In my predictions for 2016, I forecasted the continuation of
large hotel corporation mergers and acquisitions. According to industry buzz,
it looks like my prediction is proving to be true. The merger of Commune Hotels
and Resorts and Destination Hotels, following Marriott and Starwood’s original
merger agreement, demonstrates the trickle-down effect of mergers.
Consolidation at the boutique-property level like Commune and Destination
Hotels shouldn’t be a big surprise, as smaller chains and niche sector
suppliers are high risk for being bought, sold or merged, given the current
consolidation craze.
Destination Hotels operates more than 40 independent hotels
and resorts around the United States and is a privately-owned subsidiary of
Lowe Enterprises. Commune operates more than 45 hotels in North America, Asia
and Europe under the Thompson Hotels, Joie de Vivre Hotels, Tommie, and Alila
Hotels and Resorts brands. Combined, the pair of portfolios will be about 85
hotel properties. That volume should help them weather the next rounds of
consolidation.
Most industry experts predict higher pricing dynamics after
the rounds of consolidation, similar to what happened with airlines and travel
management companies. Time will tell, but frankly, the hotels today control the
pricing power. If anything, consolidation will only strengthen their dominance
in client negotiations.
So far, there have been two major hotel group
consolidations: Starwood, for which Marriott and a consortium of Chinese
companies are engaged in a bidding war, and AccorHotels acquiring Fairmont,
Raffles, and Swissôtel. There are a lot of rumors swirling around the industry
about other major hotel brands and their reactionary plans: Will they preserve
their size and scale in the new environment of mega hotel groups?
The airlines leveraged their consolidation efforts to
increase prices and add fees for everything under the sun and ended up making
billions of dollars in profit. Most hotels are in a much better place than the
airlines, so consolidation will add higher revenues to their balance sheets,
giving them the ability to drive more consumer-direct campaigns.
What Does This Mean for You?
All of these rounds of consolidation are going to have an
impact on your hotel programs, changing the dynamics and, no doubt, your
preferred suppliers.
With combinations of types of hotel offerings, including
Airbnb, the hotel programs of tomorrow are going to rely heavily on
corporations’ ability to demonstrate their own command of buying-power numbers
and market share and their ability to move business.
Those who can demonstrate their ability to move
share and articulate their spend numbers will be the only ones who will be
having meaningful negotiations with consolidated hotel groups. All others may
simply be relegated to dynamic pricing.