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.
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?