Brand consolidation: The answer to OTAs?
The hotel industry could face further consolidation in the wake of the Marriott/Starwood deal as hotel companies grapple with OTAs.
Industry analysts believe consolidation is the wave of the future in the hotel industry in wake of the planned merger of Marriott International and Starwood Hotels & Resorts Worldwide. But that consolidation could take many forms, sources said.
Christopher Agnew, managing director for MKM Partners, described Marriott’s plans to buy Starwood as designed to combat online travel agencies.
“They want people to book directly,” Agnew said. “I think the airlines have done a very good job with that. I’m a Delta guy, and they let you just live in that environment. I think (Marriott) wants that sort of engagement. Scale matters from that perspective.”
Matt Costin, managing director for BDRC Continental, agreed that distribution challenges will continue to make large-scale mergers an appealing option in the hotel industry.
“Even the biggest operators are being outflanked by the big OTA brands,” Costin said. “Speaking to a couple of our biggest hotel clients, they came up with remarkably similar comments. They no longer look at each other as competition but they do with the OTAs. That’s a compelling argument to join forces.”
Todd Antonelli, managing director at Berkeley Research Group, described the merger as a “defensive move” against OTAs.
“They’re doing it to gain lever and purchasing power over the Pricelines of the world,” he said.
The difficulty and opportunities of mega-mergers
Agnew said some of the things that made a Starwood purchase appealing for Marriott—expanded loyalty and the combined size to deploy better technology around it—also exist around other big brand companies in the market. But that doesn’t mean the industry is on the verge of a buying spree.
“La Quinta should get acquired by someone,” Agnew noted. “Fairmont is on the block. Four Seasons could be sold at any point. But other than that, I’m not sure there’s necessarily that compelling of a deal or that much necessity that (Hilton, IHG, Hyatt or Wyndham) have to merge.”
Crispian Tarrant, CEO of BDRC Group, said opportunities for consolidations are out there, but they could be more focused on smaller brand-owning companies, similar to Marriott’s purchases of Delta Hotels & Resorts and Protea Hotel Group.
Antonelli said companies like InterContinental Hotels Group could take the approach of trying to “pick off key brands” if and when they become available.
Adam Maclennan, director and head of United Kingdom and Ireland at PKF hotelexperts, agreed that industry watchers should expect these sort of massive deals to become a regular occurrence.
“I would expect to see more consolidation before the end of the current cycle, but nothing of this scale. The other big groups are playing catch-up and will be desperately looking for brands with a good growth story to add to their portfolios,” Maclennan said.
The growth of soft branding
Outside the prospect of branding companies swallowing each other up, the hotel industry could face more consolidation through the major companies picking up independent properties for their soft-brand collections, Agnew said.
“The market share of five or six companies will continue to grow as independent hotels become part of the big guys’ systems,” Agnew said. “That will make it easier for those portfolios and collections.”
Tarrant agreed and said having more boutique properties helps hotel companies access consumers’ “hearts and wallets.”
“The brand-owning companies are also distribution-owning companies,” he said. “They make themselves a bit more like an OTA (by growing soft-brand collections). So much of that at the end of the day is about ownership of the consumer.”
He said he can see more branding companies merging, but if they do it purely for distribution purposes, that could be a losing proposition.
“An argument can be made that says if brands become too much like an OTA, that’s a game they’re going to lose,” Tarrant said. “They have to maintain some focus on what they do as brands.”
A still-fragmented industry
Despite the benefits of the planned Marriott/Starwood deal, Agnew said he doesn’t expect to see a similar one in the near future.
“Sometimes deals beget deals, but the fact is Starwood was up for sale,” he said. “So, unless another company puts itself up for sale, it’s hard to see something like that happening again.”
The merger of those two companies has invited several comparisons to the airline industry, but don’t expect the hotel industry to reach the same level of consolidation, Tarrant said.
“Even after becoming the largest brand-owning company in the world, (Marriott/Starwood) is still a small player in terms of the total capacity that’s out there,” Tarrant said.
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