17 November

“We can do better by being bigger,” says Arne Sorenson, CEO of Marriott international, who has agreed to buy Starwood Hotels and Resorts Worldwide Inc. for $12.2bn, in turn creating the world’s largest hotel company. The merger would see the newly formed behemoth in possession of 30 hotel brands including the Ritz-Carlton and Sheraton, with over 1.1 million rooms in 5,500 hotels across 100 countries. The merger is likely to prompt talks of similar action by other large hotel chains such as Hilton Worldwide with such brands potentially struggling to compete with Marriott-Starwood and the less massive but nonetheless prolific alternative Airbnb.

With Starwood’s many hotels in Europe and Asia (i.e. outside the US), as well as their portfolio of ‘cool’ brands that appeal to the younger generation of travellers, the merger will see the holes in Marriott’s portfolio filled. Marriott has most of its hotels in the US, and a portfolio of luxury hotels.

The merger has been interpreted by some as a brute-force attempt to outplay Airbnb, a product of the rise of crowd-sharing culture in recent years, with alumni including the notorious (though not officially ‘disruptive’) Uber. Airbnb, popular with young travellers and those looking for something a little different than your bog-standard hotel room experience, is currently making a loss, but is expected to make $900mn in gross revenue in 2015, and $10bn by 2020.

By expanding its portfolio, Marriott can appeal to a wider audience of consumers, from those looking for boutique getaways to those looking for more budget accommodation. There is potential for the creation of a much more attractive reward scheme for the joint venture, with customers having a much larger choice of places to acquire and use loyalty points, which speaks volumes in today’s world of savings-savvy customers, with companies like Groupon gaining (and losing) traction in recent times.

It is crucial that Marriott and Starwood agree on a reward scheme that benefits existing customers of both chains, and advertise this newly-formed union and its benefits heavily, to compete with Airbnb’s word-of-mouth appeal and trendy instagram-esque advertising campaigns.

Could we be set for some big share price moves in UK listed hotel groups – seen as either predator or prey by investors looking for a quick profit in uncertain times? Will this benefit investor confidence in the hotel establishment? Or is anything linked to travel set to suffer as geopolitical concerns intensify…?

Duke Fay