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Will Marriott-Starwood Merger Lead to Higher Prices?

For much of this year, it’s been an open secret that Starwood was up for sale. The initial speculation had InterContinental as the likely buyer. More recently, those rumors were displaced by more credible reports that Hyatt was poised to make an offer.

But this morning, when the sale was officially announced, it turned out to be Marriott that was in the buyer’s seat.

According to the headline of Marriott’s news release: “Marriott International To Acquire Starwood Hotels & Resorts Worldwide, Creating The World’s Largest Hotel Company.” The transaction, valued at $12.2 billion, is expected to close in mid-2016.

The principal benefit of the merger will accrue to the companies and their stockholders, in the form of economies of scale. Annual cost savings of $200 million are projected during the second year following the merger’s completion. That means more robust profits and higher share prices.

For travelers? Here’s what Marriott promises for members of the two companies’ loyalty programs:

Today, Marriott Rewards, with 54 million members, and Starwood Preferred Guest, with 21 million members, are among the industry’s most-awarded loyalty programs, driving significant repeat business. They should be even stronger when the companies merge.

Combining Marriott’s 4,300 properties with Starwood’s 1,270 will create a network of more than 5,500 hotels in more than 100 countries operating under 30 different brands. That’s big.

And it’s true that a larger network of hotels is generally better than a smaller network, insofar as it means more opportunities to earn and redeem points. But beyond that, there’s no reason to expect that combining the two programs will result in a new program that’s an improvement over either of the current programs. Marriott Rewards and Starwood Preferred Guest are both among the industry’s best programs, each with its own strengths and weaknesses. Merging them is as likely to create a less attractive program as it is to create a more attractive one. So the post-merger loyalty landscape is TBD.

What can be predicted with a much higher degree of certainty is that a merger of two of the largest hotel companies will lessen competition, almost certainly leading to higher room rates industry-wide. That’s just the nature of consolidation in a relatively unregulated marketplace. There’s no mention of the consolidation effect in the Marriott news release, naturally.

Bottom line: For those with a financial stake in Marriott, the merger should be a long-term plus. For members of either of the two companies’ loyalty programs, the merger is as likely to be a negative as a positive. And for travelers generally, higher hotel rates can be expected in an increasingly consolidated industry.

Reader Reality Check

How will Marriott’s acquisition of Starwood affect your travel life?

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