Marriott’s Deal for Starwood: Who Wins, Who Loses, What’s Next?

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:

  1. 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?

  2. 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.

  3. 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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. “It’s hard to imagine the Chase co-brand becomes anywhere close to as rewarding as the American Express co-brand.”

    It’s not hard to imagine at all. Use the Chase-Marriott visa for stays, but then use other Chase cards for award tickets!!! It should be very easy to see the much higher value proposition of earning “just” 1.25 starpoints/$ on the SPG AMEX vs. 1.5 UR/$ on the Chase Freedom or 1.5-2.0mi/$ on the Chase United Club card that can be used for award tickets on any of 27 *A carriers to get to anywhere around the globe, without the inconvenience on having to transfer points to miles and risk missing out on great-value but supply- or time-limited premium award tickets.

    You just need to think outside the box to see this [I actually suspect you do but are too rigid to change]. Repeating outdated travel blogosphere claims is hardly the stuff of a Thought Leader in Travel!

  2. @DCS you are completely missing the price Marriott charges Chase for each point, and the value of those points, there’s a reason why Ultimate Rewards only transfers 1-to-1 into Marriott and why the Marriott co-brand isn’t rewarding for anything other than Marriott stays. Marriott needs to change the economics of the program to change the value of the co-brand, beginning to spend a lot more or rather valuing their points much higher (or dropping the price of its points to take it from the other direction).

  3. You got that backwards. Remember that startpoints will need to be converted to Marriott Rewards points, so that 2-3 starpoints per Marriott Rewards point would be awful and backwards. The conversion rate is likely to be the ratio of the average rate that one currently earns each currency for revenue stays in each chain.

    1 starpoint will transfer to about 3-4 Marriott Rewards points or a quarter of starpoint per Marriott Reward point.

  4. @Gary — One should not transfer UR or miles to hotel points unless one has loads of URs or miles and simply needs to top off one’s hotel points for a free stay, which I have done since becoming a RewardsPlus Gold, and wanted to book an award stay at a Marriott property in Asia. I usually have loads of UA miles from all my intl travel so that I can easily transfer 50K UA miles (the maximum allowed/year) to Marriott Rewards points without any trouble. This would be a waste of UA miles for most…

    One should use hotel co-brand cards to earn hotel points that one uses for free hotel stays. Use other cards to earn general purpose points (UR) or miles (UA UC cards) at a much higher rate (than for unbonused spend on the SPG AMEX) for award tickets. A winning proposition for those with the SPG AMEX who wish to transfer starpoints to miles is if one is a high-volume purchaser (small business, entrepreneur, frequent guest at Starwood properties). For the regular Joe, unbonused spend on the SPG AMEX with transfer of the earned starpoints to miles is a loser. The math is simple enough…

  5. The losers will be members of the loyalty programs as someone has got to pay up for this, and I could see more devaluations.
    Beyond some extra choices at the higher end for Marriott elites I do not see how they win, while it is obvious how SPG elites lose.

    Lucky had a slide from Marriott Management about the combined loyalty program recently, and I could not see much in the way of concrete improvements. It looked like a lot of marketing guff in my opinion. In any case it is not as if there is somewhere else for all spg elites to go. Hyatt footprint is too small, and the other programs (Hilton, IHG, Carlson etc) are not significantly better than Marriott. SPG were forced to be more generous due to small footprint, that reason is gone now.

  6. Actually the only real winners in this are SPG execs, and to a lesser extent SPG shareholders.

  7. @tom — Your placement of SPG on a pedestal and in rarefied air above their competitors is quite stunning for a program that has the highest priced awards in the business, especially for their top-tier “aspirational” properties; ranks last or dead last in most reputable surveys of customer satisfaction; and whose parent company has gone belly up because of anemic growth at a time when most other hospitality companies have been experiencing brisk expansion…

    Just wondering whether your glasses might not be too rose-colored…

  8. @Gary sez : “it’s 2-3 Marriott per Starwpoint. Marriott should do 3-4, but that’s a real long shot” and that’s after first getting the conversion backwards and conceding that he was guessing.

    My guess is as good as anyone’s. I gave my rationale for 3-4. It makes the denominations comparable, like 3 HH points for each HGP point, or about 6 HH points for each starpoint, based on relative earn rates for on-property spend. What’s your rationale? Remember these are hotel loyalty companies and not CC companies, but even relative on-property CC spend tracks. For on-property spend AMEX awards 12HH/$ on the HH Surpass, whereas they award 2 starpoints/$ on the SPG AMEX: 6:1 😉

  9. Is it time to transfer large Starpoint balances to airline partners? We could lose the 5,000 mile bonus someday…

  10. I’m in a wait and see mode with my SPG points. As long as they don’t go Alaska Air and make a change without announcing it before hand (sorry had to do it), I think we have at least into the middle of 2017 before there’s any impact on the SPG program and probably longer like Gary noted.

    It will be interesting to see if they offer additional SPG transfer bonuses before the programs merge.

  11. “I suspect Marriott executives were genuinely shocked at the negative reaction of Starwood customers when the deal was originally announced”

    If that is the case, Marriott needs smarter executives.

  12. spg is dead to me. i haven’t stayed at spg property since last december. i have about 15 upcoming hotel reservations and none are with spg.
    i probably will empty out my star points and close one or both spg amex when AF is due.

  13. Not sure if Gary’s posting filters will allow this post. As I have never seen any of my previous views post to his site. But I have only one thing to add

    @DCS- ” For the regular Joe, unbonused spend on the SPG AMEX with transfer of the earned starpoints to miles is a loser. ” I just wanted to say thank you for your many views on this site. I appreciate you being the shining light of truth to the benefits/Detriment of all these reward program cards. Many a time I could have gotten swept off my feet with excitement, thinking of all these benefits/uses I could get out of that card just for signing up for it. Only to have you clarify that most of these are false promises, unless someone is a “small business, entrepreneur, frequent guest” or put’s a lot of spend on them. Which I am none of those. Keep fighting the good fight for us “Regular Joe’s”. I value your opinion..

  14. @Keefer — The sarcasm is noted but it’s unwarranted because there aren’t that many people who do not yet the SPG AMEX card to benefit much from signing up for it. Heck, even I have it! The sign up bonus or churning route is no longer viable, and this was to be expected. I’d saidso at the height of the churning craze a few years back in a post over at the site formerly known as MilePoint, where angry churners had characterized me as myopic; worse, actually, it was like I had my head in the sand…

    Churning was unsustainable and one did not have to be a rocket scientist to figure that out. You can earn starpoints 1/$ to afford a 120K-mile premium award ticket at the tune of $120K, or you can stay at Starwood hotels (r.i.p) as a pure platinum, earn starpoints at 5/$ and get there faster for much less money. Like I said, the math is trivial…

    G’day!

  15. @DCS- For the record, my post was not “sarcasm”, but genuine personal feeling. My guess is you are so used to people attaching your position on here, that you have a difficult time accepting when someone actually gives you a compliment. I’m sorry you took it the wrong way.

  16. I suspect once the board approves the merger or at the very latest closes the deal, the 5,000 airline transfer bonus will be killed off without notice.

    Alaska paved the way so all other programs can simply point to them.

    Wouldn’t be surprised if the kill off the airline transfer all together and very soon.

  17. @Keefer — It could read as sarcasm but I will take your word for it and thank you for a rarity — someone in my camp, which explains my skepticism… 😉

  18. @keefer – take everything DCS says with a grain of salt. Notice he never really talks about HH (nor do any bloggers, as there’s just not much relative value in the program compared to others). He exists only to bash SPG, generally acknowledged as one of the best loyalty programs across hotels/airlines.

  19. @UA-NYC, mindless as usual, sez: “He exists only to bash SPG, generally acknowledged as one of the best loyalty programs across hotels/airlines.”

    That is called reverse Darwinism because “the best loyalty programs across hotels/airlines” like SPG (r.i.p) do not cease to exist, while value-less programs like HH thrive.

    Survival of the Weakest! It is alive and well, only in the travel blogophere aka the twilight zone…

    G’day!

  20. @UA-NYC “Take everything DCS says with ta grain of salt”. I can’t speak on what DCS true intent is. Or whether SPG has a better program then HH. I do find reading these travel blogs very informative and helpful as I try to utilize this information in my daily life as travel hobbyist.

    It”s my observation that there are occasions when much time is spent trying to entice readers to sign up for certain reward cards using persuasive language. When in fact things are not what they always seem. Since I don’t travel for work or spend my life in hotels, I can only share my experience based on a smaller sample size. But I have one non the less.

    To me it seemed that DCS was speaking the truth about what one can really expect benefit wise if one applies for a SPG credit card. That this card would only be beneficial for a certain target customer. Not someone like me. Which I didn’t know before. Because this is something that Gary never speaks about in his blogs. His blogs speaks in generalities as if everyone would get “all this good stuff if you only get the card”. But I would never known the difference had DCS not broke down the numbers. Which made my decision much easier to make.

    The fact that I’m one of only a few that is in DSC “camp” on this is strange because it makes perfect sense to me. Who knows.. maybe I’m the one who’s delusional?

  21. DCS is the Marco Rubio of blog commenters. Same three talking points, never varies, is a fool and we all laugh at him.

    Here’s a challenge for you – take a break from bashing SPG, post in the Hilton threads for a change, and demonstrate why it’s a program actually worth staying in (vs getting a $60 credit card and enjoying almost all the same benefits as Diamond). Cause I don’t think any readers do.

    Your move, chump.

  22. UA-NYC,
    marco is a back stabbing whore puppet,
    although i disagree with dcs on many topic, he’s no rubio.

  23. A MUST READ COMMENT

    @UA-NYC sez for what seems like the millionth time, obliviously, of course: “Here’s a challenge for you – take a break from bashing SPG, post in the Hilton threads for a change, and demonstrate why it’s a program actually worth staying in (vs getting a $60 credit card and enjoying almost all the same benefits as Diamond). Cause I don’t think any readers do.”

    You’ve been at this nonsense now for I do not know how long, repeating the same thing again and again and again. Those who have been here long enough (like a couple of years), know that I am an unabashed and passionate defender of HHonors and that I have commented on the program extensively. Blog hosts drive the discussions here and elsewhere. Because most are infatuated with HGP, SPG and the dAArk side, they tend to post primarily about these programs [easy to check: just count and compare the number of pages of posts on the various programs; it is not even close].

    Due to their infatuation with certain programs, bloggers tend to become “brand advocates”, who are exceedingly laudatory but usually unjustifiably of their favorite programs, while denigrating programs that they do not care for [usually large ones]. That is where the action tends to be and that is where you will find me being the Devil’s Advocate and offering a contrarian view…for “balance”! Starwood has been in the news a lot lately so bloggers have posted a lot of “analyses” and predictions [almost all wrong] about the future of SPG and that’s where the action and I have also been. However, it is also true that while I am an equal “opportunity opportunist”, who redeems based on best “value”, my math has shown me that SPG is the least rewarding program to invest in, so I have done very little of that. I put my points where my mouth is, so to speak.

    Case in point: Between December 17, 2015-Jan 12, 2016, I was on 3+ weeks of my Annual Year-end Asian Escapade(TM) during which I stayed [all on points or C+P awards] at Hilton Shanghai, Waldorf Astoria Beijing, Conrad Koh Samui, Grand Hyatt Singapore, Renaissance by Marriott Bangkok, Park Hyatt Siem Reap, Grand Hyatt Erawan Bangkok, and Conrad Hong Kong. It is clear that (a) I mix brands (equal “opportunity opportunist”) and am not as wedded to Hilton as it might seem, though it is my #1 program; and (b) I avoid Starwood hotels, again, because they are not very good value. Really. Is it not strange that a HOTEL loyalty points currency’s greatest selling point is that it can be redeemed for AIRLINE award tickets? That is no accident. SPG made it that way on purpose. They always have to keep decreasing their financial “liability” due to all the starpoints that they award with every sale, but must be redeemed before they can claim full credit for the cash portion of the sales. At the same time, they did not want to decrease this liability by encouraging members to redeem their points for FREE stays (Gosh! giveaways to those spoiled, insufferable members? Free stays at St. Regis? No way), so they made their hotel awards, especially “aspirational” ones, very expensive to redeem starpoints for. To make sure that starpoints are redeemed before the liability breaks the company, they made very favorable to redeem starpoints for airline award tickets [and bloggers went wild about the b.s. that starpoints are the “single most valuable points currency there”.] Hilton and other programs are different: they decreased their liability by encouraging members to spend their points on free stays at their properties, which is the better HOTEL loyalty program model, IMHO. Starwood;s model seems to have been flawed!

    Now, what would you like for me to say about HHonors that I have not already said ad nauseam? I do not dictate the terms of the discussions here; the host does. If there is something that I need to say about HH, I almost always do and most here know that. If you wish to see my original posts on HHonors, then go to InsideFlyer (formerly MilePoint) discussion board and look for threads started by or comments by “NYCUA1K”. There are loads of them on HH among my more than 4K comments since 2011. Go on and knock yourself out once for all!

    In the mean time, I do not believe for a second that the above will shut you off because the psychopathology is clear: OCD.

    G’day.

  24. Interesting deflection DCS…looks like you couldn’t actually defend HH after all? I think you have program envy, and that’s why you spend all your time just criticizing SPG. It’s quite amusing.

    Oh, I redeemed 20K points at the St. Regis Bal Harbour a couple weeks ago. Room going for $900. SNA used to a suite, cleared 5 days out (note: no laminated T&C copy needed to be waved in the desk agent’s face). That room was selling for $1,400 that night. Nope, no value in SPG at all, move along…

    (BTW, last year’s Freddies, best redemption ability, maybe there is something to SPG after all: http://freddieawards.com/2015-annual-freddie-awards-27th/) Looks like HH was shut out 🙁

  25. And a couple more points as to why your assertion that SPG isn’t built for hotel redemption is beyond asinine:
    – Industry leader in offering no black out dates (yes, any program that HATED members redeeming for hotels would love to offer that)
    – No variable pricing w/in each category, which is a terrible “tax” on loyal members (looking at YOU, Hilton Honors!)
    – First program IIRC to give stay/night/lifetime night credit on FREE nights

    You’re obsessed with the airline mile conversion, which is hilariously amusing to those of us with a dose of common sense. While I’m sure some members frequently transfer over (it’s a great way to create a bonus on non-bonused spend for a non-$450 credit card, but you don’t seem to realize that), I’m guessing the vast majority of SPG users are redeeming for hotels.

    Why? Great properties, amazing loyalty treatment, full benefits on award stays no matter where you are, and points that don’t have runaway inflation built in like HH Zimbabwe Dollars.

  26. My solution for the death of SPG Amex is to use the Arrival+ card more. Redeem at almost the same value and earn a lot more points at Marriott.

  27. UA-NYC: ” I think you have program envy, and that’s why you spend all your time just criticizing SPG”

    Can anyone be more stupid?
    SGP is D.E.A.D. and, unlike you, I am not necrophiliac.

    I’d again say please go away, but you wouldn’t be able to. The clear OCD psychopathology simply won’t let you. I have no such limitation, therefore, this is the very last time I will ever respond directly or indirectly to any of your obsessively disordered and stupid comments.

    GOODBYE

  28. DCS, as I thought…you are an empty Rubio-esque shell. No substance, just a couple repeated talking points..

    Marriott & SPG will meet in the middle somewhere w/benefits…and even then it will be better than Hilton.

    G’day douche!

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