Choice Hotels International's public bid to buy the outstanding shares of Wyndham Hotels & Resorts has set off a frenzy among analysts to discuss the potential impact of the acquisition on the make-up of the industry. According to reports on Hotel News Now, CoStar’s hotel news site, the combined companies would encompass 16,600 rooms and 43 brands. These brands would be mostly competing in the lower-end price segments such as midscale and economy.
Rooms in the U.S. hotel industry are roughly 70% brand-affiliated. Of the 5.6 million rooms, only 1.6 million do not carry a flag. But this ratio varies widely by price point. Examining the classes individually, two segments stand out. Luxury-class hotels are only 38% branded, and in the economy class only 49% carry a brand.
There are many reasons for hotel owners to choose to go it alone and not be part of a larger national brand. On the very high end, there are many other marketing channels to attract customers, including a proliferation of “best of” lists and simple word of mouth from travel advisors to the well-heeled audience.
Owners may also feel that brand standards are too restrictive in designing an experience for a specific type of luxury guest. In the economy segment, owners could reason that a lot of customers choose a property in a specific location, so search engine optimization may be a more economical way to attract customers.
Between the upper-upscale and midscale price points, owners more often choose to affiliate with a large brand and its loyalty program. There are costs associated with this approach, but the proliferation of brands and the increase in flagged properties speak to their appeal among customers and owners.
Outside of the U.S., the share of branded properties is much smaller, and the ratio is roughly reversed, with only one-third of hotels flying a flag. This is part of the reason why the large American multinational parent companies are looking to Europe and Asia to expand their property counts quickly.
Looking ahead, it is likely that the brand proliferation in the midscale segment will continue. Owners of luxury and economy-class hotels, however, may continue to weigh the pros and cons of brand affiliation and continue to choose to go their way alone more often.