Credit card agreements can be big business for travel brands, in particular airlines and hotel groups. While most travel brands seem to optimistically hope that they continue to grow their revenue from these agreements, it’s interesting to note how one major hotel group seems to be lagging the competition.
In this post:
IHG’s underperforming credit card portfolio
Skift has an intriguing story about how InterContinental Hotels Group (IHG) CEO Elie Maalouf sees potential for the hotel group to significantly increase its revenue from co-brand credit card fees. Specifically, he believes that IHG’s current upside from these agreements is roughly one-tenth of what hotel groups like Hilton and Marriott are earning.
Here’ are some of the things that Maalouf said:
- The hotel group generates roughly $100 million per year from its credit card business, and roughly one-third of that goes to IHG’s bottom line (rather than to hotel owners), so that’s around $33 million or so; he believes that Hilton and Marriott have closer to $300-400 million in upside from these contracts
- IHG’s current agreement with Chase is up for renewal in 2025, and IHG is hoping to renegotiate the contract in a favorable way; IHG’s CEO explains that “it gives us an opportunity to renegotiate or rebid that agreement against the backdrop of a stronger brand portfolio, a higher spending customer base, a broader customer base, and a stronger loyalty plan”
While airline and hotel loyalty programs are both pretty powerful marketing tools, airline loyalty programs have historically been valued much higher, with programs like American AAdvantage, Delta SkyMiles, and United MileagePlus, each being valued in the tens of billions of dollars.
It’s hard to get excited about IHG’s loyalty program
I’m not at all surprised to see that IHG is lagging Hilton and Marriott so much when it comes to revenue from its co-brand credit card agreement. Yes, in part that could be related to IHG just needing to negotiate a better contract, but I think there’s a lot more to it than that.
IHG has a huge global portfolio, so I think a logical question is whether IHG’s much smaller credit card market share is a function of the hotel group’s portfolio, or if there’s stuff that could be done to generate more interest? A few thoughts:
- IHG has already made huge improvements to its loyalty program, introducing confirmed suite upgrades, club lounge passes, free breakfast, and more, so that’s great
- While IHG has done a great job growing its luxury and lifestyle portfolio, it still doesn’t have quite the portfolio of Hilton and Marriott in terms of aspirational hotels, and that’s something that motivates people to spend on cards
- Beyond that, IHG has done a terrible job making its luxury properties interesting to loyalty program members; many Six Senses properties still don’t participate in IHG One Rewards, and those that do have outrageously high award pricing
- Hilton and Marriott just have much more lucrative credit cards, including premium cards that offer top tier status just for being a card member, which IHG doesn’t have
- IHG’s credit card earning rates remain largely uncompetitive, so it’s hard to justify putting spending on the card, especially given the lack of ability to get outsized value with points
As much as I love the changes we saw to IHG’s loyalty program, I wish I could get more excited about the program. If there were the opportunity to get any sort of decent redemptions at Six Senses, I’d be much more engaged, for example, and I suspect I’m not alone. I think that unlike at Hilton and Marriott, IHG’s leadership just hasn’t embraced the power of aspirational properties in engaging members in a program overall.
IHG is hoping to greatly increase profitability related to its co-brand credit card agreement in the coming years. The hotel group currently has about $100 million in revenue from its Chase deal annually, and about one-third of that goes to the hotel group rather than hotel owners, which pales in comparison to the revenue for Hilton and Marriott.
While IHG has some fundamental disadvantages in terms of its portfolio, I also think the hotel group could leverage its luxury properties a lot better to make the hotel group more interesting.
Why do you think IHG is lagging Hilton and Marriott when it comes to credit card revenue? Are you surprised?