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 — InterContinental Hotels Group (IHG) — has historically been lagging the competition.
There’s now a major update, as IHG and Chase have agreed to a new credit card agreement, which IHG executives hope will double and then eventually triple the profits from this segment. Let’s go over some background, and then cover the latest development.
IHG’s credit card portfolio has underperformed
In late 2023, Skift reported on how IHG CEO Elie Maalouf saw potential for the hotel group to significantly increase its revenue from co-brand credit card fees. Specifically, he believed that IHG’s current upside from these agreements was roughly one-tenth of what hotel groups like Hilton and Marriott were earning.
At the time, he explained that the hotel group generated roughly $100 million per year from its credit card business, and a little over one-third of that went to IHG’s bottom line (rather than to hotel owners), so that was somewhere around $30-40 million. Meanwhile he believed that Hilton and Marriott had close to $300-400 million in upside from these contracts.
There was good news for IHG, though. The hotel brand’s agreement for Chase would be up for renewal in 2025, so IHG was planning on renegotiating the contract in a favorable way. As he explained at the time, “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.”
Then in early 2024, IHG announced another change that would allow it to maximize profits from its credit cards. The company changed how the economics of its loyalty program work, whereby the company could realize more profit from its loyalty program, rather than reinvesting most of the profits into the system fund fee account.
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.
To IHG’s credit, the hotel group did a great job overhauling its loyalty program in 2022, making elite status more compelling, and making its co-brand credit cards more lucrative.
IHG & Chase extend credit card agreement through 2036
IHG and Chase have announced that they’ve renegotiated their credit card contract for the US market through 2036. IHG expects that total fees from the agreement are going to significantly increase from the start of the new agreement, and then grow over time.
IHG notes how operating profit from credit card fees was $39 million in 2023. Those amounts are expected to double by 2025, and more than triple by 2028, with continued growth anticipated in the years beyond that. Doubling and tripling the profit from an aspect of a business is quite the increase, so what’s driving this?
It would appear that IHG may have been able to negotiate better terms, but really the plan is for the growth to be driven by a continued expansion of the overall US co-brand credit card business, plus the number and usage of card accounts.
The company notes how IHG One Rewards should have around 145 million members by the end of the year, with 2024 enrollments increasing by more than 10% year-on-year. As more people join the program, IHG will also find it easier to market its cards to more people.
Here’s how IHG’s CEO describes this new contract:
“We are delighted to continue our partnerships to provide co-brand credit cards in the US. Following a detailed review of the opportunities to grow this important ancillary fee stream, the new agreements will create more opportunities for customers to engage with IHG and our award-winning loyalty programme, further strengthen IHG’s enterprise and the System Fund for the benefit of our hotel owners, and will drive significant shareholder value. We look forward to continuing a close working relationship with our partners to mutually benefit from the growth of the co-brand programme in the US, and we continue to assess the potential for co-brand credit cards in other markets.”
So anyway, only time will tell what this richer contract means for consumers. Will we see bigger credit card welcome bonuses? Will we see a new premium credit card? Will we see more incentives to actually spend money on IHG credit cards?
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.
Bottom line
IHG and Chase have announced a new credit card agreement through 2036, which IHG hopes will see its credit card profits double by 2028, and more than triple by 2028, with more growth in subsequent years.
It’s nice to see Chase investing in the IHG card portfolio, though I’m curious to see if the “needle” can be materially moved when it comes to spending on the cards. Yes, the credit card industry keeps getting bigger, but it’s also more competitive than ever before, so it’s not necessarily easier to capture the attention of consumers.
It really is interesting how IHG lags Hilton and Marriott so greatly when it comes to the money it’s making from credit cards. IHG has roughly two-thirds as many loyalty program members, but historically has had roughly 10-15% of the credit card profits of competitors.
What do you make of the new Chase and IHG credit card contract, and what are you expecting to see?
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