Why the Accor-IHG merger would’ve made sense, and why it wouldn’t have

Travel and tourism analyst Ralph Hollister weighs in

Following recent rumours of a potential merger between Accor and IHG (that both companies have refused to comment on), here’s my view of the situation.

Although this deal seems to be just speculation, the enormity of this potential merger proves that industry consolidation could be accelerated due to behemoths acquiring, merging or striking partnerships with each other to increase market share.

Many reasons for a merger between the two companies make the prospect plausible, especially during the current COVID-19 induced economic downturn, during which both companies have experienced significant losses. A major reason for this merger would be that the newly formed company could achieve savings in central costs. Companies that merge can often take advantage of a range of economies of scale such as cost savings associated with marketing, technology advancements and workforce specialisation.

The flagship budget brands of both companies – Ibis and Holiday Inn Express - would be likely to complement each other well and assist in maximising market share in the midscale/budget segments. Demand for low-cost accommodation will be likely to surge in the coming years due to the economic strain that COVID-19 has forced upon many travellers, meaning that the average amount of recreational expenditure per capita will be reduced across the globe. According to GlobalData’s most recent COVID-19 recovery survey, 34 percent of global respondents are now ‘extremely concerned’ about their personal financial situation. This response amplifies the fact that many travellers will be on a stricter budget going forward.

One of the biggest stumbling blocks for this merger, if it were to go ahead, lies with competition commissions. A combining of the two companies would create an industry titan, operating 1.6 million rooms. This kind of dominance would lead to supreme control over pricing due to a decrease in choice for travellers. If the newly merged company did increase room rates, this would be seen as anti-competitive behaviour and will be a prospect that competition authorities will already be wary of.

Ralph Hollister is an analyst in the travel and tourism division at GlobalData. He specialises in the creation of thematic reports, mainly in relation to major technology themes in the tourism industry.

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