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.
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.
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…