MYSTERY BUYER
Monster merger
Our buyer fears size does matter when it comes to hotel groups...
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 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 alreadyhappening. Another possibility – and another alarm
H
AVING 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 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 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).
BUYINGBUSINESSTRAVEL.COM 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 national carriers turned to their governments for help. As more stringent competition laws were enforced, that support waned. Many airlines went spectacularly bankrupt.
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 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 entirely possible. Right
now nobody, possibly including the hotel companies themselves, knows. However, caveat emptor – let the buyer beware.
BBT November/December 2016 51
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