PHLGovFlyer

Maybe I wasn't clear in my example. What I'm saying is that if legacy SPG account balances convert at a high ratio (e.g. 4:1) but legacy SPG property points costs increase by a lower ratio (e.g. 2:1) it would make legacy SPG account holders happy. In this example my SPG points balance would quadruple, but the cost of SPG properties would only double, and the purchasing power of my points at legacy SPG properties would increase by 100%. This would cost the combined company money because of both the increased purchasing power of legacy SPG accounts, and because the "new MR" points costs of the legacy SPG properties would be comparatively low.

My simple question is why?

Looking at two examples it seems there are pros and cons:

Example 1. The conversion ratio for existing SPG pooint balances and legacy SPG properties is 3:1. So my SPG points balance triples and they become MR points (e.g. 100,000 SPG points becomes 300,000 MR points). The per night points costs of legacy SPG properties also increases by 3:1, so a category 6 SPG property goes from 20,000 or 25,000 SPG points per night to 60,000 or 75,000 MR points per night.

Example 2. The conversion ratio for existing SPG pooint balances and legacy SPG properties is 2:1. So my SPG points balance doubles and they become MR points (e.g. 100,000 SPG points becomes 200,000 MR points). The per night points costs of legacy SPG properties also increases by 2:1, so a category 6 SPG property goes from 20,000 or 25,000 SPG points per night to 40,000 or 50,000 MR points per night.

Underlying all of this is the fact that the points earning structure going forward is very likely to be identical to the legacy MR earnings plan (10 base points per $ + elite bonus, + CC + welcome gift, + promos, etc.).

In example 1 the legacy SPG customers would see no change in the ability of their legacy points to purchase nights at legacy SPG properties. They'd also have quite a lot of purchasing power at MR properties with their legacy converted SPG points. So they're happy in the short term. However, going forward the MR points they earn would have relatively less value at the legacy SPG properties because the points cost of those properties will have increased quite a bit with the conversion. As above, a SPG category 6 property would cost 60,000 to 75,000 MR points per night which is very high in the MR points structure (The Westin Key west could cost more points per night than the most expensive RC properties). A SPG category 7 property would cost a whopping 90,000 or 105,000 MR points.

In example 2 the legacy SPG customers would see no change in the ability of their legacy points to purchase nights at legacy SPG properties. They'd also have somewhat less purchasing power at MR properties with their legacy converted SPG points. So they're somewhat unhappy in the short term, but only with respect to redeeming converted legacy SPG points at legacy MR properties. However, going forward the MR points they earn would provide quite a lot of value at the legacy SPG properties because the points cost of those properties will have increased by a relatively small amount with the conversion. In this case, a SPG category 6 property would cost 40,000 or 50,000 points per night which is on the higher end but still reasonable in the MR points structure. The SPG category 7 properties would cost 60,000 or 70,000 points.

It's counter-intuitive, but a lower conversion ratio could end up being a big benefit for folks that enjoy spending points at legacy SPG properties going forward.

I see these two examples as bounding cases on the high and low end for likely conversion ratios. Go above 3:1 and the points costs of legacy SPG properties become so high as to make them unaffordable with future MR points earnings. Go below 2:1 and the legacy SPG properties are priced too low compared to future MR earnings. Somewhere between those two numbers Goldilocks will probably be happy.

Kagehitokiri

bhrubin, marriott always allowed award stays at RC, they just did not have earning. when they started allowing earning, awards were devalued. i never really understood it, but seems like many FTers started staying at RC once they could earn points. perhaps redeeming at other marriott properties. (or airlines?)

cfabar1

I think the initial offer will be very good... I used to not... but I think Marriott is going to be under extreme pressure to make this deal look like it is working right away.... Showing that occupancy is stable or rising... Average spend per guest staying the same or going up... I suspect it will be a year or two after the initial merger that the benefits start dropping and getting drastically reduced.

username

It seems you are saying that SPG members are better off taking a short term hit for longer term gains? The problem is that there is not enough trust Marriott will commit to that, right?

They also need to avoid any arbitrage opportunities for either earning or spending once there is reciprocal arrangement. That will also be hard as you know someone on FT will figure something out

PHLGovFlyer

I don't really see a lower conversion ratio as a "hit" so long as the property points costs also convert by that same lower ratio. So long as the spending power of current SPG points at legacy SPG properties is unchanged it's not really a "hit". The only short term hit would be in terms of the spending power of legacy SPG points at MR properties, but that would be offset somewhat by the increased spending power of future earnings at legacy SPG properties going forward.

It's Marriott's ballgame to lose... They could just screw over lots of customers in the short term or over a period of a year or two, but ultimately that would defeat the purpose of the merger. Marriott really does need to implement a reasonable conversion ratio that is both fair to current account holders of both programs AND keeps property points costs reasonable going forward. It's a delicate balance, and as I mention in my previous post there are issues with going both too high and too low.

And this is EXACTLY why I think the conversion ratio will tend to be in the moderate range (2:1 to 3:1). Make the conversion ratio too high and the legacy SPG accounts gain huge spending power at legacy MR properties (arbitrage opportunity #1). Make the conversion ratio too low and the the legacy SPG properties become cheap and create huge spending power for the legacy MR accounts at the legacy SPG properties (arbitrage opportunity #2).

Kagehitokiri

good point cfabar1

ENIAC

This would be logical if MR was going to apply a single conversion factor to redemption categories for legacy SPG hotels and to SPG points. But it won't! There will be a conversion of our banked points, at the lowest value MR thinks it can get away with. But for the redemption costs they'll just plug the revpar, occupancy, and whatever other variables they use into the same spreadsheet they use for the existing MR hotels and MR category numbers will pop out. They aren't really going to have a whole different set of categories and pricing algorithm for legacy SPG hotels based on whatever points exchange rate they give us. That would make some brands in the new portfolio consistently under or over priced in points vs. the others.

I don't know enough about MR to say where the sweet spot in redemption values comes. I suspect the conversion is going to destroy the good value at SPG cat 1-2 hotels, which are already dwindling away, but SPG cat 6-7 (esp. cat 7 all suite) hotels are so expensive already that they will probably not go up in real terms.

Looked at another way. Say I've got about 210K points. That gets me a week in the W South Beach (cat 7). Well, eight nights with the 5th night free. I wouldn't be stunned if I still get about a week after the conversion. OTOH, those same 210K points currently get me 70 weekend nights in the Sofia Hotel Balkan or the LM Chiang Rai or the Sheraton Imperial KL. I don't think it's going to get anything like that many after the conversion.

Kacee

Assumes facts not in evidence

Perhaps Cat 5s in low-cost countries (e.g., JL Bogota or Ren Bangkok at 25,000 points). There really aren't that many.

ENIAC

Thinking some more, I've been asking myself why I'm so sure that the cat 1+2 values will go and the "all new merged program" will have a chart much more like MR. I think it's because SPG made a decision to leave points costs unchanged and instead let most hotels rise out of the bottom cats. Just this year, for example, three hotels I've booked repeatedly, the LM Chiang Mai, the Sheraton Madison, and the Westin Chicago NW went from cat 2 to 3.

So SPG is left only with a small % of hotels, many in troubled places like Egypt, in the bottom 2 cats. Continuing to offer great values on those hardly makes a difference overall, particularly given their locations. But with MR's focus on thousands of limited service hotels the Cat 1-2, $80-$150 a night places are going to be much closer to the middle of the merged program. Great values in hotel programs tend to be found at the bottom (SPG) or top (Hyatt when it maxed out at 18K, Hilton when it maxed at 50K, Carlson when it maxed at 50K) categories.

I suppose a truly "fair" conversion would lower the value of our current points at cat 1-2 hotels and raise them at cat 6-7 hotels. But I suspect we'll get one devalues slightly at cat 6-7, substantially at cat 4-5, hugely at cat 3, and devastatingly at cat 1-2.

uxb

Starwood communicated to staff over the weekend that they had a productive meeting with MOFCOM late last week in which they provided additional info. They don't have a timeline as to when the approval will be granted, but they expect the Phase 3 review to last until 7 October. If it is approved, then they expect to close the transaction within a few days of receipt.

bhrubin

One of the reasons I switched from Hyatt and generally ubiquitous luxury stays at FS, MO, Pen, etc to SPG wherever available was that the high end StR and LC (and occasionally W) stays not only gave me reasonably comparable luxury but also earned me points--and those points could be used both for other luxury hotel stays AND for premium airline awards. Hyatt points only allowed me to get hotel stays, as is true for most of the other chains when compared with SPG's 1:1 transfers (plus 25% bonus!) to airlines. The value-add for a luxury hotel stay with SPG was and still is significant.

I'm sure that was part of the calculus with RC properties. If you couldn't earn MR points at a RC, there was no competitive advantage value-add...so one might as well have stayed at any luxury hotel that best suited your needs/budget. Once you could earn MR points at a RC, there was a slight competitive advantage for RC over FS, MO, Pen, Aman, Rosewood, etc. where you earned nothing.

The same will be true for Marriott's incorporation of Starwood now for me and other SPG elites.

I now usually choose StR and LC properties where they clearly are comparable to the top FS, MO, Pen, Aman, etc. high end luxury hotels in the same location. That helps me earn more SPG points...which I also can use for other top StR and LC properties elsewhere--as I'll be doing next month when I stay 4 nights for free at the Gritti Palace Venice on an award instead of paying substantially for the only slightly more luxurious Aman Grand Canal Venice.

My Starwood Ambassador is another major value-add for me which makes me often prefer the StR or LC or W to the nearby FS, MO, Peninsula, and even Aman. I know I'm far more likely to get outstanding service and a much higher chance for suite upgrades at an SPG luxury hotel with my Ambassador...which puts my experience on par or often superior to that of the FS, MO, Pen, and sometimes even Aman, etc.

If Marriott substantially devalues those luxury stays, there won't be as much of a competitive advantage for me to always choose the RC, StR, LC, JW, or W versus the other high end luxury hotels in any market where they coexist.

The same issues are not nearly as significant for the average SPG guest (or MR guest) who typically stays in Sheratons and Westins or even lower category hotel types. The merger there is likely to be all about the point conversion and maybe the suite upgrade benefit--even though there are fewer suites at most Sheratons/Westins anyway! That's why most MR customers are so happy--since they get a new roster of great branded hotels while only the prospect of better benefits than they have now. SPG middle range customers aren't going to get any new benefits, and are more likely to lose a benefit or two at the very least.

We'll wait and see. But I do believe that I am the prototypical SPG customer that Marriott most wants to retain. I think that's why Marriott is trying to replicate the SPG Ambassador service with its new Concierge service. I think that's why Marriott will tread carefully on how it will merge StR, LC, and W into the MR-RC fold. I think that's why Marriott will tread carefully on suite upgrades for its elites. I think that's why Marriott will tread carefully on the point conversions...but more with consideration for the middle range SPG customers than customers like me.

milesrus

I am wondering if Platinum and Gold might get a 5-1 conversion and all others 3-1. It is in their best interest to keep their elite members happy. Then again when AA converted the expiring miles to new miles, four years sgo, they didn't sweeten the pot for their elite flyers.

Anything less than 4-1 is a big loss, doing the math we get 10 points per dollar at Marriott and 2 points at Starwood that is five times as many. On short nights the ratio is smaller with the Elite check in bonus, but many Elite members stay numerous nights, especially International travelers.

MD/DC Flyer

And that where you're lack of knowledge about Marriott hinders your argument.

Even on the low end of the conversion rate (i.e., 2:1) your 210K points will become 420K points, which are more than enough for 8 nights (with the 5 night free) at the
1. Edition hotel (350K for 8 nights)
2. Marriott (315K for 8 nights)
3. JW (280K for 8 nights)

Depending on what you think the most equivalent to the W. Even in the most expensive redemption will still work. The only thing that would not work is going to be the Ritz (490K). But even that would presumably work if the conversion rate is as expected going to be 2.5:1. And it would leave you some change.

And while the lower end of the redemption is not that favorable, 210K converted to 420K Marriott points will give you 56 nights (not only weekends), or 70 nights at a saver rate, at Cat 1 hotels, if you fancy going to India or South Africa (with other good values here and there).

All in all, seems to be quite a wash.

SkiAdcock

Thanks for the info.

Cheers.

stimpy

Thanks as well. So at least another month of seemingly endless repetitive speculation in this thread?