Marriott International (MAR) is buying Starwood Hotels (HOT) to create the largest lodging group in the world. Marriott is paying $2 per cash, plus 0.92 shares per Starwood share, valuing the transaction at $72 per share (The share price that Marriott uses is based on a 20-day average, not Friday night’s closing price.). Starwood is also spinning off its time share business to Interval Leisure, which is worth another $7-8 per share. In total, Starwood shareholders will be receiving approximately $79-80 per share, a slight premium to Friday night’s closing price. That price will vary, however, as the MAR currency moves (and, at least given today’s move, investors are disappointed that the price wasn’t higher).

Oh, No, Here we Go…

With the transaction having been announced last night, we know nothing about the details as it pertains to the loyalty programs. Here are the pieces that are going to make a difference.

The Brands

The Marriott-Starwood conbination surprised me, since I thought that there were better fits for the latter. Starwood is very strong in the Upper Upscale hotel segment, which includes Sheraton and Westin. It also has some scale in Luxury, with the W and St. Regis (based on Smith Travel Research categorization, which is the industry standard). It is weaker, however, in the lower categories. It is growing Four Points, aloft, etc., but it really has nothing underneath the Upscale brands. The company that would have added the most value by acquiring Starwood would not have been the rumored Hyatt (or “Chinese companies”), but rather, InterContinental, which only has a light presence in the top brands but offers depth in the Upper Midscale and Midscale brands with its Holiday Inn and Candlewood properties. For travelers who like to stay at the less expensive brands when traveling personally, but use the corporate credit card to pay for their business travel, ICH and Starwood would have been the perfect combination. In other words, I can see what Marriott brings to Starwood, but it is less clear what Starwood brings to Marriott. Westin is a great brand, but long-timer underperformer Sheraton dwarfs it in impact. Like asset-light Marriott, Sheratons are typically owned and operated by franchisees, but quality control has clearly been an issue.

The Points

In general, the acquiring brand is the one whose program survives. But I’m less worried about the name of the brand and more worried about the value.

Most people are familiar with the earnings structures of the two companies, but for those who aren’t, here’s a quick refresher. At Marriott brands, you will earn ten Marriott Rewards (MR) points per dollar spent (i.e., a $100 night will earn 1,000 points). There are a few exceptions, namely, the Residence Inn and TownePlace Suites, which offer five points per dollar but, for the sake of this exercise, we are going to stick to ten. At Starwood properties, you earn two Starwood Preferred Guest (SPG) points per dollar spent (i.e., that $100 night will earn 200 points). So Marriott points are worth 5X as much as Starwood, right? Not so fast, because it also costs more to redeem at Marriott, with the midpoint of Marriott redemptions costing 20,000-25,000 points, and Starwood at 10,000. There’s no way to get an exact penny translation of how much a point is worth, and we could argue all day about their relative values, but I tend to vary MR at 0.7c-0.8c per point, and SPG at 2.1c-2.3c per point. For the sake of argument, I’m going to assume that one SPG point is worth 3X a MR point, since the categories aren’t exactly comparable.

The question is, how will Marriott value a SPG point. In theory, there’s nothing to stop them from instituting a 1-1 translation. I don’t think that they will do this, though. Unlike miles, which consumers tend to value equally, hotel points are an area where consumers understand that the math is different at each company. It is very, very early in the process, but if I had to guess, I would estimate that MR will offer two points per SPG points. Again, that is only a guess based on my perception of the program values. I would also expect the award charts to stay the same, for now. There’s plenty of time to deflate the value of the points.

The Credit Cards

Chase, the issuer of the Marriott Rewards credit cards, has the inside track as the “surviving” entity. It also has programs at Intercontinental and Hyatt, while American Express offers cards for Starwood and Hilton. And there’s certainly no reason why the two couldn’t co-exist for a period of time. Eventually, though, when the current contract expires, Marriott will have to make a decision and will play them off against each other to get the best economics. In the Costco deal, American Express showed that it is willing to walk away from a card that is not profitable, but the company is aware that if it doesn’t pay up, as it did in the Delta transaction, it won’t have any partners left. In the end, I believe that Chase will remain the dominant entity.

Elite Status

It is likely that the combined program will have the three elite levels of the current Marriott program with few, if any, changes to the requirements to earn elite status (meaning Starwood will jump from 50 to 75 nights to earn Platinum, with 50 nights now earning you gold). For those with lifetime elite status (and for the end of the calendar year for merged programs), I expect that Marriott will match top-tier to top tier (i.e, SPG Platinum=Marriott Platinum). Airlines who have messed with lifetime status requirements have gotten significant pushback, and it may not have been worth the savings.

I worry that some of Starwood’s best benefits will be eliminated. Enjoy those SPG Suite Nights while you can. Both Starwood and Hyatt offer top elite members the ability to upgrade (or request an upgrade) to a suite in advance. And while Hyatt’s program is the more generous of the two, I have been able to upgrade to suites at several different hotels using the Suite Nights that SPG offers. Marriott, on the other hand, offers no such guarantees of suite upgrades, allowing the hotel to make the decision at check-in what type of room you will be upgraded to. I find it unlikely that the advance upgrades, or ability to formally request a suite, remains a facet of MR. Also likely to be “evicted” is Starwood’s 4pm guaranteed late checkout for elite members. It’s not a popular program with individual hotel owners because of the costs involved, and Marriott is likely to be responsive to those who want to eliminate the benefit. Finally, that partnership with Delta? Not so much, anymore.

On the other hand, I would expect the breakfast benefit to remain for the gold and platinum members. Currently, Marriott’s higher level elites receive free lounge access/continental breakfast and platinum elites receive an additional amenity. At Starwood, the platinum members can choose either points/local amenity or breakfast. Lack of free breakfast has long been a complaint of SPG platinum members and they will likely pick it up with the Marriott acquisition. In addition, Marriott platinum members receive complimentary MileagePlus Premier Silver status, a nice addition for those from Starwood.

There are also benefits of the program that each offers, but in different amounts. For instance, a SPG gold or platinum member gets a 50% bonus on their points when they stay. Marriott, on the other hand, gives 25% to its gold members and 50% bonuses only to platinum. There are a few of these “similar but different” types of benefits, and I would assume that most would stay as they currently are with Marriott.

Bits and Pieces

Neither brand has a particularly strong presence in Las Vegas, a city known for its themed casinos. Starwood does, however, have a reciprocal points earning and redemption agreement with Caesars Entertainment, which sponsors Total Rewards, the 800-pound gorilla of gaming loyalty programs. Meanwhile, Marriott has a partnership with the Cosmopolitan Hotel, although that relationship is rumored to be on the rocks. My partner in crime in the Las Vegas forums, Mike Trager, has an excellent analysis of how the merger will affect Las Vegas at his site Travelzork.

Both companies have also embarked on attempts to integrate “independent” hotels into their loyalty schemes, such as Marriott’s Autograph Collection (which is where the Cosmopolitan fits) or Starwood’s Tribute Portfolio. While the agreement may involve management services, it’s a shot at the ever-elusive “win-win” proposals. Travelers who don’t like staying in cookie cutter properties will be able to stay at a hotel with some personality and earn points and/or elite benefits. Meanwhile, independent hotels will be able to take advantage of the chains’ reservation systems to generate traffic for the hotels (and pay a fee for its use). These programs should combine easily under the Autograph Collection label.

The Bottom Line

Clearly, it will take time to sort out all the details of the combined loyalty programs. In the past, however, it has generally been policy to adhere to the program of the acquiring entity, in this case, Marriott Rewards. Overly generous benefits at the high end are often curtailed, while inexpensive opportunities at the low end get enhanced. But the bottom line is that less competition generally means fewer benefits to the consumer.