How Marriott's Purchase of Starwood Could Kick Off More Hotel Consolidation (VIDEO)

Marriott International's $12.2-billion buy of Starwood Hotels & Resorts Worldwide not only created the largest lodging company, but also is a sign that consolidation within the hotel industry may be its best bet to defend against disruptive forces that include Airbnb and online travel agencies.

The battle cry is clear: bigger is, in fact, better. Arne Sorenson, Marriott's CEO, said as much yesterday during an analyst call to discuss the deal. "We thought, strategically, we could drive better value and compete better by being bigger."

"This is a transformative deal for Marriott and the industry," Michael Bellisario, VP at Robert W. Baird & Co., said. "It better positions Marriott to compete against the other major global brands as well as the new alternative lodging companies, such as Airbnb, that are impacting the competitive landscape of the hotel industry today."


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Others within the industry are in agreement and look at consolidation as a way to stymie industries that continue to pry and take a bigger piece of the pie.

Here's what Starwood Capital CEO told Bloomberg on the issue:

Shrinking the Industry by Getting Bigger 

For its part, Marriott, even before the Starwood deal, has been doing this, putting together smaller deals that effectively have proved to consolidate the industry.

In 2012, Marriott acquired the Gaylord Hotels brand for $210 million. At the time of the deal, Adam McGaughy, EVP of Jones Lang LaSalle Hotels, had this to say: “Consolidation has not happened in a while, however, if revenue per available room continues to grow, this trend will increase in the future.” 

And RevPAR has continued on an incline.

In January of this year, Marriott struck again, acquiring Canada's Delta Hotels & Resorts for $130 million.

Meanwhile, other hotel companies are following suit. Also this year, IHG acquired Kimpton for $430 million. And France's Accor is reportedly in talks to acquire Canada's FRHI, which includes the Fairmont, Raffles and Swisshotel brands.

The Interlopers

At the same time this is happening, companies outside the hotel industry, whose revenues come at the expense of the hotel companies, are sharpening their knives and cutting deeper and deeper.

In the OTA space, it starts and ends with Expedia. This year alone, Expedia has acquired Orbitz, Travelocity and, in a new wrinkle, home-sharing site HomeAway.

Not to be totally outdone, Priceline has made its own moves, acquiring such non-endemic platforms as OpenTable, and other travel-related entities, such as Kayak (in 2013) and Buuteeq (last year).

Meanwhile, the ubiquitous Airbnb continues to redirect would-be hotel bookings, cutting into hotel profits. Yes, it's happening.

It is and has been open season on the hotel industry for some time now, and growing scale appears to be one method to deal with the scourge. How it plays out could decide the future health of the industry.

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