With the Anbang saga presumably behind us, shareholder votes on the Marriott acquisition of Starwood scheduled for April 8, we can return to a discussion of what the future of Starwood — and Marriott — will look like. And as they say, ‘where you stand depends on where you sit.’
American Express desperately wants to find a way to keep issuing the Starwood American Express cards. But Marriott has already told investors they plan to merge Starwood Preferred Guest and Marriott Rewards. Since Chase has guaranteed exclusivity issuing Marriott Rewards co-brand credit cards in the U.S., that would seem to spell the end of the Starwood card … once the programs merge. And that’s a big deal for American Express because it represents 4% of the company’s loans and 2% of spending after they’ve already lost Costco, JetBlue, and Fidelity.
The only way around that would be if ‘merging the two programs’ meant the creation of a brand new program and that’s of course if the Chase deal hasn’t been written to account for such a move.
St. Regis Abu Dhabi
So Starwood Amex cardholders will ultimately lose, and especially those that transfer credit card-generated points to airline miles. Although Marriott seems to understand the need to improve the value proposition on their credit card. It’s hard to imagine the Chase co-brand becomes anywhere close to as rewarding as the American Express co-brand.
Still, Marriott Rewards members make out well since they get nice properties to redeem their points at and a chance that Marriott will improve elite benefits. And there are more Marriott Rewards members than there are Starwood members. So on a purely utilitarian basis travelers ought to like the deal.
Starwood general members without the co-brand Amex make out well, since Marriott offers greater rewards for in-hotel spending than Starwood does.
Starwood elites will not be happy, although Marriott Rewards will move off the status quo. They will improve their program as a result of the merger. They may not ultimately improve it a lot, they’ll be a more dominant player and if occupancy rates hold up they may not need to spend as much as Starwood on marketing. And they seem to believe that things like ‘earning points on-property when not a registered guest’ counts as a major step forward (it does not).
The deal strengthens Marriott’s reach and bargaining position relative to online travel agencies, and strengthens the position of many Starwood hotel owners. The extra ten figures Marriott had to pay for Starwood makes the deal more questionable for Marriott’s shareholders however.
On the day that it was clear Marriott would emerge the victor, the main things being emphasized by the two companies were:
- How real the Anbang offer was. Marriott wouldn’t want to admit it if were faked into spending over a billion dollars more on the acquisition. Marriott shares fell when the bigger offer was announced, and they fell now that the offer looks like it will succeed. At Friday’s close the value of the deal was less than $75 a Starwood share, and Starwood closed under $80 even with the more than $5 a share to be received from the timeshare spinoff. Should’ve stuck with Anbang at $78 cash?
- How great the deal will be financially. It’s expensive, but cost savings from cutting the jobs of Starwood executives are projected to go up. The very top executives get huge gold parachutes though and those nearly doubled from the first Marriott offer to the second. A more cynical observer might wonder if the increased payout influenced Starwood’s executives to favor the Marriott proposal over an all-cash offer that could wind up having been for more money from Chinese insurer Anbang.
- How much customers matter. There’s a tremendous amount of lip service being paid to customers, in particular Starwood Preferred Guest members, in this merger. I suspect Marriott executives were genuinely shocked at the negative reaction of Starwood customers when the deal was originally announced — and would love to figure out how to have customers like that.
Of course Marriott is going to say that they want to combine the best of both programs and create a world class offering that meets the needs of everyone. Every travel provider says that when they merge. When I met Marriott CEO Arne Sorenson last month he seemed truly genuine about this. But I’d be remiss if I failed to note that it rarely works out that way.
The major issues for the loyalty program are:
- Elite benefits: Upgrades, Late Checkout; 24 hour checkin; how lifetime Gold and Platinum status will be honored; breakfast at resorts, courtyard, and Ritz-Carlton properties. There’s also Starwood’s Platinum 75 and 100 night benefits that are an open question (24 hour check-in, Ambassador).
- Transition: the value of points Starwood points if converted to Marriott Rewards, advance notice of changes
- General members: the value of points transfers to airlines; the value proposition of the Starwood co-brand American Express product; the kind of customer service, problem resolution, and assistance via social that Starwood is generally better at.
If I had to guess, elite upgrades will be improved. Marriott will need to do something with upgrades, though I cannot imagine turning the Marriott battleship around so that domestic properties are all required to upgrade elites to suites. Perhaps they add breakfast at resorts and Courtyards. Marriott lags Hyatt, Starwood, and Hilton with their current breakfast benefit and they have the most onerous top elite tier to qualify for.
Al Maha Desert Resort
Starwood and Marriott won’t combine right away. They won’t be combined in 2017. It’s even a question whether they’ll be combined in 2018. Along the way there will likely be some alignment — reciprocal earning and burning, reciprocal elite recognition, alignment of promotions — before they actually combine currencies. When the currencies combine, they have to norm relative value. If I had to guess they might do something like 2 Marriott points per Starpoint, even though 3 is fair and even that won’t make all members happy. The ratio they choose is a huge cost, and for people who don’t know any better 2-1 sounds generous. That’s pure speculation, of course, and I don’t think they’re close to an answer on something like that.
The deal should be approved at the shareholder meeting April 8. The transaction should close during summer. And the big hairy work to figure out what Marriott wants to do with Starwood, now that they’ve won her, will really begin — strategic decisions, then massive IT projects. Eventually some hotel brands will disappear though not for awhile. And some Sheraton hotels will be stricken from the earth as a cancer on the brand. So that part at least is for the good.