The corporate travel world’s opinion of Marriott is bipolar. Travelers love the loyalty program, but that can work against corporate program compliance. Many industry professionals respect the company’s success but get discouraged when it takes a hard line on various issues. Travel buyers like the idea of a consistent, high-quality product from a world-renowned brand but don’t like paying more for it than they do for similar brands. And now comes Marriott’s planned acquisition of Starwood.
The general assumption is that a reduction in competitors will toughen negotiations and raise prices. Worthwhile chainwide deals may become particularly hard to come by. Marriott hasn’t been easy to negotiate with in the first place, for chain deals or at individual properties. Marriott Rewards emboldens the company to maintain a my-way-or-highway approach. Some characterize it as arrogance. Just a few are hopeful it will change after this deal.
Marriott International CEO Arne Sorenson
Image: Marriott International
Marriott officials told The Company Dime that the company “will be undertaking a thorough review of all partners and contracts to determine what is in the best interest of our clients and hotels consistent with our agreements with those partners.”
Marriott is looking at closing the $12.2 billion Starwood deal in mid-2016, and there are open questions. Among the biggest is the degree to which Starwood’s brands will maintain autonomy.
Marriott CEO Arne Sorenson appeared on CNBC on Nov. 16, the day of the Starwood acquisition announcement. “Our philosophy is to merge these companies as quickly as we can and run one company,” he said. When asked if Marriott will keep “all” of Starwood’s and Marriott’s combined 30 brands, Sorenson said, “To say all, it’s a little too soon for that.”
The frequency of properties switching flags, individually or in blocs, could escalate in 2016. Marriott could unload properties where it has too much overlap. Chains within other hotel companies could entice some properties to change allegiances. No one would be surprised if more hotel M&A deals surface, in addition to Accor’s recent deal to purchase the parent company of the Fairmont, Raffles and Swissôtel hotel brands.
In locations where Marriott and Starwood properties in the same tier have competed for the same corporate business, buyers probably will have a harder time securing favorable rates. For chainwide deals, TripBam CEO Steve Reynolds said large-market buyers often “play one off the other pretty aggressively. The big concern is that those days are over.”
Clients already don’t get much love from hotels.
Donna Brokowski, general manager of Travel and Transport’s Partner Solutions Group, said the company is advising clients to start 2017 hotel rate negotiations earlier in the cycle than normal, which for some could mean pretty soon. She said some buyers traditionally start as early as April, while many others wait until October or November. She also said travel buyers should stay close with hotel reps, check terms of existing deals (which may or may not specifically address ownership and/or brand changes) and develop contingency plans in high-spend markets.
At BCD Travel consultancy Advito, clients are getting similar advice, according to senior director and practice area leader Marwan Batrouni. He said buyers should “anticipate a completely different RFP environment. If a corporate client has a chainwide agreement with Marriott and Starwood, that entire agreement will change come the 2017 season.”
The Marriott Way
“Marriott has always been a company that has been stealthily innovative; they look at what is best for them and not just the status quo of the industry,” said Brokowski. “The power of the brand is second to none and they get a premium for that, and they absolutely should.”
As a result, few companies actually have chainwide Marriott deals. Some buyers with big volumes have complained they can’t make inroads. They use words like inflexible.
Marriott described its approach this way:
“We do not call them ‘discount programs.’ Rather, they are global recognition programs which include a financial component. We only offer these agreements to our top B-to-B customers who have the global, diverse spend that makes these agreements a good business decision for both parties. In addition, we offer this opportunity for our customers who want to partner with us on all aspects of their travel program (including groups and meetings).”
Marriott’s insistence on including group business is one of several things that frustrate travel buyers, beyond its rigidity in rate negotiations. They also don’t like the company luring travelers into direct channels. Other chains do it, too, but Marriott has been among the most vocal. They want Marriott to be more helpful with virtual cards and do a better job at account management.
Also, they said, the authority of Marriott’s account reps is limited by the corporate office.
A former Marriott travel agency sales director, BCD Travel senior director of supplier relations Kim Kearns said, “Marriott has more structure behind what they can and cannot do at that level. From an account management perspective, Starwood has had a little more leeway.”
“There are certain controls they have in place in terms of how hotels negotiate, in terms of how many rates they have and how they load rates,” said Brokowski. “There are several checks and balances. It’s different than you’ll see in other brands, where the property person can negotiate a rate, build a rate plan and put it into the GDS.”
Here’s Marriott’s explanation:
“All of our hotels have individual owners, so pricing is set by each individual hotel level. In order to make the pricing process easier for our customers, our sales force uses proprietary technology to collect the rates submitted by the hotels, and delivers it to our customers in one consolidated file. While our account leaders communicate the customer’s RFP instructions and any details the client wants us to share with our hotels about their travel programs, they do not negotiate rates on behalf of our hotels; however, the account leaders are in a powerful position to centrally and accurately articulate the value of the customer to our Marriott portfolio of hotels.”
The company also said account management teams are responsible for understanding each client organization. “They share this account intelligence with our regional teams and hotels to ensure we have one connected voice for our customers on a global basis,” officials wrote.
Executives at travel agencies and those who offer them hotel rate programs also critique Marriott’s methods.
Marriott confirmed that it pays commissions on neither “special corporate rates” nor “any rate booked to the end user corporation.” Some sources said that strategy is common around the industry, with net rates the norm.
But Tower Travel president John Smith said other chains in some cases will offer comparable commissionable and noncommissionable rates, while at Marriott it’s “a non-starter,” making the company “a distinct outlier.”
“Marriott pays less commission, period,” Reynolds said.
On the other hand, Smith praised Marriott for committing to a 10 percent commission structure so long as agencies play by Marriott’s rules, standardizing the collection process when commissions are owed and standing behind timely payments to agencies with a double commission guarantee.
The hotel company pays 10 percent commissions on BAR and retail rates to “preferred” agencies. Those “have agreed to treat all Marriott brands at point-of-sale at least as favorably as any other hotel or hotel chain,” according to Marriott officials. These partners have “at least one person accredited with our Hotel Excellence continuing education training.” All the rest get 8 percent on BAR and retail rates.
Some agency executives, travel managers and others suggested Marriott would be wise to soften it’s stance on some issues. To build and retain corporate business, it shouldn’t waste the goodwill Starwood has earned around the industry.
Marriott already has had plenty going for it. And now, for travel management pros and especially for some of their travelers, there is huge upside from the Starwood deal. Marriott would become more global, with more strength in China and Europe. Already big in select-service, mid-scale and extended-stay tiers, it would strengthen its luxury and newish lifestyle offerings. In all, it would encompass 5,500 hotels with 1.1 million rooms (and another 350,000 rooms in the pipeline).
“Until right now, no one player can be a very global partner,” said Advito’s Batrouni. “Most suppliers may be dominant in one region or a few but no one is dominant across the globe. But when combining Marriott and Starwood, we have that one potential partner.”
The same may be true for covering an account’s secondary and tertiary North American markets.
While daunting for buyers on the surface, Marriott’s girth may offer some other roundabout benefits. The more leverage it has to re-orient deals with online travel agencies, the less likely those OTAs can offer the cheapest rates.
“If Marriott can give meaningful discounts to corporations to shift share, and those are the lowest rates they can get, it will have an impact,” Reynolds said. “They want to get bigger so they can compete against these behemoths who are beating them up on the margins.”
Meanwhile, a bigger Marriott Rewards program could help rather than hurt hotel program compliance in some cases. If Starwood properties are preferred and Marriott loyalty members can earn Marriott points at them, some of the conflict goes away.
In turn, Marriott loyalists would have many more options for redeeming their points.
There’s plenty for Marriott to consider as it combines loyalty programs; Sorenson said the company will take the best of both.
Additional info: Sorenson in a Dec. 13 interview on Fox News said not to expect staffing reductions at the property level. At the headquarters level, though, “you see overlap,” he said. “We’ll find the biggest cost savings at the higher end of the overhead structure.”
In a Dec. 13 presentation at a Barclays investment conference, Marriott said some cost savings would come from adding Starwood to its U.S. shared services for accounting, IT, revenue management and other support functions, “where practical.” Marriott listed its strengths as “culture, multiple brand platforms, hotel development, owner and franchisee relationships, operating efficiencies and sales platforms.” It listed Starwood’s as “customer relationship management, SPG (Starwood Preferred Guest), lifestyle brands, international presence, international relationships and leisure presence.”