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The Consolidation Of The Hotel Industry

The Consolidation Of The Hotel Industry

The consolidation of the Hotel industry:

Without a doubt there is a growing trend within the hotel industry: consolidation. This is not a new phenomenon within the hotel industry (think Carlson Rezidor, Fairmont Raffles), but it has been relatively quiet in recent years. Perhaps this is in part due to the financial crisis which drove many hotel companies to turn their eyes inwards.

In recent years, the market has changed; very strong performances by OTAs and the emergence of disruptive companies such as Airbnb and onefinestay. Though there is a possibility hotel companies could capitalise on these successes, for example Hyatt’s recent investment in onefinestay. Nevertheless, the emergence of the sharing economy in the industry has added enormous pressure on to hotel chains in, what is ultimately, quite a saturated market.

Millennials, whilst I hesitate to use a sweeping generalisation, often search around for the best deals balancing cost versus quality rather than loyalty to any one brand. With cheaper air and rail costs due to low cost carriers, more people than ever are circumnavigating the globe seeking their next adventure. These similarly cost-conscious travellers seek the same savings in their accommodation. OTAs have made this easy, hence their success.

The result of this increased pressure in the hotel market has caused companies to consider inorganic growth through acquisition, but also the selling of hotels, brands and chains by parent companies. Furthermore, as investment entities who purchased poor performers in the financial crisis have seen a turnaround due to savvy technology or property investment, now has come the time for them to set their eyes on a sale. As a result rumours are floating about around just who will purchase companies like FRHI, Starwood Hotels and Resorts and Travelodge with investment banks heavily involved in the process.

To me, consolidation is a certainty. More interesting to observe is just how the mergers and integrations will proceed. Brand identity is critical to a hotel chain and drives its uniqueness from other brands. If we look at the bigger conglomerates, will, or should, an acquired chain be fully integrated? If so, how will it maintain its identity?

A recent example to consider is the Kimpton integration by InterContinental Hotels Group. Kimpton, the boutique, was acquired by IHG, the multinational conglomerate. How much focus with IHG place on maintaining the independence of Kimpton? Key points include the location of the head office and loyalty scheme. In this case it seems like Kimpton will not become like Crowne Plaza or the InterContinental, but how will the booking platform be shared. There is clearly much work to be done.

Things may be even more complication when it comes to Starwood, if it is indeed the case that another large hotelier purchases the company. The demand for M&A and post-merger integration professionals will likely increase in the coming years within the hotel industry. Ensuring that such critical integrations are completed to a high standard will be essential to the success of such acquisitions. 

 

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