Earlier today I posted about Hyatt potentially buying Starwood hotels as reported by CNBC. Then Matthew from Live and Let’s Fly here on Upgrd wrote this post.
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Matthew Had Salient Points
There were, of course, some valid points:
“Northwest and Delta merged, and we lost a great Northwest loyalty program and website.”
and
“United and Continental merged, also taking the the worst aspects of both programs.”
but then he makes an assumption with which I disagree:
“We have two great products right now — Hyatt Gold Passport and the Hyatt co-branded credit card from Chase and Starwood Preferred Guest and the Starwood co-branded card from American Express. It seems unlikely that both cards would survive a merger and that really hurts discerning consumers.”
Matthew, my friend, this merger would be great and you are wrong!
1) Matthew, think about the properties
I am a Hyatt super fan. I am not a super fan, however, of some of their location choices. To date, there is not a single property in Spain, just one property in Milan and none in the rest of Italy, just three in London, none in Lima, one in Bangkok, one in Singapore. There are some in development like Rio De Jinero, the Park Hyatt Bangkok, eight more properties in Shanghai, but nothing in all of Scandinavia. Seriously Hyatt, how do you have eight properties in Pittsburgh, but none in Ireland, Belgium, Ecuador, Belize?
Starwood has more than 1200 properties dwarfing Hyatt’s 500+ which would shore up some of those colossal gaps. Lima has three Starwood properties for example (though one they should not even take as part of the deal). In Bangkok, Starwood has 10 properties across just about every price point imaginable and all over the city. If you want to stay with Hyatt, you have one choice, the Grand Hyatt Erawan and it’s not cheap.
I think there would be a lot less Intercontinental Hotel Group loyalists, Marriott, and Hilton diehards if Hyatt had a competitive number of hotels. But each of those chains is 8-11x Hyatt’s current size. I am a Hyatt Diamond member by choice, I am an IHG Spire member because work trips put me in places where Hyatt just doesn’t have the footprint. By tripling the eligible hotels I stand a chance to give them even more of my business and improve my experience.
2) The credit card is meaningless
Any credit card deal in the modern era is going to give you at least mid-tier status regardless of who the bank or the processor is. However, I am not particularly captivated by either general offer for their cards. The Chase Hyatt Visa now offers 50,000 points (much more usable than two free night certificates) and has wider acceptance than American Express. The SPG AMEX however, offers some additional benefits like free Boingo membership and 20,000-30,000 points depending on the offer period. Both offer about 10 nights at the lowest tier hotel, though Hyatt offers more value at their highest tier hotels using points.
Then Matthew says this:
“The Starwood card from American Express offers an incredible value in its broad range of airline partners and lucrative transfer ratios, generally 20K Starwood for every 25K airline points. Hyatt Gold Passport has a terrible ratio of 50,0000 Hyatt Gold Passport points for every 25,000 airline miles.”
To me, that looks like almost the same offer. You might come slightly ahead if Starwood is offering 25,000 points for their card, but that is usually after hitting higher tiered spending thresholds thoughout the year. Assuming Starwood is going to offer you a credit card for 20,000 points that can be converted to 25,000 airline miles, and Hyatt is offering a credit card that offers 50,000 points converted to 25,000 airline miles, I struggle to see the difference.
Further, American Express has been losing partners left and right. Costco was a huge loss (10-20% of their business depending on which metric you choose to use), then JetBlue just left and is moving to Barclays. Their stock has accordingly taken a dip this year, and if they stick to their guns they may also lose SPG if the merger goes through. Hyatt is leaving the AMEX Open program that offers a 5% discount to business card users this year. However, it also seems like an opportunity for American Express to get more aggressive and grow their business from just Starwood to also Hyatt card holders. That may mean better benefits for Hyatt card holders with new competition among Chase and American Express for the business.
I agree that the loss of Hyatt as a Chase transfer partner would be a significant loss to the Ultimate Rewards program, however, their addition to the American Express Membership Rewards program could be just as handy as Chase was, maybe more so.
3) I am actually hoping for a higher Hyatt tier.
Hyatt Diamond membership is achieved after 25 stays or 50 nights, which can be a serious challenge if you don’t regularly travel to major metros for work or any of the many countries Hyatt for which does not yet have a presence. However, the tier is one of the most generous in the business with free breakfast, late checkout, and four confirmed suite upgrades good for six nights each.
Starwood offers a Platinum tier at the same rate (25 stays or 50 nights) but also has additional thresholds to encourage guests to stay even more nights. Starwood Platinum has most of the above (no confirmed suite upgrades) but adds the benefit of being upgraded to the best available room at checkin including a standard suite. At 75 nights there is a higher earning rate, and my 24 giving you 24 hours of access to the room regardless of when you checkin or need to check out.
I hit Diamond this year unusually early in the year and while I don’t have many options to stay more nights for work, I certainly do for personal holidays. The only incentive is enjoying the benefits I have already earned, but if there was a bonus for hitting another 25 nights I might strive for it. I am confident that with SPG added to the program that would happen.
What Matthew Got Right
Jeff Zidell runs a great program at Hyatt. By Hyatt buying Starwood (not a merger, a purchase) it would be assumed that he would be in charge of the entire program and its integration. Program changes come with plenty of notice, few hotels change tiers year over year making the program predictable and easier to save up for the properties and nights you really want. There was a slight devaluation more than a year ago, but also the added value of points plus cash nights and soon the ability to secure those nights online. While those changes were all overdue, he runs a program I can trust that rewards me for my loyalty. And with a merger that’s 1200 more possibilities for me to be a loyal Hyatt Diamond member.
So what say you? Is Matthew right that this merger is just another in a long line of general travel consolidation that will harm consumers? Or am I right that this is going to give Hyatt the hotels they need in the places they don’t have them? Can’t we trust Jeff that he is going to make it a best of both programs going forward?
While this debate was settled once SPG was purchased by Marriott, with which blogger do you side?
I think Matthew is more right…this may be a net negative for current Hyatt customers who depend on UR transfers for redemptions. Hyatt GP may become less generous with Diamond benefits, or a bigger pool of SPG Plats + Hyatt Diamonds might make upgrades more competitive. I don’t like how AX MR isn’t shy about setting poor transfer rates (e.g. 1 SPG pt = 3 MRs) And then SPG may end up losing their favorable air miles transfer rate.
I think you forgot about the part of getting a credit card that comes after you earn the sign-up bonus. After that part, the SPG AmEx earns more than twice as fast as the Hyatt Visa for transfers to air partners, which is why the AmEx gets my non-bonuses spend (and my Sapphire gets my restaurant spend). I use my Hyatt card pretty much only when staying at a Hyatt.
The price of any acquisition means that there will need to be cost synergies, and that would include devaluations (enhancements).
Trip Sherpa- agree with many of your points. Just want to very clear Costco was no where near 25% of Amex business no matter what metric you look at. Costco was 10% of our CIF (cards in force). Thats it
@David – I would agree that losing Ultimate Rewards transfers in favor of Membership Rewards transfers would be a devaluation. But if Chase holds the business and the SPG American Express does not carry the torch, then wouldn’t this be a net positive? More hotels, still top end of the market in most cases – that’s just more opportunities to spend the points you transfer in from Chase right?
@Victor – I wouldn’t disagree that with any merged company there would be synergies, certainly. However, it will still require the same number of people to run the same number of hotels so I don’t know that service quality would drop. Both loyalty programs are top in class, it’s not Wyndam and Starwood as once was proposed, so even when you have some changes won’t some benefit from the changes and the wider net from which to book? Is everyone just so gun-shy from the Delta abomination and United’s follow-the-leader mentality that this couldn’t be better for customers?
@Harland – Fair point, but outside of the use of their credit cards for the sole purpose of transferring to Airline miles, how does the rest of an acquisition such as this look?
@Anthony – I was drawing my information loosely (as statistics are by nature:) from a post Gary Leff put out several months ago. While CIF (cards in force was about 10% (I might have seen 8% somewhere) the Costco cards held a larger percentage of loans outstanding. That figure was closer to 20% so while my figure of 25% is high (I’ll correct it) the figure of 20% was based on what some might suggest is the whole reason credit card companies get in the game. If Costco was 20% of cards in force but only contributed 5% to the loans outstanding part of the balance sheet I would argue that perhaps the departure was strategic because those customers are likely profitable but at a very small margin. Do you agree?
Gary’s post is here: http://viewfromthewing.boardingarea.com/2015/08/01/how-much-does-it-hurt-amex-to-be-losing-costco/
“Is everyone just so gun-shy from the Delta abomination and United’s follow-the-leader mentality that this couldn’t be better for customers?”
Yes, though it’s more than that. I can’t think of a single corporate consolidation, in any industry, in the last 10-15 years that could be considered beneficial to the customer. Despite all the corporate Newspeak about “enhancements”, those enhancements almost always end up being similar to what DL and UA have given us.
I also think you are significantly underestimating how those “synergies” will be used to negatively impact the customer experience. First, I find it hard to believe that the combined Hyatt/SPG will have exactly the same number of properties as the two stand-alone companies. Merger synergies almost always dictate that some low-performing properties of the target are jettisoned, while some other SPG franchise owners decide they don’t want to work for Hyatt and re-flag under a different brand. My wild guess is that you’ll see somewhere between 10 and 20% fewer properties under the combined brand than today. Second, I’m certain that should the merger go through, the usual bevy of consultants will come in with recommendations on how the combined company can “do more with less”, whether that means streamlining general manager positions, outsourcing front-line operations, etc. It just doesn’t make sense to merge or buy-out unless there’s going to be some of both in the works – which means the customer experience will be degraded, it’s just a question of how much.
@Kyle Assuming 1) Chase wins the credit card (and I agree with you that they probably would), 2) there is not a devaluation in the UR transfer rate to the new combined entity from the current 1:1, and 3) there is not a devaluation from the current Hyatt redemption rates, then it looks pretty good. I share the concerns raised by Meanmosh, and would greatly mourn the loss of SPG’s Nights & Flights redemption option. However, if the loyalty program retained Hyatt’s current redemption rates and the 1:1 UR transfer rate, I probably wouldn’t be running to a competitor. As it is, Hyatt and SPG are my preferred brands and I almost always find one where I’m traveling.
@Meanmeosh – To clarify, this is not a merger, this is a purchase. The last time we had that distinction was with Southwest and AirTran and Southwest made it very clear that this was not a merger of equals. The same would apply here, Hyatt’s management would be in place, their policies. Why has no one brought up that acquisition though when crying foul about the potential of Hyatt buying Starwood?
Because it went well.
AirTran was not under any misconception about their role in the deal, nor were their employees. Southwest operated both brands until the point in which it could phase out 717s and repaint 737s to Southwest colors. Their program also changed from travel credits (complete a certain number of segments, redeem for a free flight) to a fixed point system (one Rapid Rewards point is worth 1.66¢). Again, no one is crying foul. They had a similar customer base, operated a similar operation (in some ways AirTran had more of the vision of Southwest’s recent growth in their foreign destinations in the Caribbean) with limited fleet and a casual culture with employees.
I think that really there are components of this deal that seem to worry most doubters but not necessarily the bulk of what a blended company would really provide. Some are concerned about the points themselves and how they relate to various sweet spots like @Harland raises with the “Nights & Flights” redemption option. Others are concerned about them leaving their credit card provider because doing so would presume that there would be a worse transfer rate (which makes a lot of assumptions to get to that ultimate conclusion). Still more are worried about their elite tier benefits suggesting that Hyatt may cut a benefit they have given their most loyal customers for years (breakfast) because the Starwood program doesn’t offer that at the same level which would make sense if it were SPG purchasing Hyatt, but makes less sense in this transaction. These are assumed changes to a transaction that may not even take place, and in the grand scheme of a blended company of 1700 hotels with similar customer bases; opposing the deal speculatively because they might drop a tertiary benefit is a bit pedantic.
@Meanmeosh, I also think that 10-20% of hotels shutting their doors because the sign outside changed (or just the management office address) is an absurdly high number. To be fair, there are some Sheratons that rightly should be shut if not just condemned altogether (I include a link to one above) and clearing out some unprofitable hotels is fine by me. I don’t see an advantage to continuing to fund a loss-making hotel just to keep it in the system and further, I wouldn’t want to stay in one that is hanging on by a thread. But to say that up to 240 hotels would be lost in the deal is unreasonable and it puts more faith in the branding than I think most hoteliers do. If you have a successful Westin making you tens of millions of dollar every year, are you attached to the success of your business or the home office where you send your royalty check? That also assumes that the flag of the hotel would change, it may not.
What is so strange to me though, is that these are all proposed fears of a program change but what about the act of actually staying in hotels and getting a consistent level of service? The opponents of this purchase seem to be making assumptions that their greatest love of either chain’s specific benefit will immediately cease, and another love will be lost. It also assumes that Starwood can stand on their own which I think they have been very clear about… they cannot and will pursue a buyer by year’s end according to recent comments. Northwest Airlines didn’t have many options, nor did United. American and US Airways is debatable because while American was in Bankruptcy it was mostly to force a break of their labor contracts and they had $4bn in cash in the bank at the time. AirTran was also doing fine solo but got a great offer.
Starwood doesn’t have their privilege of choice. They need to find a buyer and many of the obvious parties have taken SPG out for a dance, but declined to take her home at the end of the night. The potential list of suitors is Hyatt or three random companies in China, of which one will be chosen to place a bid by the Beijing Government.
Does a Chinese state-owned company really sound that much better to you than Hyatt? Do you think that this unnamed suitor will really care about “Nights & Flights” and transfer bonuses to airlines?
Hyatt is the best available choice and it’s getting late, the lights are about to come on, SPG is going home with someone – who do you want it to be?
@Kyle I think you’ve shifted from arguing that Hyatt buying Starwood would be good for customers to arguing that Hyatt buying Starwood is the best outcome customers can realistically hope for. I’d probably agree with you on that if a merger or purchase is inevitable, though I’m not sure Starwood really needs that, despite the public refrain. Trying to launch Portfolio could have been a last-ditch effort or something never expected to allow them to continue without a purchase or merger, but now the deal with Design suggests there’s at least more going on than a laser focus on being acquired. Plus, it seems odd for Design to ink any deal with a company it believes will shortly be acquired (unless the talks with Hyatt are more advanced than we know and Design was brought into them).
If being acquired is inevitable, sure, Hyatt looks like the least bad option for customers. That’s not the same as an acquisition by Hyatt (or anyone else) being a net positive for customers compared to the current situation.
@Harland – Good points. Maybe it’s a positive for Hyatt customers not necessarily universally true for SPG customers.