Post by High Priestess on Nov 20, 2015 15:21:29 GMT
The combination of two storied hotel brands announced this week creates the world's largest lodging company, with more than a million rooms. But the $12.2 billion agreement by Marriott International (MAR) to acquire Starwood International (HOT) isn't a mark of hotel industry triumph.
It's more of an anti-Airbnb defensive maneuver. If you listen closely, you can hear the ominous hoof beats of online competition closing in on the traditional hospitality business. Hotels want to bulk up against threats from the likes of Airbnb, a digital service that allows travelers to book private homes for stays.
The hotel industry is doing well, for now. Since the recession, business has been great, and mergers also give it scale to take advantage of that. Revenue per available room (the sector's main metric) will grow a health 6.8 percent this year, research firm STR estimates, followed by a similar expansion next year.
VIDEO; www.cbsnews.com/videos/airbnb-ceo-brian-chesky-on-expansion-plans-and-legal-battles
And occupancy is at record levels. What's more, hotel chains have moved from owning real estate to franchising their brand and services, which will better insulate them against bad times.
At present, Airbnb looks more like a mouse than a monster. The privately held company has a mere 1 percent market share worldwide. Like many fast-growing tech-oriented outfits (Amazon, anyone?), Airbnb operates in the red. But it's the long-term trend that worries the hotel establishment.
Airbnb is "killing" the industry, famed real estate investor Thomas Barrack said at a conference earlier this year. Because the digital lodging matchmaker has low overhead and light regulation, as opposed to what hotels deal with, he said the legacy industry "can't compete." This, he went on, will drive it to consolidate for its own preservation.
Seven-year-old Airbnb has made steady inroads against hotels as the online upstart doubled listings over the past year. A recent Boston University research report found that a 10 percent increase in local Airbnb supply led to a 0.35 percent decrease in hotel revenue. Venture capitalists estimate the company has a $25.5 billion valuation, which handily eclipses the value of the Starwood deal.
Hotel industry types grudgingly acknowledge that Airbnb is a rising force they need to face. In addition, they want to counter the power of online travel bookers, like Expedia (EXPE), which act to hold down prices. The Starwood merger was done to fight "the online travel agents -- and also the potential threat of Airbnb," Barry Sternlicht, Starwood's founder and chief until he left 2005, said in a Bloomberg Television interview.
While Starwood is home to luxury brands like W, the chain also harbors weaknesses that made it ripe for the plucking. Unlike the rest of the industry, Starwood's growth has been lackluster, particularly at its signature Sheraton brand.
Under an interim chief executive, it was trying to rejuvenate itself. Since word of an imminent deal surfaced late last month, Starwood shares have slumped to around $71 from $80. Many factors could be behind that, yet this share performance was far from a lusty cheer by investors.
Meanwhile, other mergers have started to bubble up, France's Accor is in talks to buy FRHI Hotels & Resorts of Canada, and private equity powerhouse Blackstone Group announced its purchase of Strategic Hotels & Resorts in September. The last major hotel merger wave was before the financial crisis, capped by Blackstone's $18 billion takeover of Hilton.
With the industry facing such big changes, said Starwood founder Sternlicht, "We're going to see global consolidation."
SEe article:
www.cbsnews.com/news/how-airbnb-pushed-marriott-to-nab-starwood/
It's more of an anti-Airbnb defensive maneuver. If you listen closely, you can hear the ominous hoof beats of online competition closing in on the traditional hospitality business. Hotels want to bulk up against threats from the likes of Airbnb, a digital service that allows travelers to book private homes for stays.
The hotel industry is doing well, for now. Since the recession, business has been great, and mergers also give it scale to take advantage of that. Revenue per available room (the sector's main metric) will grow a health 6.8 percent this year, research firm STR estimates, followed by a similar expansion next year.
VIDEO; www.cbsnews.com/videos/airbnb-ceo-brian-chesky-on-expansion-plans-and-legal-battles
And occupancy is at record levels. What's more, hotel chains have moved from owning real estate to franchising their brand and services, which will better insulate them against bad times.
At present, Airbnb looks more like a mouse than a monster. The privately held company has a mere 1 percent market share worldwide. Like many fast-growing tech-oriented outfits (Amazon, anyone?), Airbnb operates in the red. But it's the long-term trend that worries the hotel establishment.
Airbnb is "killing" the industry, famed real estate investor Thomas Barrack said at a conference earlier this year. Because the digital lodging matchmaker has low overhead and light regulation, as opposed to what hotels deal with, he said the legacy industry "can't compete." This, he went on, will drive it to consolidate for its own preservation.
Seven-year-old Airbnb has made steady inroads against hotels as the online upstart doubled listings over the past year. A recent Boston University research report found that a 10 percent increase in local Airbnb supply led to a 0.35 percent decrease in hotel revenue. Venture capitalists estimate the company has a $25.5 billion valuation, which handily eclipses the value of the Starwood deal.
Hotel industry types grudgingly acknowledge that Airbnb is a rising force they need to face. In addition, they want to counter the power of online travel bookers, like Expedia (EXPE), which act to hold down prices. The Starwood merger was done to fight "the online travel agents -- and also the potential threat of Airbnb," Barry Sternlicht, Starwood's founder and chief until he left 2005, said in a Bloomberg Television interview.
While Starwood is home to luxury brands like W, the chain also harbors weaknesses that made it ripe for the plucking. Unlike the rest of the industry, Starwood's growth has been lackluster, particularly at its signature Sheraton brand.
Under an interim chief executive, it was trying to rejuvenate itself. Since word of an imminent deal surfaced late last month, Starwood shares have slumped to around $71 from $80. Many factors could be behind that, yet this share performance was far from a lusty cheer by investors.
Meanwhile, other mergers have started to bubble up, France's Accor is in talks to buy FRHI Hotels & Resorts of Canada, and private equity powerhouse Blackstone Group announced its purchase of Strategic Hotels & Resorts in September. The last major hotel merger wave was before the financial crisis, capped by Blackstone's $18 billion takeover of Hilton.
With the industry facing such big changes, said Starwood founder Sternlicht, "We're going to see global consolidation."
SEe article:
www.cbsnews.com/news/how-airbnb-pushed-marriott-to-nab-starwood/