‘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

The Economic Times - - Companies -

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.

COM­PANY PHOTO

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