bhrubin

I'm not sure you understand the reason the big investors are pushing Starwood to increase its market share in the budget/midscale hotel sectors--that is where the bulk of revenue growth has been for the past few years. That is why Starwood acquiring through purchase or merger more of those properties is so critical. There are always ways to integrate, as evidenced by how Hyatt bought AmeriSuites and turned those into Hyatt Place. The same can be done for La Quinta or other lower end properties being converted into Four Points. There is always a conversion/refurb period. But that doesn't preclude the need to acquire those types of properties into the Starwood portfolio. You have to spend money to make money in business.

Losing revenue to other chains is more costly than the cost to acquire them and increase the potential for future revenue growth. Just look at Hilton--it's lower end segments are growing by some 200%, and that is what Starwood investors see as a lack of appropriate competition by Starwood. That's a lot of lost revenue from Starwood, and its investors know it. It's hard to compete with those other major chains when Starwood doesn't have the properties to compete in the same segment. So whatever the cost, Starwood needs more activity in that segment.

Sheraton is already up for a refurb/improvement plan, and that is the biggest bulk of the Starwood portfolio.

Taking on another chain to improve SPG performance in the budget/midscale sectors is critical to the investors of Starwood and to its overall market share.

nologic

I hearing it's Hilton...would prefer Hyatt.

JK

Interesting. Both have already said no.

Bravada04

..............and where are you hearing that from? Would this make sense for Hilton? It seems not.

nologic

Someone in the industry, but maybe not. Or, maybe it was Holiday Inn and not Hilton. I'll check.

CLEguy

Holiday Inn is IHG.

JK

Who have also publicly passed.

KENNECTED

Exactly. Also note, they recently purchased Kimpton.

BosTravel

I know Hilton and Marriott (and a few others) have publicly stated they are not interested in a merger / acquisition. However, I was not aware IHG (Holiday Inn, etc) has done the same. Can you refer me to your source?

JK

I'm honestly struggling to find the story now! I'll have a further dig later this morning, but since it's not already jumping out at me, I'm going to go ahead and apologise for my snafu. If I do find it however, I'll be back to update with the source.

This does alter my thinking, as I thought IHG was off the table! Better find that damn story now!

JK

Further to the above, I was clearly wrong re IHG - apologies. IHG and HOT are actually quoted in today's Daily Mail (!) citing rumour speculation.

Full article here.

IHG shares are already up almost 1% this morning, so I guess the Street likes the concept.

bhrubin

I've assumed for several months that Starwood and IHG would either merge or that one would acquire the other. The news in the previous post of "5 star speculation" suggests that there likely are some serious discussions of such a move.

I dearly hope that Starwood acquires IHG rather than the other way around...simply to preserve the format of the SPG program. Were IHG to acquire Starwood, the smaller SPG program would seem to be in serious jeopardy as we know it today. And let's face it--the IHG loyalty program is substantially weaker and far less appealing. The IHG creation of its "Spire" top elite category is just another reminder of how pitiful the IHG loyalty program is when compared to that of SPG.

Regardless, even if Starwood acquires IHG or if a merger gives Starwood managing control of the new company, the SPG program is very likely to undergo some serious and negative changes--since bigger hotel chains with substantial property choices do not need to be as generous with elite benefits and redemption options. Just one look at the much less appealing Hilton, Marriott, and aforementioned IHG loyalty programs clearly demonstrates this fact.

I can imagine SPG devaluing again with the creation of higher category levels and concomitant greater redemption levels in order to incorporate the massive influx of IHG properties (and concomitant stay/night opportunities) in its portfolio. Obviously, most IHG properties would be in the lower threshold of the new categories, since most Holiday Inn Express/Staybridge Suites/Candlewood Suites properties are simply not nice enough or located in sufficiently high revenue locations. Some Holiday Inns in urban locations could be mid-range categories, while those in more remote/small town locales would be in lower categories. The Hotel Indigo properties likely would be in mid-range to even a few upper category levels. Crowne Plaza properties would likely be shifted into the Sheraton brand when appropriate, especially in an attempt to better fulfill the current Starwood 2020 plan to improve the Sheraton brand. Underperforming Crowne Plaza properties could be shifted into the Four Points or Element/Aloft brands as appropriate, or simply left as Crowne Plaza branded properties at lower category levels to encourage them to improve/refurb for eventual move to the Sheraton brand. Intercontinental would remain as its own brand, for certain, as the strongest brand in the IHG portfolio. A few IC properties would be very high level SPG categories, while most would be in upper category levels.

Interestingly, IHG never folded Kimpton into its IHG loyalty program. And just as interestingly, SPG announced its 10th brand, Tribute Portfolio, even as it knew it would be exploring options for sale, acquisition, or merger. It seems awfully convenient that Kimpton could become its own SPG brand or fold very neatly into the new Tribute Portfolio. Either way, Kimpton would be an excellent addition to SPG, easily as much a match as InterContinental is.

Prepare yourselves. As long as Starwood has the controlling interest in a merger with IHG or makes the IHG acquisition, the SPG loyalty program will still be likely to maintain its current contracts with the 30+ airlines for SPG point transfers and provide for Platinum/Gold benefits. But I wouldn't be surprised to see the "new" SPG require more stays/nights for Gold and Platinum status with so many more properties in its portfolio.

TravelinSperry

As long as they kept the benefits and levels, I'd be OK with a higher level of nights or stays. Of course this would affect some negatively. ymmv.

bhrubin

There's no way to be sure what the "new" SPG would do with a merge with IHG. There's not even any way to be sure the companies will merge, though it's looking more and more likely...or that Starwood would be the controlling interest, though most believe Starwood more likely to acquire IHG than the other way around.

That being said, the one thing we can be sure of is that a combined Starwood-IHG chain would cause negative changes for some--if not most--SPG members. Such a large chain likely would want to combine the loyalty programs in order to better encourage loyalty across the new brands--unless it simply created a transfer ratio for points between SPG and IHG. But a transfer ratio would still undermine some of the benefits of the merge, since SPG loyalty is the best in the industry, with nearly half of Starwood hotel revenue coming from SPG members.

What the negative changes might be remains to be seen, but they'd be coming. I would expect any or all of the following:

(1) New higher category levels (perhaps up to Category 10) to allow better assignment of the massive influx of properties and to better differentiate the more luxe SPG portfolio from the much larger and more budget/midscale IHG portfolio.

(2) Concomitantly higher redemption levels for the newly created higher category hotels, pushing current Category 5-7 SPG hotels into the higher redemption thresholds of Category 7-10. We see this already with Hilton, Marriott, and IHG.

(3) New higher eligible stays/nights requirements for Gold and especially Platinum elite status. I wouldn't be surprised to see Gold require 15 stays or 30 nights or some minimal increase like that. I really wouldn't be surprised to see Platinum require 50 stays and 75 nights. Otherwise, SPG would simply see too many Golds and Platinums...and that doesn't help SPG or the Golds and Platinums, either.

(4) Continuation of the SPG airline transfers, since those contracts are still valid for quite some time as far as I know. The only thing that jeopardizes this critical value for SPG points would be if IHG acquires Starwood--which could void those contracts--or if IHG takes controlling interest in a merger--since IHG may or may not want to "pay" for this perk. That being said, one of the reasons that SPG points are so valuable is that they transfer to airlines, so the "new" SPG-IHG might continue these transfers as a means to draw business away from Hilton and Marriott. But this is the one biggest concern--since SPG points are really the only hotel currency that transfers 1:1 to so many airlines.

(5) Continuation of the Starwood-Amex relationship...but unsure of the Chase-IHG relationship. If the loyalty programs are kept separate, there is no reason both relationships cannot continue as they are now. But if the loyalty programs merge, there is no way that both relationships would be continued. If Amex survives, and I'm sure they would fight hard to be the survivor, then perhaps the SPG Amex would gain new benefits--like spending thresholds to get more elite nights/stays. Either way, the Amex Plat SPG Gold benefit would become more valuable!

Who knows?

KENNECTED

You would also need to throw in the Kimpton hotels, creating more problems/guessing.

If IHG would merge with SPG, .

• All three brands maintain separate loyalty programs
• or SPG, IHG use this opportunity to fold the Kimption hotels into the mix and create one massive loyalty program.

Again.....who knows.