Why hotel alliances aren't so far-fetched


Consolidation is a major theme within the hospitality industry, evidenced by Marriott International's acquisition of Starwood Hotels & Resorts and other M&A moves, such as AccorHotels' buy of FRHI.

The trend to build scale a counter to the ever-growing influence of online travel agencies, which year after year eat into hotel revenues with their normally high commission structures. Consolidation also allows companies the ability to better keep up with technology costs, which creep up higher and higher each year.

Here's the thing: Not every hotel company has the cash or debt structure to make a big M&A splash. What, then, is the alternative?

A Cue From The Airlines

Some have floated the idea of alliances, taking a page out of the airlines' playbooks, where, basically, two or more airlines agree to cooperate on some level. Cooperation can include objectives such as code-share flights and sharing bonus points/miles.

Examples in the airline industry include Star Alliance, Oneworld and Sky Team. The advantages of airline alliances are clear: They offer passengers an extended network through code-sharing agreements, where two or more airlines share the same flight, listing it in both their reservation systems; this makes booking easier and moving between connections more efficient.

This is just one of the synergies. Is there a place for alliances in the hotel industry?

Sure Sounds Like It

David Kong, the CEO of Best Western Hotels & Resorts, thinks so. He has been touting the idea of late, claiming strength in numbers.

"We won’t be bought by anyone and we aren't out there looking to buy," he said. "Our growth will be organic, but we want to explore what the airlines have done, the code-share approach. Airlines have airline alliances, why can’t hotels have hotel alliances?"

Kong pointed to Delta and its alliance with Air France. "They don’t have a presence their and both parties are able to expand market share."

How, then, might it look?

"Hotel companies can dramatically expand the breadth and depth of their portfolios through hotel alliances," Kong said. "Imagine if two hotel companies, each with 5,000 hotels joined forces; they could offer 10,000 hotels to travelers—likely offering the price points, types of hotels and locations that most travelers will need. Such an alliance could almost make the companies self-reliant and put them in a position to gain tremendous leverage dealing with the OTAs."

He also mentions the cross-pollination opportunities. "Imagine allowing cross earnings and redemptions opportunities across the two loyalty programs. It will dramatically improve the value proposition of these programs. In addition, all kinds of synergies and efficiencies could be gained through these alliances on technology investments or negotiations with vendors.

"Brands," he said, "can work together to broaden scale and enrich loyalty programs."

They have tried before. Room Key, "an experience-tailored hotel search engine created by six of the world's leading hotel companies," was supposed to be the industry's panacea to the Expedias and Pricelines of the world. By most accounts, it's been an abject failure.

Here, Kong explains why a hotel alliance can succeed where Room Key has not.

"Room Key hasn’t worked well because it lacks marketing dollars to drive traffic," he said. "The alliance I refer to capitalizes on traffic each brand already enjoys. Can you imagine how much traffic Bestwestern.com or another well-known hotel company enjoys versus Room Key, which has very little consumer awareness? The large hotel companies also spend a lot of money to market their websites and mobile sites."

For the Independents

While the hard brands have been slower to engage the hotel alliance idea, independent hotels and groups have been a shade more proactive, but there is room for more, according to Jonathan Newbury, VP of strategic development for Preferred Hotels & Resorts.

“Given the recent merger of Marriott and Starwood and the proliferation of other franchise collections, it is elementally sensible for independent hotel brands to create some form of alliance," he said. "Doing so will help to both counterbalance the increasing purchasing power of the OTAs and enhance market share for all interested parties by creating a collective link between unique selling advantages for the consumer ,such as loyalty programs."

He added that Preferred is "open to discussing this idea with our industry colleagues."


There is example of hotel alliances to draw on for hotel brands. In 2004, based on the airline alliance model, the Global Hotel Alliance was launched, an alliance of independent hotel brands—though Omni and Viceroy are counted as members.

Here's what GHA says it does: It uses a shared technology platform to drive incremental revenues and create cost savings for its member brands, and operates a multi-brand loyalty program, DISCOVERY, which reportedly has over six million members.

Whether or not brands such as Best Western could help conceive a similar type of alliance amongst other hotel companies, big boys such as Hyatt, Hilton, IHG, etc., remains to be seen. The idea, however, is there, already in play, and could prove necessary as the costs of technology and distribution balloon.

What an Expert Thinks

Bjorn Hanson, clinical professor at NYU's Preston Robert Tisch Center for Hospitality and Tourism, has had several conversations with lodging executives on the practicability of alliances within the hospitality industry. However, as it relates to OTAs, he doesn't think there is a silver bullet. "There is not a single strategy to capture reservations from travel intermediaries, but a portfolio of tactics, and there is a search for more," he said.

He refers to one method. "The one that has been mentioned only recently is the packaging or bundling of travel services that offer ease/convenience, and perceived and sometimes real savings for travelers. Focus groups and surveys indicate this is a 'high' attribute."

History Repeats

Bundling is something the OTAs do very well—and it's an area the hotel industry has not seemed to crack.

It tried to once before, Hanson noted. Allegis, at one point in the 1980s, owned United Airlines, Westin, Hilton and Hertz. The company's CEO, Richard Ferris, "saw an opportunity to shake up the stodgy industry and create a new kind of company. By putting together the airline with rental cars and hotel services under one umbrella, Ferris argued that large savings could be realized and more customers could be attracted through synergy, a word that had new and sexy currency in the corporate world at the time."

Ferris went on: "We are a travel company, not just a transportation company. [We are] a corporation that can offer travelers door-to-door service.”

Allegis ultimately retreated, selling off its hotel and car subsidiaries to focus on air. (In 1988, Allegis changed its name back to UAL Corporation, with United Airlines, Inc. as its only major subsidiary.)

Hanson added that airlines and car rentals have also been mentioned by lodging executives, and, moreover, so too have restaurants, performance venues, non-scheduled air travel, celebrities (sports, for example), car dealerships (use of a luxury car), exclusive shopping (such as before a store opens or a late nigh experience including a tour, and maybe a branded suite or section) and others.

Their may not be a cure-all for the distribution battle, a war over customer ownership. Economies of scale help, but whether cutting OTAs out completely is the goal, a pipe dream or unwise, no one yet knows.

Companies will always try and find ways to cut expenses. Hanson may have summed up the travel industry best: "Isn't it interesting that traditional 'expensive' travel agent commission rates of 10 percent seem cheap now?"