What financial experts in the hotel industry say is driving the move for hotel chain consolidation is Expedia and Priceline. These two online travel agencies (OTAs) control most of the hotel distribution bookings globally, they gobble up their OTA competition and their share of hotel bookings distribution is growing globally.
The Priceline Group
“Priceline: With $50.3 billion in gross bookings in 2014, The Priceline Group is the world leader in online travel & related services.”
The key to The Priceline Group graphic above are the symbols on the right side of the page, which, in descending order, represent:
- Priceline rental cars
Expedia is the other dominant OTA global player with a comprehensive array of other companies under its OTA consolidation belt.
- Wotif Group
TripAdvisor.com – world’s largest travel site
TripAdvisor.com is another big player in the hotel industry with the largest global travel community under its umbrella of companies. This user-generated content community was created in 2000 and acquired by Expedia in 2005. Expedia spun off TripAdvisor as a separate company in 2011.
TripAdvisor has been ranked as the world’s most trusted source of travel information with more than 320 million reviews and opinions, and 53 million photos on its site.
You might be surprised at the list of companies owned by TripAdvisor:
- Family Vacation Critic
- The Fork (including lafourchette, eltenedor, IENS, BestTables and Dimmi),
- Holiday Lettings
- Holiday Watchdog
- Independent Traveler
- Travel Pod
Marriott and Starwood Merger may just be the beginning for hotel chain consolidation
Many loyalty members of Starwood Preferred Guest have expressed dismay and wonder that their primarily upper upscale hotel chain is going to become part of Marriott International. Hotel industry financial analysts say the Marriott-Starwood merger is unprecedented in the hotel industry for its size, but the industry consensus is also saying to expect more hotel chain mergers in 2016.
The driving force for hotel chain consolidation is size and negotiating leverage with Priceline and Expedia, the two OTA powerhouses in the global online distribution of hotel bookings. These two companies and their family of online travel agencies are growing in share for hotel bookings globally.
In general terms, a hotel chain like Marriott or Hilton pays a large percentage of the room rate to the online travel agency when a booking is made through the OTA site. This can be anywhere from 10% to 25%+ of the room rate. OTA booking fee payments are the driving force for consolidation of hotel chains. A larger hotel chain creates negotiating power on booking fees paid to Priceline and Expedia and their OTA brands. This is also a reason for the rise in independent hotels joining the major chain brands like Marriott Autograph Collection, Hilton Curio Collection, Starwood Tribute Portfolio, and Choice Hotels Ascend Collection. An independent hotel has little bargaining power negotiating lower booking fees with the giant OTAs.
To comprehend the scope of the hotel and lodging industry globally, TripAdvisor content has hotel reviews for 997,000 hotels, B&Bs and specialty lodging and 770,000 vacation rentals. Marriott/Starwood and Hilton have around 10,000 hotels between the two chains. Carlson, Hyatt, IHG/Kimpton have about 7,000 hotels. Best Western, Accor, Choice and Wyndham represent about 20,000 hotels. This is fewer than 40,000 major chain brand hotels, currently represented by eleven global loyalty programs among one million hotels globally listed on TripAdvisor reviews.
TripAdvisor Instant Booking
One of the major shifts in OTA power came in June 2014 when TripAdvisor Instant Booking launched, allowing a user to link directly to a hotel booking site from TripAdvisor review pages.
Priceline negotiated a deal with TripAdvisor Instant Booking in October 2015 with booking.com as its major Instant Booking partners.
Skift.com Marriott Tries to Use TripAdvisor as Leverage in Expedia Negotiations explains the OTA-hotel chain negotiating process in this October 2015 article. The article has statements from Max Starkov, CEO of HeBS, a hotel online marketing and strategy consultant:
Starkov estimates that major chains such as Marriott, Hilton, and Starwood pay Expedia commissions ranging from 13.5 to 15 percent, and they pay Booking.com 12 to 14 percent.
Independent hotels, he says, pay a lot more: 25 percent to Expedia and about 18 percent to Booking.com.
The Skift.com article states “In addition to Marriott, other chains participating in TripAdvisor Instant Booking include Accor, Best Western, Mandarin Oriental, Choice Hotels, Carlson Rezidor Hotels, and Preferred Hotels & Resorts. Hilton Worldwide and InterContinental Hotels Group are notable holdouts.”
I checked Hilton Amsterdam on TripAdvisor and it looks like Hilton is no longer a holdout to TripAdvisor Instant Booking.
IHG seems to be a TripAdvisor Instant Booking partner too now.
InterContinental Amstel Amsterdam #7 of 357 hotels in Amsterdam. I will be staying there next week using my IHG Rewards Club annual free night certificate.
Marriott and Hilton are the two dominant forces in global hotel chains. Who will become third?
Financial experts analyze hotel consolidation is a February 11, 2016 article on HotelNewsNow.com. A panel of hotel industry experts at the Americas Lodging Investment Summit led a discussion on hotel industry consolidation. Anthony Capuano, EVP and global chief development officer for Marriott International and other panelists represented the financial industry with discussion covering the recent Accor–Fairmont and Marriott–Starwood hotel deals.
The Accor-Fairmont deal was easy to comprehend in terms of Accor wanting to step into the North American market with a desirable upper upscale and luxury hotel chain like Fairmont Hotels.
Morgan Stanley real estate vice chairman stated larger hotel chains with more hotel brands increase hotel booking distribution negotiating power with Priceline and Expedia. The bigger you are, the more negotiating leverage the hotel chain has to make a lower percentage booking distribution deal with the OTA giants. Priceline and Expedia are increasing their share of hotel bookings, while hotel chains struggle to gain market share for bookings through their own websites.
For travelers, hotel loyalty program benefits are the only advantage to booking through the hotel chain’s websites rather than through an online travel agency. This is to our benefit as frequent guests who show loyalty to a hotel chain and book through the hotel chain’s own booking channels.
The pressure from Priceline and Expedia growing in their combined hotel bookings globally means hotel chain size matters in negotiating better deals with these OTA platforms. Mark W. Elliott, president of Hodges, Ward Elliott, a leading hotel brokerage firm, states the numerous small hotel brands competing against Priceline and Expedia will fuel hotel brand mergers in the industry. He predicts the outcome will be three hotel chain leaders, similar to the three legacy airlines resulting from the past decade of airline consolidation with American, Delta and United emerging on top.
Who will become third as a hotel global chain?
InterContinental and Hyatt was suggested as a potential merger. Rumors have hit the market lately that Carlson Hotels could be in play for a hotel chain merger. There is no clear picture of which hotel chains will try to grow in size to be on the level with Hilton and Marriott, however, hotel industry expert consensus seems to be more large-scale hotel chain mergers are coming.
While frequent guest loyalty members, in programs like Starwood Preferred Guest, may not like their favored hotel chain being subsumed by another chain, the reality is we will likely have fewer hotel loyalty programs in five years as the hotel industry consolidates.
As consumers and loyalty program members, we are subject to financial market forces. The markets appear poised to reduce the number of major hotel chains and rewarding smaller hotel loyalty programs many of us have loved, like Starwood Preferred Guest, Hyatt Gold Passport and Kimpton Karma Rewards may become a bygone era of the early 21st century.