Industry consolidation in the international lodging industry
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Industry Consolidation In the International Lodging Industry. Chris Roberts University of Massachusetts. Agenda. IO Economics Concentration ratios 1950s–1970s: courteous competition 1980s: brand segmentation, growth 1990s: mergers & acquisitions 1990s: Divestment from gaming in US

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Industry consolidation in the international lodging industry

Industry ConsolidationIn the International Lodging Industry

Chris Roberts

University of Massachusetts


Agenda

Agenda

  • IO Economics

    • Concentration ratios

  • 1950s–1970s: courteous competition

  • 1980s: brand segmentation, growth

  • 1990s: mergers & acquisitions

  • 1990s: Divestment from gaming in US

  • 2000s: Summary & future directions


Overview

Overview

  • Industrial Organizational Economics

    • Concentration of market share

    • Typically 3 to 5 firms

      • US Airlines: UA, AA, DL, NW

      • W. European Airlines: BA, AF, LH

      • Automobiles: GM, Ford, DaimlerChrysler

    • Prior to 1990s, lodging industry was

      highly fragmented


1950s 1970s

1950s-1970s

  • Courteous competition

    • Slow growth industry

    • Related to highway, reconstruction and infrastructure development

    • Standardization

    • Most firms offer single brand

    • Limited mergers & acquisitions


1980s

1980s

  • Fragmentation

    • 113 new US brands introduced 1980-1996

      • Less than 50% survive

    • Example: Marriott  Courtyard & Fairfield

  • Decline of established brands

    • Holiday Inn brand sold to Bass Plc

      • HI Worldwide renamed Promus

    • Howard Johnson, Ramada, Travelodge

  • Limited Mergers & acquisitions


Wave of mergers acquisitions

Wave of Mergers & Acquisitions

  • 1990s was period of consolidation

    • HFS/CUC/Cendant

    • Choice

    • Accor

    • Trusthouse Forte/Granada/Compass

    • Bass/Intercontinental/6 Continents

    • Marriott/Ritz Carlton

    • Hilton/Promus/Doubletree

    • Starwood/Sheraton/Westin


1990s m a wave

1990s M&A Wave

  • HFS

    • Howard Johnson

    • Ramada

    • Days Inn

    • Super 8

    • Knights Inns

    • Villager Lodges

    • Travelodge

    • Wingate Inn

  • Merged with CUC to form Cendant


1990s m a wave1

1990s M&A Wave

  • Choice

    • Quality Inns

    • Comfort Inns

    • Clarion

    • Sleep Inns

    • Econo Lodge

    • Rodeway Inns

    • Friendship Inns

    • Mainstay Suites


1990s m a wave2

1990s M&A Wave

  • Accor

    • Novotel

    • Mercure

    • Sofitel

    • Ibis

    • Etap

    • Formule 1

    • Motel 6

    • Red Roof Inns

    • Other Misc. brands


1990s m a wave3

1990s M&A Wave

  • Compass Group

    • Le Meridien

      • Grand Hotels (M) Acquisition Company

    • Heritage

      • Macdonald Hotels PLC & the Bank of Scotland

    • Travelodge

      • Compass Group PLC

    • Posthouse

      • Bass PLC


1990s m a wave4

1990s M&A Wave

  • Bass / Six Continents Hotels

    • Holiday Inn

      • Holiday Inn Express

      • Holiday Inn Select

      • Holiday Inn SunSpree

      • Holiday Inn & Suites

      • Garden Court

    • Crowne Plaza

    • Staybridge Suites

    • Inter-Continental Hotels & Resorts


1990s m a wave5

Marriott International

Marriott Hotels & Resorts/Suites

Courtyard

Fairfield

Residence Inns

Ramada International

Ritz-Carlton

New World

Conference Centers

TownePlace Suites

Marriott Executive Center

SpringHill Suites

1990s M&A Wave


1990s m a wave6

Hilton

Hilton Hotels

Conrad International

Hilton International

Promus

Hampton Inns/Suites

Embassy

Suites, Vacation, Resorts

Homewood Suites

Doubletree

Hotels, Guest Suites, Clubs

Red Lion

1990s M&A Wave


1990s m a wave7

1990s M&A Wave

  • Starwood Hotels & Resorts Worldwide

    • Westin Hotels

    • Sheraton

      • Hotels, Resorts & Inns

    • Four Points Hotels

    • St. Regis

    • Luxury Collection

    • W Hotels

    • Caesars (Sold to Park Place Entertainment)


Leading lodging firms

Cendant

Choice

Accor

6 Continents

Marriott

Hilton

Starwood

Leading Lodging Firms

Company #Properties #Rooms

6,400

4,333

3,600

3,200

2,100

1,900

738

542,000

410,733

400,000

464,863

379,547

315,000

227,000


Gaming lodging firms

Cendant

Applied for permit and was denied (1993)

Promus

Divested Harrah’s Entertainment (1995)

Hilton

Separated into Park Place Entertainment (1999)

Starwood

Selling all gaming interests (1999-2000)

Hyatt

Expanding: 8 casino/hotels & 3 casinos

Gaming & Lodging Firms


Impact

Impact

  • Growth through:

    • Franchising

    • Acquisitions

    • New construction

  • Over supply in some markets

  • Transfer of risk

    • Mergers

    • New franchise agreements

  • Compass exit from industry


Summary

Summary

  • Consolidation occurring in the European and US lodging markets

  • 6 leaders emerging

    • Cendant, Choice, Accor, 6 Continents, Marriott, Hilton

  • Brand stratification

    • Economy through luxury, all suites

  • Exit from gaming


Chris roberts university of massachusetts

ChrisRobertsUniversityofMassachusetts

Thank you for listening.


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