Implications Of Hyatt Taking Over Starwood?

There have been rumors of a Starwood takeover for just about the entire year, perhaps most strongly since Starwood’s CEO, Frits van Paasschen, resigned in February. Starwood has struggled to grow at a rate acceptable to investors, and a large part of that struggle has come in the limited service hotel market, where Starwood lags behind the competition.

The merger speculation has been all over the place, ranging from a possible Wyndham or IHG takeover, to the possibility of Chinese firms buying Starwood, which would be the biggest ever Chinese acquisition of a US firm.

As a Starwood loyalist, neither of the above scenarios are ideal:

  • If IHG or Wyndham took over Starwood, you can bet it would be bad news for Starwood Preferred Guest, which has long been a generous program; Starwood would lose its identity
  • There’s a lot of uncertainty as to what happens if a Chinese firm were to buy Starwood; they could take a “hands off” approach and not much would change, or we could see some drastic changes… we don’t really know

Via CNBC this morning, there’s apparently one other scenario which is being seriously considered. Hyatt is in serious talks to buy Starwood:

Hyatt Hotels is in talks to buy Starwood Hotels & Resorts in a deal that is said to be as little as a week away, sources told CNBC.

Under the cash and stock agreement, Hyatt management would retail control of the combined companies. Talks between the two companies have been going on for weeks.

Hyatt management would take control of the combined company if the deal comes to fruition.

While Hyatt would be buying Starwood, keep in mind that Hyatt has roughly half the market cap of Starwood, and Starwood is also a bigger brand. So I’d say it’s reasonably likely that Starwood Preferred Guest would be the surviving loyalty program, given that it’s the bigger of the two brands.

View from the Wing‘s take on a combined Hyatt/Starwood is that “THIS WOULD BE AMAZING,” noting in his post that this would be the best option compared to the alternatives.

St-Regis-Abu-Dhabi
St. Regis Abu Dhabi

I’m not sure I share his optimism. I’m loyal to Hyatt Gold Passport and Starwood Preferred Guest. I love, love, love both programs, and think they’re the best in the industry.

But I love them for very different reasons, and therefore I’m not sure I’d want to see a Hyattwood Preferred Passport Guest program.

The way I see it, part of the reason both Hyatt and Starwood are so generous is because they lack the global footprint of Hilton, IHG, Marriott, etc. In other words, they sort of have to make up for their lack of a footprint with a great loyalty program.

If the two brands were to merge:

  • You can expect elite qualification tiers to go up (Hilton, IHG, and Marriott all have higher elite qualification tiers than Hyatt and Starwood)
  • As we’ve seen with just about every major merger involving loyalty programs ever, you can expect the “worse” of the policies from each program to survive
  • The brands won’t have as much of an incentive to differentiate themselves through their loyalty program
  • Either Hyatt would lose their Chase relationship, or Starwood would lose their American Express relationship; this would be very bad news for transferable points currencies

Park-Hyatt-Abu-Dhabi
Could a Hyatt/Starwood combo be the end of Diamond confirmed suite upgrades?

Anyway, I realize the loyalty program is only one small part of a potential merger, though it also happens to be the part which we care most about. 😉

I have huge respect for the guys running Hyatt Gold Passport and Starwood Preferred Guest, but I also know that they’re running businesses, and a merger of those two programs would surely lead to a dilution of benefits.

So I’m going to disagree with View from the Wing on this. I think I’d take the unknown Chinese investors scenario over a Hyatt/Starwood combo. That way:

  • At least Hyatt Gold Passport stays the same
  • We can hope that the Chinese buyers just want an investment in the US and will be “hands off,” rather than trying to micro-manage Starwood

How do you feel about the possibility of a Hyatt/Starwood combo?

Comments

  1. Hyatt over spg will be a huge mess and would take years to recover
    Hyatt’s management role is of a total different concept to what spg have now. Spg’ control over franchised properties is in the similar level of what Hyatt has to their Hyatt places only. It’s a very loose controlling system. Hyatt controls very tightly to all the hyatts and up, by sending employees over, etc. especially in the elite guest system, the execution in all the Hyatt, hr, gh and phs are way better than any spg hotel (also more strictly to the t&c, however)
    If these two brand merges the difference in management would waste Hyatt great effort to combine brand standards and so on and it’s something that I just don’t see that’s going to happen, or would result in any good outcomes.

  2. Always easier to plan spend and accumulate points for known outcomes regardless how bad than unknown outcomes and thus given that a Chinese buyout subjects it to the ( unknown and unknowable) interests of Beijing I prefer anything but a Chinese buyout

  3. I would certainly rather see Starwood taken over by Hyatt (talk about the guppy swallowing the whale!) in a merger akin to what we saw with CO and US (the smaller airlines) taking over UA and AA (their much larger competitors), rather than any Chinese (or other non-American) group. Maybe some xenophobia, but Hyatt’s management could give a bit of pizzazz to the dull greyness of Starwood’s management. I spent a couple of years as a Hyatt Diamond and very much enjoyed visiting their architecturally exquisite properties in Asia but when my travel patterns changed, I found Starwood had more properties where I was visiting. As an SPG Platinum it would be nice to be a Hyatt Diamond again.

  4. A Chinese takeover would be best, especially in the short-term. They appear to be looking for another home for their huge cash reserves besides US Treasuries. And, as you said, they would likely not mess with the loyalty program.
    Hyatt too has some very generous rewards/hotels. I’d hate to lose that in a messy marriage with Starwood(who also has a nice program).
    More mergers means less competition, pure and simple. Airlines anyone?

  5. This is my fault. After years of being upsold on how fabulicious SPG points are, I just recently bit it and got my first SPG Amex (x2, actually, one for myself last week, one for spouse during the 30k sign up bonanza). Of course Hyatt will take over now and ruin this. I’m sorry everyone. 😉

  6. It’s tough for the casual traveler to maintain top-tier status across both Hyatt and SPG. A Hyatt/Starwoods merger may, at first, appear to be more beneficial for the majority since they would now only need to maintain top tier status with 1 chain instead of 2. However, there will eventually be an inflation of top tiers and diminished value (e.g. Plats having a tougher time scoring suite upgrades at check-in).

    Regarding the note on Amex/Chase, it would still be possible for both banks to maintain relationships with Hyatt/SPG as we currently see with Hilton’s relationship with Amex/Citi.

    I am torn between the two options (Chinese investors vs. Hyatt) – hoping for a 3rd option to surface soon from Rumor-ville.

  7. I wrote this in View from the wing blog:

    I don’t like these news. I am a big fan of SPG and its program. I will be a contrarian here: Because the points are so hard to get, that is exactly what makes the program so valuable. Less points available overall in the market, more redemptions, upgrades, no black out, free nights, etc available.
    Can you imagine the tons of UR points easily accumulated by people becoming SPG? This would mean instant devaluation, less availability, etc. The dilution of the SPG fantastic program. I understand there would be more hotels to redeem the points, but I think I prefer the unknown Chinese company taking over (and hopefully leaving the program the way it is).

  8. I just think this would be amazing compared to Wyndham, Accor, or IHG taking over Starwood. “Mysterious Chinese government investors” is – I agree – something of a wildcard with respect to outcome.

    I do worry that we lose 1:1 airline transfers (with bonus), and/or confirmed suite upgrades and Hyatt’s superior in-hotel earn.

    I do not think this would be better than both Hyatt and Starwood staying independent. So please don’t misunderstand. And the business case for Hyatt doesn’t make a ton of sense to me, and that’s what leaves me skeptical that this pans out. Hyatt bid for Kimpton but didn’t make that one happen because it got too expensive. Starwood is still slow growth, so hard to justify paying a premium.

    I just figure Starwood was on a path to getting killed off by an acquirer. And if Hyatt buys them, that won’t happen…. (even if a Starwood-Hyatt deal is superior than a hypothetical “Starwood stays independent” alternative which just doesn’t seem in the cards).

  9. I woke up today to the BA deval and now this new to the SPG program, my one true loyalty love in this game. I’d like the option of hands off but as an accountant/finance person I know it’s not feasible as the new guys need to answer to the market. I’ve seen many new managements come in slash expenses, get their bonuses, move on and leave.
    I may need to rename my blog – Flying by the Seat of my “DEVALUED” Points with all of the changes this year

  10. Makes me wonder if there aren’t conversations going on between Hyatt and Chase and Amex. How many points will you buy to help finance the acquisition and be the surviving credit card?

  11. Lucky,

    I honestly don’t think loyalty programs have trouble scaling. I’ve seen it mentioned a bunch of times that SPG and Hyatt are generous as a function of their smaller footprints. I don’t think this is true.

    HHonours Diamonds have broadly the same benefits as an SPG Platinum or a Hyatt Diamond (broadly, I’m well aware of the nuances) and the program is cheaper than SPG on the redemption side and on the same level as GP. The qualifying nights are only 10 more (60 vs 50) and HHonours Gold beats the mid level of both SPG and Hyatt (though in qualifying nights is closer to their top tiers at 40 nights). They also allow qualifying based on points (revenue based basically). I think HHonours has scaled quite well though my preference remains SPG, Hyatt, Ritz/Marriott (due to Ritz vs WA), Hilton in that order.

    I think Hilton/Marriott have kept in touch with Hyatt/Starwood. It really is only IHG/Accor/Wyndham/Club Carlson that are significantly behind. HHonours and Marriott are a lot closer to SPG/GP than to LeClub/CC/RA etc

    Also a lot of people are worried about crowding and difficulty obtaining upgrades, I think this issue has been overstated as well. You had 500 Hyatts with X number of elites and 1200 SPG hotels with 3X number of elites. Now you have 1700 Hyattwood with 4X elites, it scaled linearly. There will be some exceptions where the best properties see disproportionate number of elites on special nights (New Year etc) but for the most part, it scales linearly.

    My only problem with this merger is we have two like quantities merging. I’d rather have SPG and Hyatt separately gobble up or merge with Fairmont, Kempinski, Movenpick, Carlson-Rezidor or other quasi-luxury chains such as Shangri La all of which have 2nd tier loyalty programs. SPG, Hyatt, Marriott and Hilton are currently some of the best and we don’t gain much if they merge amongst themselves. It adds nothing for us as guests and we end up with the lowest common denominators from the merged policies.

  12. Also,

    No one is questioning the business case for this. On the face of it, it makes no sense. Investors were asking Starwood for growth especially in mid market and value segments. Hyatt is possibly the only chain worse than Starwood in that area. It has no scale in general and also no scale in value segment specifically. Infact it was Starwood investors asking Starwood for greater growth (for which there was room) but this doesn’t mean everyone else was doing better. The stock histories of Starwood’s biggest competitors aren’t meaningfully better. Starwood is fine, it’s not really “sick”. Not any more so than a lot of its closest competitors.

  13. Unfortunately the Chinese deal will not happen. Starwood just sold the Vacation Ownership business to Interval who already manages Hyatt Residence Club, so that’s an indication to where the line is drawn I guess…

  14. If the Chinese buyer is from HNA and Jinjiang I wouldn’t be surprised if they acquire Starwood. Provided HNA just bought Swissport

  15. I’m not very familiar with hotel mergers, but, from my knowledge of other mergers, it’s not impossible for the separate programs, and bank relationships, to continue as normal. If Hyatt and Starwood remain two separate companies, despite overlapping ownership, they should be able to retain individual identities. I wouldn’t be surprised to see something like being able to earn SPG points at Hyatts and vice versa.

  16. Man…… I’m not loyal to a single hotel chain, but the last thing we need is for the major hotel companies to start merging like the airline industry did! There are for sure options for us all that could be better than others if they’re for sure going to get bought, but I think we’d all prefer them to remain separate entities!

  17. As with all changes, there are pluses and minuses and will be winners and losers if Hyatt acquires Starwood. I disagree that Starwood is the bigger “brand” as stated above; Starwood is the bigger hotel portfolio, but Starwood isn’t a brand like Hyatt is. Starwood has 10 different brands, none of which include Starwood, which is perhaps one reason why not everyone realizes that SPG and Sheraton and Westin and St. Regis are part of the same hotel family. We travel junkies are very aware, but the bulk of the public likely is not.

    The merger creates a hotel portfolio that I will love–as I love the Park Hyatt, Andaz, and Grant Hyatt brands as much as the St. Regis, W, and Luxury Collection brands. For the upper end consumer, this is a win. For the Hyatt Diamond or SPG Platinum customers, however, I suspect we will see some devaluation with the combined portfolios–as bigger portfolios have more coverage and therefore need less incentives to get customers. (Just look at Marriott, Hilton, IHG, and Accor as evidence, not to mention the merged Big Three airlines and Southwest in the USA, all of which have devalued significantly–with AA expected to do so soon now that its merger is complete with US.)

    I suspect a combined Hyatt-SPG will create devaluation in the new loyalty program. It will take more nights/stays to achieve status at any level, almost certainly. The categorization might expand from 7 to perhaps 9 or 10, allowing the bigger portfolio to better allocate the highest room rate Park Hyatt, St. Regis, and Luxury Collection properties into a higher category, with concomitantly higher redemption rates for awards. Hyatt will also need to figure out what it does with its Chase Hyatt card versus the SPG Amex cards. Hyatt doesn’t have a business card, but I imagine it will press for a new Hyatt business card that mimics the SPG Amex Business card. I assume whichever is most lucrative for Hyatt will be where it goes.

    Still, a combined Hyatt-SPG suddenly brings substantial coverage at the top end of the market to far more places worldwide. Suddenly, SPG holes are covered in the luxury market, and Hyatt holes are covered as well. I assume St. Regis and Luxury Collection and even Tribute Portfolio will remain as Hyatt brands.

    Change happens. It looks like we’ll need to get ready for this change. But I don’t think it will be particularly bad for loyal customers of either Hyatt or SPG.

  18. As someone mentioned above, I think this merger will go to Hyatt and not the Chinese firms, unless the price gets way too high.

    In addition to the potential merger on the hotel side, ILG just bought the Starwood timeshare business and also owns the Hyatt timeshare business, which it purchased last year. ILG now is the exclusive global licensee of three top vacation ownership brands and the license agreement for the Westin/Sheraton timeshare brands looks pretty good for Starwood, which Hyatt is likely buying and under the terms of the license agreement, Starwood will receive an annual base royalty fee of $30 million plus 2% of vacation ownership interest sales, which rolls up to Hyatt once they buy Starwood.

    Hyatt now would be getting money for nothing essentially for just licensing their Hyatt name and now the Starwood names to ILG. From a business standpoint, this may be one of the ways they jumped in to this potential merger?

    It will be interesting to see how the merging of the two loyalty programs play out and which card company (AMEX vs Chase) wins out in the long term?

  19. Here’s what I’ll be looking for. If they announce major changes, good or bad, this will be honest. If they say “Don’t give it a thought; nothing will change” or worse “This is your lucky day” then it’s probably time to cash out and switch to a different program.

  20. As a Lifetime Platinum, and current Ambassador-Platinum on SPG, although the idea of Hyatt purchasing Starwood scares me, having access to Park Hyatt and Grand Hyatt PLUS downmarket properties other than Four Points, like Hyatt Place or Hyatt House, is appealing.

    (I really hope Lifetime Platinum sticks around, though!)

  21. As an Elite member of both SPG and Hyatt, I agree with Ben. It would not be good!

    Bring in the Chinese!!

  22. I would MUCH prefer a merger with Hyatt (or with just about anyone else) over a buyout by a company owned by the government of a communist dictatorship.

  23. The only way that an Hyatt SPG merger would work to the benefit of the travelers would be for them to continue operating as separate companies with their separate loyalty programs. They could allow earning and burning across programs similar to how airline alliances used to operate. This would help solve the small footprint problem without destroying the unique advantages each program offers. This is too much to ask but I can dream.

  24. @Lucky sez: “The way I see it, part of the reason both Hyatt and Starwood are so generous is because they lack the global footprint of Hilton, IHG, Marriott, etc. In other words, they sort of have to make up for their lack of a footprint with a great loyalty program.”

    That claim is made repeatedly by travel bloggers as an article of faith; they offer no objective proof whatsoever to support it.

    SPG is BY FAR the most expensive and least rewarding program in the business, and as loyalty program Hyatt Gold Passport is, at best, a work-in-progress, at worst a joke. To keep claiming that the two smaller programs are the best in the business simply because they are small and must make up for it by being more generous is just ludicrous. If Starwood were as great as bloggers claim, they would not be so desperate to be acquired! In fact, while Hilton and its much maligned loyalty program are thriving, what we are seeing are the purportedly “best programs” struggling to find a path forward!

    Both Hilton’s and Marriott’s programs are plenty generous; in fact, as I have elaborated ad nauseam in this space and elsewhere, I would say that due to their stability and maturity HHonors and Marriott Rewards are more generous than the bloggers’ two favorite small programs…

    Provide some proof to support you claim or just can it!

  25. I think the problem here is the share market and their blind quest for growth regardless of the quality of this growth. Does anyone else think that it isnt that starwood is desperate to be acquired or not performing vs others. Starwood is focusing on primarily 5 star properties with fourpoints as their downmarket property, as is hyatt’s focus on upmarket properties. To the share market this means slower property growth vs other brands that have diluted themselves with a flood of downmarket properties. So they are getting penalised. To counter this they are opening themselves to this merger. I think if it goes through hyatt is the right partner as the resulting merger will maintain the focus on upmarket properties. What do you think of this line of reasoning.

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