Hotels have been finding value in their reward points, even though they've been coy about sharing the financials behind the programs.
Hotel loyalty programs were one of the surprise gainers of the pandemic era lull in travel and the post-pandemic boom.
When people were stuck at home, they spent heavily on goods and services with co-branded credit cards that racked up points. When they returned to traveling, hotel groups successfully drove sign-ups by requiring guests to join their loyalty program if they wanted to enjoy a seamless sign-in to free Wi-Fi at properties.
A case in point: Marriott International reported strong growth in its program during the past few years. Marriott Bonvoy reported having 164 million members in the first three months of 2022,, up 26 percent from 2019’s number. The program grew another 5 percent in only half a year’s time, to 173 million members by September, the latest figure available. This year six out of every ten bookings were made by Bonvoy members.
Another of the biggest loyalty program gainers in 2022 appeared to be InterContinental Hotel Group (IHG), which revamped the terms of its program and made a big marketing push. Enrollments rose 30 percent year-over-year, with more than 11 million new members added.
Hilton saw its loyalty program membership rise 15 percent year-over-year to more than 133 million members this year.
Choice Hotels this year added about 10 million members to its Privileges program, bringing the member count to about 63 million.
IHG claims to have been the first to invent the hotel loyalty program, initially used to provide benefits in recognition of their most frequent and high-spending customers.
In recent years, large hotel groups have expanded their programs into marketing divisions. Hotels are selling points in bulk to credit card companies and retailers, which use the credits to woo consumers or analyze spending data to pinpoint customer habits. Banks pay upfront and pay a premium to hotel points’ redemption value, providing streams of income.
Hotel companies have been coy about reporting the finances of their programs, such as how the programs boost working capital by providing cash upfront for expenses delivered later.
It won’t be long, though, before a hotel loyalty program becomes so large and lucrative that companies will disclose details on program lucrativeness and investors will consider the programs a key factor in evaluating a company’s overall valuation.
Numbers aren’t final yet, but Marriott’s co-branded credit cards and other fees business could account for about 9 percent of its overall 2022 revenues.
In an August report, Robin Farley and other analysts at UBS noted that the majority of Marriott’s fees that weren’t related to its traditional hotel management and franchising business are coming from its co-branded cards. In the second quarter, for example, the company generated about $140 million in credit card branding fees. That was “up 38 percent year-over-year, helped by a 16 percent increase in cardholders since the end of 2019,” Farley noted. “A new credit card was launched in China in July.”
Analysts at Macquarie Research summarized the stay of play in this way: “In terms of the economics, Marriott earns fixed amounts that are generally payable at contract inception and variable amounts that are paid to the company monthly primarily based on card usage. Fees are thus largely driven by credit card spend and global card acquisitions.”
Loyalty program partnerships can also be a cost-effective form of customer acquisition. Marriott has deals with a few dozen airlines, such as Emirates, to allow consumers to earn points in both programs if they agree to share data across companies. Travelers can transfer points earned for Marriott stays to redeem on flights on partner carriers. Each partner has a customer base they can market to more cost-effectively than, say, trying to target people via paid ads on search engines.
“Our Bonvoy members have been increasingly interacting with the platform through our direct digital channels, which helps boost owner and franchisee profitability,” said CEO Anthony Capuano in November. “Since 2019, our share of room nights booked through direct digital channels has increased more than 5 percentage points, to 38 percent, while our distribution through online travel agencies has risen by less than a percentage point, to 12 percent.”
Given loyalty program growth, it may not be long until a large hotel company may soon copy the large airline playbook and either sell stakes to outside investors or raise debt against a program’s value.
Have a confidential tip for Skift? Get in touch
Photo credit: InterContinental Koh Samui is a property some members of the IHG One rewards program, rebranded and relaunched this year, can book via points. Source: IHG.