The Ultimate Celebrity Couple of Hospitality: Marriwood

One morning the world wakes up to the news that Marriott is to acquire Starwood. People in the industry go absolutely frantic texting each other, as early as 6:00am; "Marriott's buying Starwood! WHAT!?" being the general reaction.

Not long after, the world wakes up to another piece of news; “No, no, China's Anbang Group is buying Starwood”. It causes an even bigger wave of mixed feelings within the industry, similar to what happened when Anbang first showed interest in buying the Waldorf Astoria back in 2014. It’s clear that their interest in the US hotel market remains strong, but if anything Anbang's intrusion into the Starwood-Marriott deal opened the floor to competition, reminding Starwood that Marriott's initial offering was valued too low by some financial analysts in the industry.

After a considerable increase to its original bid, Marriott's new offer now values Starwood shares at $440M more than Anbang's most recent bid ($13.6B, beating $13.16B). This brought Starwood and Marriott back together and this time their partnership looks more promising than before, though the structure of the deal still allows Starwood to accept other offers for a $450M break up fee paid to Marriott (a $50M increase since the last deal). Many questions that originally raced to hoteliers' minds remain unanswered; one of them being the reward membership programs.

In a world where many brands, from Starbucks to Expedia, continually give face lifts to their reward programs, some upsetting and some more advantageous for users, what would Marriwood's new program look like? The answer, of course, should be two-fold: one part to answer customer concerns and the other for hotel owners and management companies. Looking at the American Airlines-US Airways merger, it took two years before they announced their new rewards program after the merger was complete. So potentially, it might be a long time before either brand's loyalists need to ask what will happen to the points they will have accumulated thus far.

The question I want to ask is what will it mean for the hotels? Currently both Starwood (about 21 million SPG members) and Marriott (over 55 million Marriott Rewards members) have different layers of redemption requirements from the hotels that participate in their rewards programs.

Starwood looks at historical data to determine how much to pay back to SPG participating hotels. For instance, a hotel is assigned a category based on its historical ADR (Average Daily Rate) performance, which then determines how many points the hotel would cost to guests and how much it would get reimbursed for each reward stay. Reimbursement comes in the form of a flat dollar amount as opposed percentage of Average Daily Rate, a formula used by several other hotel brands. If the hotel achieves a minimum of 95% occupancy for the night, Starwood reimburses the difference between the flat dollar amount and hotel's ADR for the night.

Similarly, Marriott has an occupancy threshold as well, which is a tiered model that offers a somewhat forgiving solution for the hotels in their rewards program. For instance, if a participating 100-room hotel accommodates 30 of its guests free of charge as part of the rewards program and reaches a total occupancy of 96% for the night, Marriott pays 85% of whatever their actualized ADR was for the night for those 30 rooms. If, however, the hotel can only reach an occupancy level between 90% and 95%, Marriott only pays 40% of the hotel's actualized ADR. And for any occupancy levels below 90%, the hotel gets a blended reimbursement rate which is varied by property.

Sounds complicated at first glance but in fact, pretty simple: do everything within your power to sell out or at least reach a minimum of 95% occupancy for Starwood or 96% for Marriott.

For some hotels, where a high percentage of guests are business travellers (a.k.a. road warriors) who frequently redeem their free earned stays, low reimbursement rates could really hurt the overall ADR. In easily accessible city center locations like Times Square, not only are they the place for travellers to collect points but also to spend them, making this all the more important for such hotels under both brands.

Given the similarity of their pay back systems for free reward stays, it will be very interesting to see if the new Marriwood way will be better, worse or pretty much the same for participating hotels. As an ex-hotelier, coming from a revenue maximization mind-set, I would highly recommend that they go for "more advantageous for the hotels" option. Considering how this whole merger is moving in an unprecedented manner, it would be better to incentivize new potential hotel owners who could be turned off by the mere size of this merger and all the ambiguity that comes with it.

About The Author

Triptease empowers hotels to recapture guest relationships and increase direct bookings. Follow our blog for the latest insights and trends in the Direct Booking Movement.