‘No Reason Why India Can’t Account for 7-10% of Starwood’s Revenue’
After going through four to six years of hardship, the hotel industry in India can expect tremendous growth opportunity in the next 36 months
Global hospitality chain Starwood Hotels & Resorts will more than double its revenue from the Indian market in the next three years. While the US-headquartered hotel company derives only 3% of its total revenue from India, the brand is seeing faster growth in the country than many markets around the world. After a three-week bidding war, the company is finally heading to be acquired by its rival major Marriott International.
chief executive of the hotel chain, says ‘Starwood’ as a brand and corporate entity will cease to exist post the deal. His has been a tough job of handling anxious customers, owners and employees. In an exclusive interview with ET’s Divya Sathyanarayanan, Mangas talks about how the company will work through the planned merger, the fate of the brands and day-to-day running of the business and India plans for the group. Edited excerpts:
What’s your assessment of the hotel industry in India? After going through four to six years of economic hardship, the hotel industry in India can expect tremendous growth opportunity in the next 36 months. We have a sense of optimism here, and have worked out an extended partnership with ITC Hotels for the luxury collection brand and are excited about the things we can do together to grow the hotel business and our franchises.
You took over as the CEO at a time when the company had just announced its acquisition by Marriott. So, how have the past 3 to 5 months been for you? I started with the company 18 months ago as the CFO and was significantly involved in our strategic review of alternatives. We signed the deal with Marriott in the middle of November and I was promoted by the end of December. It’s an immense change for our organisation. I find myself spending most of my time communicating with our owners, investors and external partners and the media. There’s a lot to talk about, a lot to bring the organisation along and help them understand what the future holds for them. It’s been a surprise how much of the job of a CEO is communicating at a time like this.
Finally, the three-week bidding war ended last week — is there some clarity now? It’s not over until Marriott and Starwood shareholders vote on the deal on Friday. But that affirmative vote on both our shareholders part will then preclude other bidders from coming in, and basically put the Marriott-Starwood merger as an absolute ‘going-to-happen’ event. We still have a few pending antitrust clearances. But the shareholder vote is one of the big milestones.
During the entire bidding war, who did you silently wish should win? Clearly, Marriott is today the only deal on the table and brings tremendous value for our shareholders. For a vast majority of our employees, this creates a tremendous career opportunity. Anbang would have presented a different type of driving scale. It would have probably created a much bigger opportunity to win in China and Asia more broadly. They would have had a different capital deployment strategy. Marriott is asset light and we are going asset light. Anbang probably would not have pursued that course which meant different forms of investment.
ON INDIA’S GROWTH
Customers are anxious about what happens to their SPG loyalty points. Owners are wondering which brand gets chopped off. Employees are nervous about what happens to their jobs. How are you dealing with them? Because of the fact that we haven’t had a shareholder vote and in many markets we have not had antitrust clearance, Marriott and Starwood have not been able to work on a lot of these really core commercial issues upfront.
Clearly, we have heard and Marriott has heard how much our guests value the Starwood Preffered Guest (SPG) program. We have 50% occupancy coming from SPG members. That’s a huge number. They often pay a rate premium and as a result, they are our biggest brand advocates. Members are worried that in a combination (Marriott-Starwood) these great benefits that they have enjoyed might be eroded. I’ve heard Arne talk about how foolish it would be if they destroy those relationships. So the last thing they would want to do is pay almost $14 billion and lose all these great loyal consumers. I don’t think that’s a big risk. But until we tell them about the plans, they are going to be sceptical.
For owners, it would be business as usual. Our brands aren’t going away. They will have a much bigger pipe of distribution. It would be a significant win for both Marriott and Starwood owners. For the vast majority of Starwood associates, merger would bring more career opportunities and more hotels they can work at. We will have 5,700 hotels and an enormous pipeline. There will be some job loss and as Arne said, the closer you are to Stamford and the CEO, you are more likely at risk. That’s still true. There is a plan for $250 million of cost savings. those are real. I don’t think they will all come at the expense of Starwood employees. The vast majority, more than 95% of the organisation, will continue on.
Hotel owners are concerned about their negotiating power when it comes to management contract as there is one less brand now. I think we will need to be more sensitive to our owners. We won’t be rigid in saying we are big brand. At the core, hotel business is one of the fragmented industries in the world. And so I think they are going to want to work with us because we will bring the scale which they can’t access anywhere else. Yes, there is one less negotiating partner to talk about licensing fee terms but that does not wear the economics of being won or lost.
What happens to the brand ‘Starwood’?
It probably goes away. I’m imagining that the ‘Starwood’ name as a corporate entity goes away.
How has your India business performed? We have had a record year last year with 220 hotel signings in 2015, which is a growth of about 36% compared with the previous year. We opened 105 hotels worldwide, also a record. We opened 9 hotels in India and signed 16 contracts, also a record, which mirrors the global growth.
Going forward, where do you see India in your growth plans? Do you see scope to bring any other brand here? India is quickly going to become our third largest market in terms of operating hotels and rooms by end of this year. I don’t know any other market which is growing the way like India. In terms of size and scope, it is the fastest growing scale market. We are coming close to China in terms of pace of growth. Currently, India accounts for 2-3% of our overall revenue. But there is no reason why India can’t account for 7-10% of Starwood’s revenue over the next three to five years. If we sustain the pace of growth, we should double our revenue from the market in the next three years. US isn’t growing that fast, China has had great growth and signing but it has slowed down.