Dec142015

Hotel chain mergers have less impact than airline mergers on loyalty programs

Do hotel chain mergers like Marriott International acquiring Starwood Hotels have far less impact on the combined loyalty program benefits compared to mergers between airlines like American and US Airways or United and Continental?

New York Times published Merger Mania in Hospitality Raises Competition Concerns by Martha C. White last week on Dec. 7, 2015. The story title does not read like a piece with real hotel loyalty program insight.

The NYTimes article opens with the line, “The travel industry’s 800-pound gorillas have been bulking up, and consumers are getting nervous.”

A SPG member worries the value of his Starpoints will go down. I’ll say that is almost a universal constant slide with hotel loyalty programs. The value of hotel points will always go down. The real question for the future is what opportunities will there be to earn more hotel points?

On a positive note are words from Bjorn Hanson, NYU hospitality industry academic.

Bjorn Hanson, divisional dean of the Preston Robert Tisch Center for Hospitality, Tourism and Sports Management at New York University, said hotel mergers are unlikely to create the loyalty program depreciation that elicited gripes from frequent fliers because of the way hotel loyalty programs are financed.

New York Times – Merger Mania in Hospitality Raises Competition Concerns

The reasoning behind the loyalty claim is an airline is one enormous entity with control and ownership of everything from aircraft, employment of staff and frequent flyer program. The global airline provides the benefits of frequent flyer programs, whether free upgrades, award redemption or miles for flights, so there is incentive to reduce the cost of these benefits and increase profitability through economies of scale. Fewer frequent flyer miles earned for flights on low fares and higher prices in miles for award travel happen much more frequently in airline frequent flyer programs than with hotel loyalty programs.

Airline pricing is already rigged with few choices. You can dislike an airline for its poor service and lack of benefits, but you still are stuck flying that airline when there is no other choice for your route.

Hotel Chains are Diversified Ownership 

A hotel loyalty program is financed with fees paid by hundreds or even thousands of hotel owners and managers as part of their branding contract. Starwood Preferred Guest, Hilton HHonors and Marriott Rewards market to millions of frequent guests. Hotel loyalty programs increase hotel brand awareness and recognition.

Loyalty program members might even be happily surprised, Mr. Hanson suggested. “There’s a better than 50 percent chance that the programs will be merged with the most favorable of both available to travelers,” he said.

New York Times – Merger Mania in Hospitality Raises Competition Concerns

Hotel pricing is based on market conditions and competition. Hotels compete with other hotel chains, and even within the same hotel chain among different owners and managers. Hotels are also competing against the online travel agency distribution network. Hotel loyalty programs need to be competitive to remain attractive against competitor’s loyalty program benefits and to incentivize consumers to book with the hotel chain and not some other hotel or lodging choice through Expedia, Priceline or Airbnb.

Questions

There are questions I have regarding the structure of merged Marriott Rewards and Starwood Preferred Guest hotel loyalty programs. We have not seen a big hotel chain merger like this in the past decade. There has not been anything like this in hotel loyalty in what I consider to be a fairly stable loyalty program industry since 2002.

Will we see Marriott Rewards 75-nights annually members earn suite upgrade certificates? Marriott Rewards frequent guests will love this benefit.

Will Marriott Hotel + Air Packages apply to all Starwood Hotels? SPG members will love this benefit.

Will we see the price of Starwood Hotels reward nights increase in a Marriott Rewards program? That is a certainty, whether sooner or later.

The real question for me is, What opportunities will there be to earn more Marriott Rewards points in a combined Marriott-SPG loyalty program?

A hotel loyalty program axiom of mine is ‘promotions make all the difference in the value of a hotel stay’.

About Ric Garrido

Ric Garrido of Monterey, California started Loyalty Traveler in 2006 for traveler education on hotel and air travel, primarily using frequent flyer and frequent guest loyalty programs for bargain travel. Loyalty Traveler joined BoardingArea.com in 2008.

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