Business Travel Show Europe Kick Off, 23 February,
Global Travel Risk Summit Europe, April 2023,
3rd Annual Sustainable Business Travel Summit
The deal that seems likely to propel the Le Meridien hotel chain into the arms of its much bigger rival Starwood is the latest in a series of consolidations or rationalisations in the ever changing hotel world.
But what is driving these deals? Partly it is because hotels which have suffered badly in the dark days post 9/11 have become far more vulnerable to bigger companies.
Le Meridien is such a case. Founded by Air France in 1972 and regarded by many as one of the best hotel chains, it has had a rough time of it in the last few years.
Its business wilted post 9/11 and it also took a battering at the hands of the hotel booking agencies. Not surprisingly it fell heavily into debt.
It signed what looked like a rescue deal with the Royal Bank of Scotland under which it sold and leased back some of its properties. But when it was unable to meet rental payments, 11 were forfeited. Among them was its flagship London hotel, Grosvenor House, a blow to any company's pride.
Finally in 2004, Lehman Brothers who have shown a growing interest in the reviving hotel market, took on Le Meridien's multi-million pound debt and the effective control of the company.
Robert Barnard, director of hotel consultants PKF, while acknowledging that the industry has seen “an increasing amount of consolidation for a number of years” said it was “largely the introduction of brands that has been the catalyst for this.”
Brands have become of immense importance, not just to hotel chains but to many other products and industries as well. How you pitched your brand, the image you gave it dictated who your customers were likely to be and their level of spending. Hence hotel chains have several brands. Starwood, the likely new owner of Le Meridien's brand, already has the St. Regis, Sheraton, Westin and “W” brand all aimed at different styles of guest.
“Brands seek to get bigger and there are two ways of doing this either organically, that is naturally growing, or through acquisition. Acquisition is often the faster route,” Mr Barnard said.
“When you acquire, you often get a portfolio and you can select what you want to keep and what you don't want to keep.”An added attraction is that chains like Starwood already have their administrative base so they can probably cut costs when taking on a new group.
Where this will eventually leave Le Meridien and its famous name is anybody's guess. It would seem likely that Starwood will take a long hard look at what it has bought or taken over and decide in the longer term what it wants to do with them.
If it wants to expand its own brands, Le Meridien hotels could well end up as St. Regis properties or Sheratons.
When other hotels have taken over rivals, the brand of the bought up group has often quickly disappeared. When Whitbread in the UK bought the Premier Lodge chain, it took just a few months to amalgamate it with its existing Travel Inn chain to form Premier Travel Inn.
There is further logic behind Starwood's move. Just as in the European aviation market, three airlines, BA, Lufthansa and Air France-KLM - the latter through a merger - are dominant, so the big hotels chains are increasingly likely to lord it over the hotel market.
Granted this market is far more fragmented than the aviation market but the consolidations and rationalisations are pushing it that way with the Hilton, Marriott and Starwood brands pre-eminent.
Mr Barnard believes that the “divorcing of bricks from brains” - the selling off of properties in return for management deals is the way the hotel business is going.
“People still feel comfortable entering the hotel world. We are still getting new entrants but with the consolidation that is going on, the barriers to entry are being raised commensurately,” he said.
In the end, it could very well mean less choice.