Hotel Consolidation Continues Unabated – but who gains from the creation of a hospitality oligarchy?

It seems that the hotel industry consolidation which started several years, is likely to gather pace, despite the fact that takeover targets are becoming harder to find.

It would probably take the entire article to list all of the mergers and acquisition from the past few years, but some of the major ones include: –

Marriott – Starwood
Accor – Fairmont/Raffles/Swissotel
Accor – Mantra (Australia)
Accor – Movenpick
Accor – SBE
IHG – Six Senses
IHG – Regent
IHG – Kimpton
Hyatt – Two Roads
Hyatt – Miraval
Wyndham – La Quinta
Minor – NH Hotels
Jin Jiang – Radisson

For a more extensive list see Hotel News Now – here

In a recent article from Skift.com it seems even further consolidation may be on the way, with new mergers of these mega – hotel companies not a pipedream… here

To understand the scale of this consolidation already, just take a look at who controls the major international hotel brands. Worldwide, Accor now controls 38 hotel brands, Marriott more than 30, Wyndham 19, Hilton 17+, Hyatt 14+, IHG 14+ and this summary is probably already out of date….

All these different brands give the illusion of choice, but it is said the 5 biggest companies now control more that 25 percent of the global hotel industry. When you remove the myriad of small hotels, motels and mum & dad guest houses from the calculation, this represents a massive share of the industry.

So with all these mergers, takeovers and acquisitions who really gains from this consolidation?

Well, in this assessment, it is becoming clear that not all stakeholders are equal, with consequences for shareholders, property owners, consumers & staff most certainly having very different outcomes.

In most economist’s measure of success for this consolidation the main beneficiary will most likely be shareholders and private equity investors in these companies. They are asset light, so able to turn a quick profit and return on their capital invested. The increased share price and inevitable cost cutting thereafter delivering solid returns.

For property owners, the picture is a little less clear. In some markets & properties, owners may also benefit from the cost cutting and perhaps some increased efficiencies. However, as time moves on, inevitably the global companies will want to increase fees and charges to property owners as they try to feed their own shareholders desire for more, and with less competition and more market power from these global companies, the owners’ position may be substantially weakened.

For customers/consumers/guests there is ultimately little upside in the medium to long term. Consolidation will result in less competition and those once competing brands will now be colluding through corporate yield policies to drive up prices. Labour cost cutting will feature prominently, resulting in poorer service and with less competition, no benefit to the consumer to move hotels, as the other global brand down the road is just as bad…

For staff, the impact will be immediate and ongoing. First to feel the effect will be the various specialist and regional head offices roles such as senior marketing, sales, operations & finance positions, as offices are centralised and staff reduced.

Next will be the inevitable clustering of positions in regions with multiple hotels/brands. First to go will be the expensive roles. A hotel with a General Manager will be eliminated and become a thing of the past, with Operations Managers, Resident Managers or Hotel Managers reporting to a Regional Director or Regional GM. These roles will have the same day to day responsibilities as that of a GM, but of course with much less pay, perks and authority to make business decisions.

Next will be senior sales, finance, culinary and operations positions, following the same pattern of clustering & reduced manning.

Centralised decision making, purchasing, policies, procedures (the list goes on…) will all ensure a steady ‘de-skilling’ of the workforce, as knowledge & experience give way to more unskilled staff with lower wages (some would say this has already happened, but it is set to continue apace).

There will be less opportunity to develop your career with the removal of a host of middle and senior management positions. This in an industry which already has some of the lowest paid workers in the economy.

The question is, is anyone taking any notice? Judging by the lack of interest taken by governments, tourist authorities and the media to date, the answer is no… This leads into a much wider discussion about the failure of ‘trickle-down’ economics, the growth of inequality and all manner of political matters not for this forum.

Let’s hope that some sanity prevails, and our industry is able to chart a path that is much more positive than this appraisal suggests. Ours has historically been an industry of passionate people and constant innovation, so perhaps there is some future where the best of our leaders can forge a path that delivers a better outcome.

About the Author

rsz_tim_johns_cc1Tim Johns is a former Hotelier and Managing Partner with Elite Search – a leading hospitality recruitment firm. For more information about Tim and Elite Search visit http://www.elitesearch.com.au and The Elite Hotelier http://www.elitehotelier.net

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