IHG’s Loyalty Program Economics Are Changing

IHG’s Loyalty Program Economics Are Changing

19

InterContinental Hotels Group (IHG) has disclosed some changes to the economics of the IHG One Rewards loyalty program, which the company hopes will help boost profits, as flagged by Head for Points. It remains to be seen what this means for guests, though…

The basic economics of IHG One Rewards

The hotel business model is a bit more complicated than most consumers assume, given that for the most part, the major hotel groups don’t actually own their participating hotels. Instead, they primarily profit off of the fees they earn from hotels, for management, franchising, and marketing. Currently IHG makes its money from hotels in one of two ways:

  • IHG receives a fee equal to 5-6% of revenue from hotels, for the privilege of using the brand’s name and more; this is very high margin for IHG
  • IHG is paid a “system fund” fee for its loyalty program, marketing, IT, and more, with hotels paying 4.75% of reward qualifying revenue for IHG One Rewards, and 3% of revenue toward general spending

What’s noteworthy is that up until now, virtually all the revenue that IHG earned from its loyalty program also had to be put into the system fund fee account. So it wasn’t just hotels that were paying into this, but IHG was also paying into this when it sold points to third parties (like credit card companies, airline and rental car partners, etc.). While that extra funding is of course great for being able to invest more in the loyalty program, it hasn’t been great in terms of directly contributing to the company’s bottom line.

As IHG describes it, the system fund fee is “not managed to a profit or loss for IHG over the longer term, but for the benefit of hotels in the IHG system.”

IHG hasn’t been profiting directly off its loyalty program

IHG will profit more off of its loyalty program

IHG is making updates to its system fund fee agreement with hotels, with several key changes:

  • IHG is lowering its system fund fee that hotels have to pay; it’s not clear how much this is decreasing, but this is intended to improve owner economics
  • IHG is increasing reimbursement that hotels receive for reward nights, intended to improve owner economics
  • IHG is now able to recognize profit from selling points to third parties; that means the entire amount of revenue generated from selling points will no longer exclusively go into the system fund fee, but instead the hotel group will be able to realize a profit on this

Regarding that last point, the expectation is that this will deliver around $25 million in additional operating profit for IHG in 2024, and that this will increase significantly in 2025 and beyond.

Keep in mind that in late 2023, IHG executives revealed that the company wanted to greatly increase its revenue from its co-brand credit cards, believing that it was greatly lagging competitors in this regard.

IHG will see more upside from its loyalty program

What are the implications of this change?

It’s hard to know what exactly to make of these changes, from the perspective of IHG One Rewards members:

  • On the hand, it doesn’t sound good if hotels will be paying less money toward loyalty program fees, and at the same time, IHG will be pocketing more money from the loyalty program
  • On the other hand, perhaps IHG actually being able to better profit off its loyalty program will cause the company to try to make it more compelling, to increase engagement and revenue

Similarly, hotels reportedly getting increased reimbursement when members redeem points is a mixed bag. It’s good in terms of more incentives for hotels to make award nights available, though I have to imagine this will also lead to higher award costs, reflecting the costs incurred by the program.

I’m really not sure what to expect here, though I do believe that we’ll see some material change to the program as a result of these updates…

Let’s see what this means for IHG One Rewards members

Bottom line

IHG is updating economics as it relates to the IHG One Rewards loyalty program. Hotel owners will pay lower fees related to the loyalty program, reward night reimbursement will increase, and IHG will also be able to pocket more money from selling points to third parties.

These changes seem like a mixed bag for members. On the one hand, IHG has more of an incentive to increase engagement in the program, and to make it more compelling. On the other hand, less money being paid into the loyalty program while hotels get paid more for award nights doesn’t sound great in terms of the program offering better value for members.

What do you make of these changes to IHG One Rewards economics?

Conversations (19)
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  1. iamhere Guest

    This is a big non event. Companies make a lot of money these days on their loyalty programs. I guess we will see some property redemptions more reasonable than others. What I dislike is how difficult it is to use the annual certificates compared to Marriott.

  2. Tom R Guest

    I find the card useful for the free night and status and get the feeling that those changes may well see either a fee rise, further devaluation of the free night award (which was capped at 40k Vs unlimited before, plus as redemptions have risen that 40k goes less far than it did), or possibly giving a tier less. Could be totally wrong, maybe they'll try to drive more CC revenue and uptake with a...

    I find the card useful for the free night and status and get the feeling that those changes may well see either a fee rise, further devaluation of the free night award (which was capped at 40k Vs unlimited before, plus as redemptions have risen that 40k goes less far than it did), or possibly giving a tier less. Could be totally wrong, maybe they'll try to drive more CC revenue and uptake with a better offering. That aside IHG is usually only my go to if the price is good.

  3. RF Diamond

    Expect the worst. Devaluations aplenty.

  4. Jeff Guest

    The advertising on your site is way out of control and definitely detracts from your much appreciated blog.
    Sometimes the advertising overwhelms to the point that OMAT becomes irritating. The cure for that irritation, sad to say, is tapping that red button in the top left hand corner of the screen. Sad. Very sad.

    1. FNT Delta Diamond Guest

      The "new" (not really new anymore) design is bad enough. But the website is almost impossible to read because of all the ads and pop-ups.

  5. jdink Member

    The values of IHG does not even compare, for example, to Hyatt. If it changes for the worse for members in anyway, I will be exiting the IHG awards game!

  6. Scott Hudson Guest

    The IHG benefits are already terrible. Not even bottled water, much less breakfast so how much worse can it get? Even with a high status I try to avoid these hotels.

  7. BeeZee Member

    I was IHG Spire (and then Diamond) for 7 years as well as a paid Ambassador for about 5 of those. IHG have a better variety of locations in APAC but their loyalty program was a decade behind their competitors. I decided to focus on Marriott with Hilton as secondary starting in 2023 in don't regret it.

    1. jessie Guest

      I have an different experience though (just as a reference, I am currently marriott platinum, hiltion diamond and IHG platinum, but Diamond for several years till last year, my main stays are in the MENA incl Turkey and East Asia incl. my home country). While Marriott and Hilton are quite dominant in those market, there are reasonably more than enough occasions that I voluntarily chose quality IHG properties over marriott and hilton ones, even giving...

      I have an different experience though (just as a reference, I am currently marriott platinum, hiltion diamond and IHG platinum, but Diamond for several years till last year, my main stays are in the MENA incl Turkey and East Asia incl. my home country). While Marriott and Hilton are quite dominant in those market, there are reasonably more than enough occasions that I voluntarily chose quality IHG properties over marriott and hilton ones, even giving up lounge access and breakfast etc. (partially because also as a solo traveller, i don't care about those benefits that much). And I've def.felt subtle differences in treatment between Platinum and Diamond at IHG properties other than breakfast benefit.

  8. Geoff Guest

    I find good value in the platinum card for the type of travel we currently do (limited) and the free night is nice with the best deals in the off season. Not sure the impact of these changes but for now I am good.

  9. InternationalTraveler Diamond

    I can already see that award rates will go up with this change to compensate for the higher payout to the hotels for providing such. They will make the free nights certificates less valuable.

    IHG has great value for standard room redemptions compared to cash rates if you look at the right places. I bought IHG points at 0.5c multiple times because there is value.

  10. yoloswag420 Guest

    IHG is just so late to the game. All the co-branded Hilton, Marriott, and Hyatt cards have saturated the system to the point where I can't get excited about IHG Platinum status that doesn't offer breakfast and dynamically priced points worth 0.5 cpp.

  11. FNT Delta Diamond Guest

    Outside Asia-Pacific and Europe, IHG has neither an attractive hotel portfolio nor an attractive loyalty program. The vast majority of IHG hotels in the United States and Canada are dumpy Holiday Inn and slightly less dumpy Holiday Inn Express properties. I just don’t see how anyone makes IHG their number one program of choice.

    1. Antonio Guest

      Now that you speak about dumpy hotels, how do US travellers feel when seeing 300 USD rates in dumpy 2* hotels in crappy suburbs of forgettable cities???
      US is getting extremely expensive, even on 10 months advance. I wanted a HNL stopover and I think I will pass ;-)

    2. Ralph4878 Guest

      @Antonio if you are judging the cost of the USA by Hawaii, you're not really using the best example...Hawaii is extremely expensive, for tourists and for locals, alike, and not representative of the rest of the USA. There are plenty of interesting cities around the USA where one can get a nice 4* hotel for less than $200 - you just need to look beyond the West Coast, NYC, or Boston.

    3. Antonio Guest

      Thanks comments, while obviously I'm aware of that variability, just for fun I found a Residence Inn in San Antonio TX, for June , 370 USD, I don't know which will be average temp there in June but that price and chain will make me sweat even more, Chicago for next April 2025, also wanted another stopover quite high... Springfield suites and Hyatt house in SLC, November,, over 325 USD...
      I just came from...

      Thanks comments, while obviously I'm aware of that variability, just for fun I found a Residence Inn in San Antonio TX, for June , 370 USD, I don't know which will be average temp there in June but that price and chain will make me sweat even more, Chicago for next April 2025, also wanted another stopover quite high... Springfield suites and Hyatt house in SLC, November,, over 325 USD...
      I just came from Four Seasons Sydney paying well below 300 USD, just to put a funny 1st world example

    4. FNT Delta Diamond Guest

      Unfortunately, most Americans are willing to pay astronomical prices and automatically tip 20% without demanding proper standards of service. Even at luxury brands in the US, it's difficult to get the kind of service found at comparable hotels outside the US. In other countries, working at a hotel or in service can be a respected and career. In the US, it's mostly seen a job.

    5. Tom R Guest

      Agree hotel prices in the US have become absurd since COVID & the quality and service doesn't compare. I stayed my final night in Japan recently in Mercure near HND and paid under $100 a night. The room was modern, clean and a decent size. The lobby and bar area impressive and the staff impeccable. Close to the metro that feasibly you could make it an affordable base for visiting the city. The absolute same...

      Agree hotel prices in the US have become absurd since COVID & the quality and service doesn't compare. I stayed my final night in Japan recently in Mercure near HND and paid under $100 a night. The room was modern, clean and a decent size. The lobby and bar area impressive and the staff impeccable. Close to the metro that feasibly you could make it an affordable base for visiting the city. The absolute same could not be said for any airport hotel near say JFK, BOS, LAX, SFO etc that you'd pay double the price for.

  12. breathesrain Gold

    It sounds like half of this is just a rearranging of the balance sheet to show bigger numbers for shareholders, and not actually a material change. Reducing the fee for hotel owners does seem like it'll have significant implications, though

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The comments on this page have not been provided, reviewed, approved or otherwise endorsed by any advertiser, and it is not an advertiser's responsibility to ensure posts and/or questions are answered.

Antonio Guest

Thanks comments, while obviously I'm aware of that variability, just for fun I found a Residence Inn in San Antonio TX, for June , 370 USD, I don't know which will be average temp there in June but that price and chain will make me sweat even more, Chicago for next April 2025, also wanted another stopover quite high... Springfield suites and Hyatt house in SLC, November,, over 325 USD... I just came from Four Seasons Sydney paying well below 300 USD, just to put a funny 1st world example

3
FNT Delta Diamond Guest

Unfortunately, most Americans are willing to pay astronomical prices and automatically tip 20% without demanding proper standards of service. Even at luxury brands in the US, it's difficult to get the kind of service found at comparable hotels outside the US. In other countries, working at a hotel or in service can be a respected and career. In the US, it's mostly seen a job.

3
Antonio Guest

Now that you speak about dumpy hotels, how do US travellers feel when seeing 300 USD rates in dumpy 2* hotels in crappy suburbs of forgettable cities??? US is getting extremely expensive, even on 10 months advance. I wanted a HNL stopover and I think I will pass ;-)

3
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