As the Marriott acquisition of Starwood nears completion, corporate travel experts say companies may need to think outside the behemoth to save money — and get better at forcing travelers to comply with travel policies.
While the $12.2 billion deal is taking longer than expected to close, thanks to a request for additional review time by Chinese authorities, travel management companies and corporations are already considering the repercussions of two competitors joining forces to become the world’s largest hotel company.
“There’s never been anything like this in the hotel industry ever,” said Bjorn Hanson, a professor of hospitality and tourism at New York University’s Tisch Center. “This is of a scale and importance that’s never been experienced in the industry.”
The merger would create a company with nearly 30 brands and more than 1.1 million rooms in some 5,500 properties — a size that some worry will give the combined company much more muscle when it comes to negotiating corporate rates.
“With daily room rates and occupancy levels at all-time highs in many major markets, basic economics dictate that less competition will only lead to even higher prices and more challenging negotiations, especially in markets with limited options for corporate travelers,” warns a report from CWT Solutions Group, the consulting arm of Carlson Wagonlit Travel.
The Advantages of Size
An analysis by the group shows that once the merger goes through, the hotel company will have nearly a third — and in some cases half— of the corporate travel hotel spend in 14 of the world’s top 20 cities, including Chicago, Dallas, Mexico City, Minneapolis, New York, and Shanghai.
“For many of the convention markets and the really large corporate travel cities, it really has been Marriott and Starwood,” Hanson said. “Instead of those two companies competing with each other for corporate business, there is one. In some markets where Hilton or InterContinental isn’t as strong, it just changes the competitive dynamic.”
Hanson also said he expects a more subtle change enabled by the larger company’s access to more data.
“When there’s a pattern of booking strength or weakness, this combined company is going to have the quality and reliability of data to detect that before any other company in history could have done so,” he said. He said that could lead the company to make pricing decisions — higher or lower — earlier than they might have otherwise.
Several travel management companies pointed out that the merger could lead to greater competition in a roundabout way, by forcing other hotel companies to offer more attractive rates or incentives.
“The new Marriott will have a tremendous amount of inventory to sell and rooms to fill every night,” Mike Qualantone, senior vice president and general manager of global supplier relations for American Express Global Business Travel, said in an email. “In turn, other major brands, as well as secondary and tertiary properties will look to offer attractive rates, and may seek to include a greater number of amenities such as WiFi, breakfast and parking in their negotiations. These amenities offer travelers greater convenience and enable greater savings for companies.”
And Kim Kearns, senior director of supplier relations for BCD Travel, pointed out that hotels owned by the same large parent company will still need to fight for business.
“You still have that competition between hotels, and it’s going to continue to exist even if the hotels are within the same chain or they’re within the same business unit,” she said.
The Question of Loyalty
No one knows yet how the loyalty programs will end up after a merger, but Hanson said both are generous, and he expects Marriott to treat the Starwood loyalists well.
“It’ll be the biggest surprise of my year if Marriott did something to offend those guests,” he said. “Marriott does not want to do anything to cause those loyal members…to lose any of their enthusiasm for the new company.”
For travel managers, however, that level of loyalty could be problematic if Marriott or Starwood hotels are not among a company’s preferred options but travelers still book at those properties.
The CWT Solutions Group report says more than 22 percent of non-compliant hotel spending happens at Marriott properties, while 9 percent goes to Starwood hotels.
“It isn’t possible to predict what the new Marriott loyalty program will entail, but combining two of the most coveted loyalty programs is likely to pose a significant challenge for
travel managers,” the report said.
According to the report, those responsible for buying corporate travel should make compliance a more serious issue in travel policies, better communicate the reasons for cracking down with travelers, and engage them in reaching objectives. Buyers also should be more flexible and include alternative — and potentially cheaper — options when possible.
Time Is on Their Side
One reassurance is that travel buyers will have plenty of time to adjust to the new normal. With negotiations for next year’s corporate rates kicking off this fall, not much should change from last year, according to observers.
“It should be business as usual for 2017,” said Kearns of BCD Travel. She and others said the real changes are likely to start taking place in 2017 for the following year’s rates.
She said that given the size of the merger — and the larger consolidation trend in the travel industry — clients have been speaking up already.
“You have speculation, definitely concerns and questions that are coming up,” she said, adding that the impact will be different for everyone. But she was optimistic that no one needed to be too worried.
“We don’t expect that the consolidation will have any negative impact on the client negotiations overall,” Kearns said.
Skift reporter Andrew Sheivachman contributed to this report.