A few weeks ago it was announced that Hilton raised about a billion dollars by pre-selling points to American Express, and now Marriott has done the same, more or less.
In this post:
Marriott raises $920 million from Amex & Chase
Marriott has announced that they’ve raised $920 million in cash through amendments to co-brand credit card agreements with Amex and Chase:
- $570 million is coming from Chase, and includes $500 million of prepayment on future revenues and $70 million from the early payment of a previously committed signing bonus
- $350 million is coming from Amex, and includes the pre-purchase of Marriott Bonvoy points
In each case the cash will be recorded by Marriott as deferred revenue, and will be available for general corporate purposes.
What are the implications of this points pre-sale?
It seems like a majority of the nearly billion dollars includes co-brand credit card issuers essentially pre-purchasing points.
The concept is simple — a major component of these partnerships is banks buying points at pre-negotiated prices. When travel brands get into bad situations (as they are now), this is potentially a source of quick cash for them:
- Airlines and hotels can pre-sell a bunch of points to their partners
- However, you can expect that they’re doing so at a steep discount, both to account for the risk and the fact that they’re getting more money up front
While this is an easy source of cash, it also sends a bad signal:
- This was more or less guaranteed revenue in the future, which they’re accepting now at a discount
- This gives Marriott less leverage when it comes to negotiating in the future
Does this mean points will be devalued?
One logical concern would be whether this leads to points being devalued. After all, if Marriott is suddenly selling points at a discount to Amex and Chase, doesn’t this mean Marriott will have to reduce costs when it comes to redemptions? Yes and no:
- In many ways hotel groups will be more reliant on their loyalty programs to fill rooms as demand slowly recovers, and devaluing points would have the opposite impact
- Due to the way that loyalty programs reimburse hotels for award stays, redemption costs are likely to naturally go down if hotel demand doesn’t fully recover quickly
- While I’m not sure how exactly it’s structured, presumably there’s a provision in place preventing Marriott from devaluing points in a material way, given how much Amex and Chase have “invested” here
Personally I’m not too worried about Marriott Bonvoy points being devalued more than has already happened.
Bottom line
Marriott has just raised $920 million in cash from Amex and Chase, primarily through the pre-sale of points to their co-brand partners. This is an easy lifeline for the company, though also takes away near guaranteed future revenue and discounts it…
@Peetyrd - Right-click on the image, then choose Inspect, and the readout identifies it as the St Regis Bora Bora.
Hopefully, this will result in Marriott's credit card partners to launch new and better promotions to capture credit card spend as Hilton has done with it sale of points to AMEX -- to wit, extension of new Free Nights from a 1 year expiration to a 2 year expiration, as well as applicability of the Free Night awards to any day of the week for new and outstanding certificates.
In addition, AMEX and Hilton also...
Hopefully, this will result in Marriott's credit card partners to launch new and better promotions to capture credit card spend as Hilton has done with it sale of points to AMEX -- to wit, extension of new Free Nights from a 1 year expiration to a 2 year expiration, as well as applicability of the Free Night awards to any day of the week for new and outstanding certificates.
In addition, AMEX and Hilton also launched much more lucrative and lengthy promotion periods for use of their co-brand credit card for home bound holders.
Inasmuch as Marriott's free night extension to just 1/31/21 pales in comparison to Hilton's ~ 18 month extension for existing certificates to 8/31/21 and 2 year extension for new Free Nights, let's hope with the sale of Marriott points to these 2 lenders, that Marriott certificates will follow a similar arc.
If not, then Marriott will demonstrate to this segment of the market that they truly will remain one of the most customer unfriendly loyalty programs.
VW Murray makes a good point. Hope OMMAT can spend some time investigating that for us lazy and less knowledgeable readers.
What is the picture of the property/hotel that you’ve used for the cover page of the article? On the water across from a small hill/mountain.
Lucky - Perhaps we can look at how it fared in the past? When AMEX and other banks pre-purchased for American and United miles back in the prior crisis, how long did it take for them to devalue those points again? We all know they did devalue them eventually, but I guess the question here is were they slower to get back to the devaluation train, or was devaluation done at the same pace pre-bulk purchase?
Any idea how this works for the hotels themselves? They don’t see any of this today, and Marriott must have to reserve a significant portion of this cash to actually pay the hotels when customers stay there on points, correct?