December 30, 2015 by Dave Lutz
A number of meeting professionals have voiced concerns over two recently announced mega-deals in the hotel space.
In 2016, Marriott is expected to complete a transaction to acquire Starwood. And AccorHotels is expected to acquire Fairmont, Raffles and Swissotel.
Meeting professional often compare this roll-up to the consolidation in the airline industry. They believe hotel chain consolidation will negatively impact competition in the site selection process. They fear these mergers will hurt their organization’s meeting options.
These speculations are wrong.
The business model of these hotel chains is very different than that of the airlines. Marriott and Starwood both own very few assets (less than 2% of North America inventory). They make the bulk of their revenue through franchise and management agreements.
Here’s a snapshot of the combined inventory as of Q3 – 2015:
As long as hotel ownership remains very fragmented, the competitive marketplace will take care of itself. The supply vs. demand equation will continue to dictate pricing.
Owners should and will have increased expectations for the combined chains to deliver more to the bottom line. Efficiencies are expected to drive improved results through increased direct bookings and economies that a larger scale provides.
Once these acquisitions are complete, I believe the group and meetings market will take a step closer to commoditization. As I’ve written before, I don’t think this is a healthy change for our profession or for the hotel owners. Here’s why:
Group meetings are a huge driver to the success of full service hotel. A single booking of 250+ rooms/night is a six or seven figure revenue bump for that week. These transactions are complex sales requiring seasoned, empowered and passionate sales professionals.
Post-acquisition, expect Marriott to reduce the number of on property sales professionals. They will attempt to create economies of scale by growing their regional group sales centers with lower-level professionals.
These team members will work hard to win your business, but will care less about which hotel in their portfolio you choose. They will be less empowered for negotiating complex deals. They won’t have the time to develop creative solutions like many property sales pros do.
Site selection and commission based meeting planners will be the beneficiaries of the talent dump. Hotel sales professionals who have spent their career developing relationships that convert, will join these organizations with a handful of loyal customers.
Post-acquisition, more individual reservations will book direct on the brand.com solutions…hurting the OTA’s. More group bookings, however, will be handled by a savvy, consultative intermediary. Commission expense will increase.
As long as we remain in a seller’s market, full service hotels with an excellent location, facilities and reputation will continue to be happy campers. Brand loyalty will remain robust for individual business travel, but will decline in the group and meetings market.
Post-acquisition, expect more hotel owners to apply pressure for more group bookings. They’ll demand more sales and marketing resources that will scratch and claw to win opportunities for their property. Eventually, more property specific direct sales resources will be deployed.
What are your predictions of increased consolidation in the hotel space? Why do you think commoditization of group business is a good or bad thing?
Filed Under: Event Planning
Spot on Dave. Biggest downside I see is #1. Having worked on both the hotel and meeting planning sides, the ability to work with a seasoned and empowered sales professional on property has helped make many a deal happen. When the sales person is not connected to a property and is working out of a call center/regional office, we slip further and further into working on just another transaction.
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