I have to say, I completely understand where the hotel owners are coming from, and it’s almost certainly bad news for members of Marriott Bonvoy’s loyalty program.
In this post:
Hotel owners are really frustrated with Marriott Bonvoy
The Wall Street Journal has a story about how hotel owners are rebelling against Marriott’s loyalty program. Owners representing nearly 1,000 Marriott affiliated hotels are demanding that Marriott revise the rules of its popular Bonvoy program, to give them a bigger slice of the revenue.
The concept here is pretty simple — most Marriott hotels are independently owned, and operate either under a management or franchise agreement with Marriott. One of the things that Marriott brings to the table is its Bonvoy loyalty program, which has a very loyal customer base.
The concept of the loyalty program was supposed to be that hotels pay into the loyalty “fund” so that points can be awarded, and then when points are redeemed for hotel stays, the individual properties are reimbursed at a reduced rate.
I’ve written in the past about the economics of hotel loyalty programs. The idea is generally that Marriott reimburses hotels at a really low rate if the hotel isn’t otherwise full, just above the marginal cost of servicing the room. Meanwhile if a hotel is full, the reimbursement rate is much higher.
The issue hotel owners have is that Marriott has increasingly turned Bonvoy into a for-profit business, rather than a reward for loyalty that contributes to the core business. As a result, points are now often issued through non-hotel stays, and then in turn, are used for hotel stays where reimbursement rates are really low.
In other words, Marriott gets all the profits, while the individual hotels don’t. Marriott is basically acting as a consolidator for its own hotels, given that it has limited direct incentives for hotels to be profitable (rather than to just rack up as much in fees as possible, which are typically based on revenue rather than profit).
Per the story, here’s what hotel owners are looking for:
Hotel owners say they want more financial information and reforms to the program’s reimbursement structure. At a minimum, they say, they want compensation for loyalty-program stays to be on par with what they receive from third-party online travel agencies such as Expedia.
“Hotel owners are absorbing an increasing share of the program’s costs while Marriott captures an increasing share of its revenue,” the group wrote in the letter sent to Chief Executive Anthony Capuano and Chairman David Marriott.
In the past, hotel guests earned loyalty points primarily from staying at hotels. Owners paid into a fund, managed by Marriott, which was used to compensate them when guests paid for their rooms using loyalty points.
Hotel owners never got market-rate compensation for loyalty stays, but the program was seen as worthwhile because it drove loyalty and attracted new customers, hotel owners say.
This is going to be bad news all-around, but is fair
It goes without saying that the major hotel groups have really been cashing in on their loyalty programs as of late. That’s also why we’ve seen so many hotels do such a poor job with honoring elite perks, due to the amount of inflation of elite ranks.
The issue is that Marriott increasingly sells points and status and keeps all the proceeds, while the individual hotels are basically asked to fund that.
It’s not surprising to see Marriott do that. After all, the company is publicly traded, and investors always want better returns. There’s only so much appetite for new hotel development nowadays with interest rates not very low, which is why Marriott is looking to its loyalty program to increase profits.
The irony is that while hotels are mostly getting terrible reimbursement for award stays, we’ve seen massive inflation to award rates, so one assumes that Marriott has just really been cashing in.
So I really see where hotel owners are coming from here. Unfortunately it’s going to be bad news across the board. In the event that reimbursement rates do increase, you can bet that we’ll see Marriott proportionately increase award costs. Bleh.
I really do think we are in “late stage” miles & points, when it comes to value. These publicly traded companies are trying to milk the programs for everything they’re worth, and on some level, that growth just isn’t sustainable, if you want all parties to remain engaged.
Bottom line
Individual Marriott hotel owners are coming together to demand more money from Marriott for award stays. The frustration is that Marriott has increasingly been monetizing and profiting off of its loyalty program, not just making it about rewarding loyal guests, but increasingly making it about generating profits at the expense of hotel owners.
When hotels aren’t full, reimbursement rates for award stays are really low, which made sense at some point in the past. However, at this point, hotel owners are just frustrated, because they don’t feel like they’re getting an ROI on these stays.
What do you make of the frustration of Marriott hotel owners?
I agree with @ND. I think is more of US hotel operatora complaining and personally believe they are just find quick ways widen their margin (short term vs long term) rather than improve their product/ service. I kind of see the same night and day with US AirBnbs trying to nickle and diming compare to those in Asia and South America.
This has me wonder if we might not see some sort of "meltdown" at a major chain where six figures worth of rooms go to re-flag/de-flag en masse. That's the risk of an "asset-light" model - you no longer reallg have the ability to stop something like that.
From a consumer standpoint never understood why people are still loyal to Marriott brand. Its even worse that the Delta loyalists. At the very least in Delta's case most people could be captive to the most dominant airline at their hub. But when it comes to hotels its easy to switch.
And, ironically, Marriott has a "Delta Hotels" within its portfolio... how appropriate...
My "loyalty" across chains is usually driven by a few key properties that I frequent, and that in turn helps drive miscellaneous stays. Marriott has some key full-service properties (and a few that conventions happen at). Hyatt has several I use a lot.
(Also, "distance to lifetime status" is a major element. I'm currently within ten nights of LTP at Marriott, so...)
Greed is destroying loyalty programs from all sides.
This is interesting, as it suggests both the guests and the hotel owners are getting squeezed. Marriott mints points at an immediate profit. They devalue the redemption to make the liability less, then compensate hotel owners very little. And selling points is very bad for the hotel owners, as the gambit from the loyalty scheme is that there will be enough cash stays to make up for the points stays. The credit cards and the...
This is interesting, as it suggests both the guests and the hotel owners are getting squeezed. Marriott mints points at an immediate profit. They devalue the redemption to make the liability less, then compensate hotel owners very little. And selling points is very bad for the hotel owners, as the gambit from the loyalty scheme is that there will be enough cash stays to make up for the points stays. The credit cards and the transferrable points disrupt that balance.
This also explains why I'm seeing a lot of Marriott and Hilton properties look very attractive on 3rd part platforms. Selling through those channels, even at a discount, helps with points compensation and profitability. I haven't booked a Hilton through that program in years, but I stay at a Hilton property 2-3 times per year. The discounts on 3rd party sites is stronger than the awards for CC and the points in program. And I rarely care about elite benefits.
One thing to ponder: What if hotels started honoring status benefits (but not points earning) via third-party channels?
If that were to start happening they'd be less exposed to the program in the scheme of things (given the relevant cuts of the pie).
would love to know if there's data on this, but what percentage of guests at mid-tier sheratons/courtyards/aloft/moxy/etc around the globe stay at that specific hotel due to how nice the hotel is? or just because its a marriott property? I'd venture 50-60%+ is just because its a marriott. like be thankful you get any guests at all
I wish marriott would tell these hotels to F off and remove them from the program. Would be...
would love to know if there's data on this, but what percentage of guests at mid-tier sheratons/courtyards/aloft/moxy/etc around the globe stay at that specific hotel due to how nice the hotel is? or just because its a marriott property? I'd venture 50-60%+ is just because its a marriott. like be thankful you get any guests at all
I wish marriott would tell these hotels to F off and remove them from the program. Would be a much better result for everyone involved than harming the loyalty program.
It was interesting that the WSJ article focused on the response from US hotel operators. That's not to say that international Marriott Bonvoy hotel owners don't feel the same way. Too many US hotel operators have been skimping on product and service, especially post-Covid. Their costs are too high, and they have had a difficult time passing on those costs to hotel guests. As a guest, the Bonvoy value to me to redeem points for...
It was interesting that the WSJ article focused on the response from US hotel operators. That's not to say that international Marriott Bonvoy hotel owners don't feel the same way. Too many US hotel operators have been skimping on product and service, especially post-Covid. Their costs are too high, and they have had a difficult time passing on those costs to hotel guests. As a guest, the Bonvoy value to me to redeem points for hotel stays is already questionable. Sometimes a good value, but most often not.
The only Moxys I've stayed were at airports, provided by overseas airlines when they had a mechanical breakdown. Lots of neon!
It seems to me that if the hotel owners get what they are asking for, the only thing they will get is a lot more empty rooms.
This is great news. Loyalty programs should become loyalty programs rather than CC schemes again.
This isn't going to end with stays being more rewarding
@ Samo -- Yeah, I agree with James K. I hear where you're coming from, but Marriott's answer isn't going to be "oh, okay, we'll just stop monetizing our loyalty program."
"Where the hotels are coming from" is "Fees for more money" . Simple .