Forward Thinking

Mergers and Disruptions

At Convening Leaders 2016, CNN’s Mel Robbins interviewed Marriott International CEO Arne Sorenson before a packed and attentive audience, who likely had a few questions of their own.

The “Mergers and Disruptions and Provocations, Oh My” session gave us an up-close-and-personal look at Marriott’s business rationale for the Starwood acquisition, and demonstrated that Arne Sorenson is a wicked-smart, humble, and authentic leader.

While the session was enlightening, many attendees were hoping to get insight on two key areas: Will the merger create less competition for deal making (like it did with American/US Airways)? And what changes will be made in group sales deployment? Will I be able to maintain the relationships I’ve worked years to nurture? It will take several years for us to get these answers, but I have some predictions.

First, because of their different business models, mergers between airlines and mergers between hotels aren’t comparable. While airlines own their assets, Marriott and Starwood own very few assets — they own/lease less than 2 percent of their combined portfolio room inventory in North America. The bulk of their revenue comes from franchise and management agreements.

As long as hotel ownership remains so fragmented, I believe the competitive marketplace will take care of itself. The property-level supply-vs.-demand equation will continue to dictate pricing. Owners should and will have increased expectations for the merger to deliver more to their property’s top and bottom line. Owner accountability will be the lever that keeps the meetings market competitive.

In terms of property-level and national sales relationships, in a year or two, I believe the group and meetings market will take a step closer to commoditization. I don’t think this is a healthy change for our profession or for the hotel owners. Here’s why:

Loss of Talent 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. 

Group meetings are a huge driver to the success of a full-service hotel. A single booking of 250-plus rooms per night is a six- or seven-figure revenue bump. These transactions are complex, requiring seasoned, empowered, and passionate sales professionals.

Squeaky-Wheel Owners 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. Brand loyalty will remain robust for individual business travel, but will decline in the group market.

Post-merger, expect hotel owners to increase accountability for more group bookings. They’ll demand more sales and marketing resources, and try to scratch and claw to win opportunities for their property. Eventually, more property-specific, direct-sales resources will be deployed.

Dave Lutz, CMP

Dave Lutz, CMP, is managing director of Velvet Chainsaw Consulting.