end of the summer – but by the time the contracts are signed and the rates are loaded into the system, nearly nine months have gone by before travellers can access the new rates.”

While there may be some practical benefits for buyers due to hotel consolidation, the thornier issue is that of price and whether bigger hotel firms will be able to control room rates in key cities.

POWER BALANCE

CWT identifies three main threats to travel buyers in a more consolidated hotel market: fewer competing properties in key markets; an increase in hotel companies simply declining to bid for corporate contracts; and a higher risk of non-compliance by travellers who may choose to book directly so they can earn more loyalty points for themselves.

The TMC also notes that Marriott is the major hotel player most likely to turn down an RFP – with CWT’s data showing that Marriott declined to bid on 18 per cent of requests during the 2016 negotiating season, compared to a decline rate of just 5 per cent for Starwood. Will the newly merged company continue declining to participate in a significant proportion of RFPs?

It will take a while to find out what Marriott’s strategy will be when it comes to RFPs, but a more immediate outcome is likely to be on pricing in some markets where the enlarged company has an abundance of properties.

Paul Wait, CEO of the Guild of Travel Management Companies (GTMC), says: “The way in which major hotel groups price and distribute their product may need to change if they become too dominant in any business city. This may not be obvious at first but prices and benefits – wifi, for example – could well be affected. It’s key that this is monitored closely by both corporate buyers and TMCs.”

Alwyn Burrage, supplier relations manager at ATPI, believes the pricing issue will be “more strongly felt in the US” because of Marriott and Starwood’s strength in their home market. “We believe that this merger will ultimately lead to a reduction of brands as they are consolidated together with an eventual impact on rates, which will most likely increase,” he adds. Cities where Marriott-Starwood already command more than 40 per cent of corporate spending include Los Angeles, Dallas, Philadelphia, Minneapolis, Mexico City, Toronto and Montreal, according to CWT. But the combined company would only have a market share of 10 per cent in London and 14 per cent in Paris.

On this side of the Atlantic, the European Commission (EC) cleared the deal in June, after assessing that it “would not adversely affect competition in Europe”.

The EC’s investigation into the acquisition focused on the impact on five cities where Marriott-Starwood has the biggest combined presence: Barcelona, Milan, Venice, Vienna and Warsaw. The EC said: “In each of these cities, the merged entity will continue to face effective competition from chain hotels and independent hotels.” The EC also found that within the overall European Economic Area, it “would face effective competition from a number of competitors, including Accorhotels, Hyatt, Hilton and IHG.”

STRONGER POSITION

The belief that there is plenty of competition within the hotel market, despite the recent bout of consolidation, is also widely shared within the business travel industry. Pauline Houston, hotel communities global director at American Express Global Business Travel, says: “It’s true that the combined room availability of Starwood and Marriott could give the group a stronger position in important cities. However, this won’t look like airline industry consolidation, where there are often regulatory concerns over dominance on certain routes.

“There will be plenty of competitors in any given destination – so travel buyers will still hold on to a strong platform for meaningful negotiation. However, this means buyers may need to be open to working with more parties within their hotel programme.””

ACTE’s Koch also believes there is “more than enough competition from other chain properties and independent hotels” to drive hotel pricing. “The global hotel market is very volatile at the moment. Rates are going up in some markets while holding steady or dropping in others. Market nuances make it impossible to make a blanket projection.”

Despite this, many think that buyers would be smart to start working with smaller players in their hotel programmes, including independents, as a way to improve their negotiating positions and offer more choice.

Keith Watson, director at corporate hotel booking specialist HRS, says: “Corporates are asking for more choice than ever before. This means offering a good balance of chain and independent hotels within programmes, giving more flexibility when deciding on the property that best meets their needs.”

Another bugbear for buyers has been hotel companies’ current strategy of trying to encourage direct bookings – particularly through their own websites. Watch any hotel advert and there is nearly always a direct-sell message these days. While this may be primarily aimed at the leisure market, it can have an impact on business travellers tempted to secure loyalty benefits.

At its annual conference this year, the GTMC noted the size and reach of Hilton’s ‘Stop Clicking Around’ advertising campaign extolling the loyalty benefits of booking direct. And Marriott was involved in a spat with the Institute of Travel and Meetings (ITM) a couple of years ago, when the chain began offering free wifi to its Rewards members – but only if they booked direct. This move was condemned by the ITM as being an “anti-corporate initiative”.

Interestingly, CWT figures show that 22 per cent of all non-compliant hotel spending was made with Marriott in 2015, plus another 9 per cent with Starwood. Is this an area that an expanded Marriott will continue to mine? CEO Arne Sorenson has certainly talked up the combination of Marriott and Starwood’s loyalty programmes. He promises: “The ultimate combination of our Rewards programmes and Starwood Preferred Guest will create the most compelling frequent traveller programme in the industry by far.”

Paul East, chief operating officer for Wings Travel Management, admits there is a “continual push” for direct marketing by hotels. But, he asks: “Is this what clients want? Our experience is that clients want a complete traveller programme to ensure they know where their people are, as well as being able to bring data together to assist with negotiations for the future.”

More encouragingly for buyers, there seems to have been a change in attitude from some quarters, according to ATPI’s Burrage: “Recently there has been a slight realignment by some hotel chains to clarify the ‘direct message’ approach which has now included making rates available via GDS for TMC bookings.” He adds that the business travel community should continue to remind hotels that travellers booking through TMCs are “higher yielding” clients.

The ideal scenario is for travellers to collect loyalty points while still booking within the programme, but this is a conundrum that remains to be solved. “Some travellers will even travel further, incurring additional costs in order to stay in a loyalty card hotel, which clearly has a direct effect on the total trip cost,” adds Burrage.

With Marriott’s acquisition of Starwood still awaiting finalisation, there are lots more questions than answers about the deal’s impact – and that of wider industry consolidation – on the hotel buying process. It seems unlikely to have much effect on the current RFP season but it’s undoubtedly a situation that buyers will need to track and have a strategy for dealing with. Bigger may be better – but for who?

Hotel groups: state of play

THE COMBINATION OF MARRIOTT AND STARWOOD will create the world’s biggest hotel company when measured by rooms – offering around 1.1 million rooms in more than 5,700 hotels around the world.

As a merged company, it will have 30 brands including W, Ritz-Carlton, St Regis, JW Marriott, Le Meridien, Renaissance, Sheraton, Delta and Westin. Despite its size, Marriott only controls about 15 per cent of all hotel rooms in its US heartland.

The second biggest global player by rooms is Hilton with around 4,700 properties and 776,000 rooms, followed by Holiday Inn-owner Intercontinental Hotels Group (IHG) with 5,000 hotels and 742,000 rooms. Wyndham Hotel Group has the most individual properties – 7,800 hotels with 678,000 rooms.

Over the last year, there has been much speculation about the future of IHG regarding a possible takeover of the UK-based firm but no official bids have emerged.

French hotel chain Accorhotels, which operates brands such as Ibis, Mercure and Sofitel, has bolstered its portfolio with the purchase of Canada’s FRHI Hotels and Resorts, which owns the Fairmont, Raffles and Swissotel brands.

These 115 new properties have already tripled Accorhotels’s footprint in the US and helped speed up its development in China.

A more recent deal has seen Chinese firm HNA Tourism Group purchase Radisson-owner Carlson Hotels from Carlson Wagonlit Travel’s parent firm Carlson. This has added 1,400 properties to HNA’s portfolio and established its presence in the key US market.

Another US firm, Hyatt, which had been interested in buying Starwood before Marriott swooped, is a relative minnow with 650 properties around the world.

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