Introduction
In Hong Kong last October at HICAP (Hotel Industry Conference Asia Pacific) Baker McKenzie discussed this topic with a panel of industry experts representing owners, operators and consultants in front of an audience of approximately 200 conference attendees. To view the PowerPoint for the presentation please click this link which will take you though to Graeme's LinkedIn page.
What the audience had to say
We polled the audience and asked four questions, being:
- Will fewer global hotel management companies be financially better for owners and operators?
- Will smaller hotel chains benefit as a result of mega mergers?
- Will loyalty scheme members be better off with a merged loyalty scheme?
- Will mega hotel management companies be better able to reduce OTA (Online Travel Agents) fees?
For each question we asked the audience to respond to a multiple choice questionnaire which in each case consisted of:
- Yes
- No
- I don't know
If you would like to know how the audience responded then please go to Graeme's Linkedin page.
What the panel had to say
With our panel of industry experts we covered the following 10 topics. Generally we asked some, but not all, of our experts to comment on each topic. On some points our experts agreed and on others they had different or opposing views. What we set out below is a broad summary of the diversity of views provided.
Topic | Discussion |
Reduction in the number of global hotel operating companies - What will some of the affects be of the concentration of ownership of operating companies? |
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Potential advantages of consolidation - What will the advantages be to owners, operators and guests from the consolidation of ownership of hotel operating companies? |
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Potential disadvantages of consolidation. What will be the disadvantages to owners, operators and guests from the consolidation of ownership of hotel operating companies? |
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Impact on listed hotel operating companies that have not merged. What will the impact of the mega mergers be on the large global hotel operating companies that have not merged? Does it mean increased profits or increased risk for those companies? |
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Impact on unlisted hotel operating companies that have not merged - Four Seasons, Shangri-la, Mandarin Oriental, Peninsula. Will they have a point of difference? Will their brands be less attractive or more attractive to guests? |
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Opportunity for smaller boutique international and domestic chains. Will the guest experience with small boutique chains and local domestic chains be more attractive to guests rather than a global mega hotel operating company with multiple brands? |
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What will happen with loyalty schemes? Will it be one size fits all or multiple loyalty schemes for multiple brands? Will loyalty schemes pay off with mega mergers? |
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Lack of brand differentiation Will all of the brands of the mega global hotel operating companies start to merge from the perspective of owners and guests Will owners and guests regard the mega hotel operating companies as providing less choice. Will the multiple brands of the mega hotel management companies start to disappear? |
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Impact on hotel management agreements. What will the impact be on some of the usual clauses in hotel management agreements including area of protection, sharing of resources, marketing and reservation fees? |
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Will mega mergers guarantee mega profits for owners and operators? What will the logistics be like for the mega hotel companies running multiple properties in numerous jurisdictions with multiple owners? Will there be greater bargaining power with OTAs? |
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Our comments
It is fair to say that at the end of our discussion it became increasingly unclear to predict what the future of the hotel industry would look like if mega mergers continue to occur at the current pace or at an increasing pace. A mega merger in itself is not a recipe for financial and competitive success. It's what the people in charge of the merger do once it has been undertaken. There will undoubtedly be winners and losers. Those who get the timing brilliantly right and those who get it hopelessly wrong.
There will be those operators who thrive by sticking to their knitting and growing organically and those that become increasingly irrelevant because the market has moved on and they have been left behind.
About Baker & McKenzie
Founded in 1949, Baker & McKenzie advises many of the world’s most dynamic and successful business organizations through more than 11,000 people in 77 offices in 47 countries. The Firm is known for its global perspective, deep understanding of the local language and culture of business, uncompromising commitment to excellence, and world-class fluency in its client service. Global revenues for the fiscal year ended 30 June 2014, were US$2.54 billion. Eduardo Leite is Chairman of the Executive Committee. (www.bakermckenzie.com)
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