Major hotel chains don’t actually own a vast majority of the properties under their “flag.” Instead the hotels are owned by investment companies, and the major hotel chains simply have management contracts for them, where they get a percent of revenue as their fee for operating and marketing the hotel.
The major hotel chains are going for an even more asset-light strategy than before, given that several of the hotels actually owned by the major hotel chains (which represent a small percentage of their overall portfolios) have been sold over the past few years.
The fact that the hotel chains don’t own individual hotels is another reason they’re coming up with so many new brands. Now that Marriott’s takeover of Starwood is complete, the combined ~30 brands have more than 5,700 hotels and 1.1 million hotel rooms. That’s great news for Marriott, since they’re collecting a management fee on a lot of hotels.
However, the companies that own the individual hotels largely don’t share the excitement. For example, a hotel that belonged to Starwood had the competitive advantage of appealing to Starwood loyalists over Marriott properties, while soon that advantage won’t exist anymore.
In May I wrote about how some Starwood hotels were suing regarding a breach of contract, given that they allegedly had clauses preventing Starwood from operating other hotels within a certain radius. I guess Starwood got away with it because technically it’s not Starwood operating those hotels, but rather Marriott.
However, it looks like some hotels are actually taking action based on their displeasure. Specifically, the Aloft South Beach left Starwood as of yesterday, just hours before the deal with Marriott closed. Per the hotel’s Facebook page:
Not surprisingly, the rooms advertised on the hotel’s website still look an awful lot like they belong in an Aloft. 😉
It’ll be interesting to see if this is just an isolated incident, or if we see more hotels leave Marriott and Starwood shortly. In situations where a Starwood hotel is very close to a Marriott hotel (or vice versa), I could certainly see why hotel owners would be unhappy.
Typically hotel management contracts are long term, though I wonder if there’s a clause that now allows hotels to exit their contract. You’d think there would be, but…
Do you think we’ll see more hotels leave Marriott and/or Starwood over their displeasure with the merger?
(Tip of the hat to @smithieuk)