IHG’s One Rewards loyalty program isn’t nearly as profitable as Hilton’s and Marriott’s. They’re working to change that.
- They’ll be renegotiating their credit card deal, looking for greater profits, but their customers don’t skew as high-spending overall compared to Marriott’s.
- They’re going to start selling miles to partners more aggressively thanks to changes they’ve implemented with their owners.
The economics of hotel loyalty programs work differently than airline programs. Hotels pay for points when program members stay on property, and get paid for the rooms members redeem – and most of the money sits in a pot that effectively belongs to the hotels.
However IHG has negotiated changes to it’s “System Fund” that allow it to keep part of the revenue from points sales while owners will pay less into the program.
A portion of the revenue from the sale of certain loyalty points, together with certain other ancillary revenues, will now be recognised by IHG within its results from reportable segments. Initially 50% of this will be recognised by IHG in 2024, which is estimated to deliver approximately $25m incrementally to revenue and operating profit from reportable segments. This will annualise in 2025 when 100% will be recognised by IHG. There is also expected to be further growth in future years as the number of points sold continues to grow, and due to the ramp-up effect of the IFRS 15 accounting standard which defers revenue recognition until redemption of the points previously sold.
The pool of points earned and held for redemption generated $1.56 billion in 2023, an increase of 27% ($331 million) compared to pre-pandemic. The fund is used for marketing spend, loyalty program and technology costs, and reservation system costs. It’s managed to break even.
IHG is lowering its loyalty assessment fee paid into the fund, while increasing how much hotels are paid for reward nights. And they are “actively developing opportunities to grow ancillary fee streams such as points sales.”
When Marriott acquired Starwood and renegotiated credit card deals, keeping both Chase and American Express on board, they reduced costs for hotel owners at the same time the program itself was still valuable enough to corporate to borrow a billion dollars against at the start of the pandemic.
Driving down owner cost, and net financial proposition of participating in the program, helps keep IHG competitive in attracting and retaining properties. However if they’ll be retaining more money out of points sales there are only a few scenarios for what actually happens.
- More points sales at higher than cost, even after accounting for IHG’s vig, sufficiently funds the program that owners and IHG can both capture more revenue without it coming out of member pockets, or
- Members will need to spend more points for reward nights, or other expenses will need to be cut from the program.
At the end of the day, hotels spending less on the program and IHG taking more money out of the program, probably shouldn’t be encouraging from a member perspective.
(HT: Head For Points)
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.
IHG’s program has gotten better, but for me as a domestic traveler they’re still firmly behind Hilton, Marriott, and Hyatt. As a rule anything labeled as a “suite” would be a “standard room” at any other brand and I still struggle to understand what about their “suites” is different from a regular room (Not including Staybridge or Candlewood here). The quality (and cleanliness) is all over the place and it’s rare to find anything resembling a good deal on points as it is. I’ll admit their top tier hotels are nice, but they’re also well-guarded to ensure they’re pushing the limits of points pricing as well. So for me as a domestic traveler who largely values loyalty and points in terms of what it represents to future trips with my family, I continue to be pleased by my decision to keep a small stash of IHG points for emergencies and otherwise largely ignore their program
This seems like viewing the program the wrong way; it should be driving incremental spending at IHG properties. If IHG is not seeing that, perhaps they need to work on the value proposition more, rather than focusing on *their* value. This comes across as a really uninspired and supremely obvious way to increase revenue by the C-suite.
Also LOL @ 30% over pre-pandemic… that can’t be much more than inflation!
The limited service space in the US is rough all around. HIE=Doubletree=Hampton=Fairfield…etc. I personally find the full service properties to be appealing — they hit the “premium enough” spot for me without being so high end I feel uncomfortable staying there. And property cash pricing is better than the other big 3 for the full service segment. The IHG program has been sneaky good from a points accumulating and purchasing perspective, as it is pretty easy to get outsized value all over the portfolio. Other than Iberostar, I rarely see a point price that yields below .5cpp, and .6cpp is pretty common (before the 4th night free). Plus there are some real opportunities to get 1-2cpp in the portfolio. I expect devaluation will be the name of the game here to even out some of the sweetest of the sweet spots. The Kimpton Seafire has been a points steal for a long time.
@Brent – “The limited service space in the US is rough all around. HIE=Doubletree=Hampton=Fairfield…etc. I personally find the full service properties to be appealing — they hit the ‘premium enough’ spot for me without being so high end I feel uncomfortable staying there.”
Doubletree is not comparable to Holiday Inn Express or Hampton or Fairfield. Doubletree is more comparable to a Holiday Inn within IHG and a Delta or Four Points by Sheraton within Marriott. What “premium enough” full-service properties are there in North America? Holiday Inn is arguably not a full-service brand anymore. Years ago (like 20-30 years ago), the medium and small cities in the USA, especially in flyover country, often only had one full-service chain hotel: a Holiday Inn. These properties always had a pool, restaurant, bar, and ballrooms. Today, IHG no longer requires a Holiday Inn to offer room service, daily housekeeping, dry cleaning/laundry services, and a restaurant. Many of the new or newly renovated Holiday Inn properties don’t even have ballrooms. Beyond Holiday Inn, I can’t think of a single market in the USA with a Crowne Plaza, which is supposed to be the IHG version of a Hilton or Sheraton, where that Crowne Plaza is the best or one of the best hotels.
@Jeff – “I’ll admit their top tier hotels are nice, but they’re also well-guarded to ensure they’re pushing the limits of points pricing as well. So for me as a domestic traveler who largely values loyalty and points in terms of what it represents to future trips with my family, I continue to be pleased by my decision to keep a small stash of IHG points for emergencies and otherwise largely ignore their program”
What are their top tier hotels? Internationally, there are certainly some great Intercontinentals and also Regents. But in Canada and the USA, the Intercontinental brand is pretty tired and seldom better than a JW Marriott or Grand Hyatt. I’d say the average Intercontinental in North America is only slightly better than the average Hyatt Regency, Marriott, Sheraton, and Westin.
I don’t want to push my luck, but how much more can IHG devalue the points before collecting points becomes even less important of a factor in consumers picking hotels?
Even with the “4th award night free” thing for some US credit card holders, most of IHG’s hotel guests outside of the US can’t get that benefit. Without that benefit the IHG program is a lot less competitive and less attractive. Maybe they will go to a 5th or 6th night free while jacking up the price in points.
I have been a critic of blogs that refer to category changes or award prices changes as “devaluations”. If the underlying cost of the hotel room/airline ticket are higher of course it will cost more points. It isn’t a devaluation if the points currency is still worth the same but doesn’t get as much – that is inflation
However, this is a true devaluation since the value of IHG points to the company and hotel owners has been reduced (and it has already occured). The impact will be higher award costs for rooms but that isn’t the devaluation this is (similar to a country devaluing their base currency).
BTW since Hyatt is the only major hotel group that still has an award chart it is difficult to even know when other awards change (or by how much). However it is obvious there has been a major award price increase over the last couple of years. When I see small market Hampton Inns for 50,000 a night or Courtyards for 45,000 something is out of whack. I’m paying cash more for 1 or 2 night stays (or using Hyatt points) and only using Hilton, Marriott or IHG points when I can book a stay and get a night free to maximize my value.
lol@someone who said Hyatt is the only major hotel group with award charts. There are 1335 Hyatt hotels worldwide, which is tiny compared to 7500+ Choice properties and 5600+ Accor properties, who still have a fixed award scheme.
Thanks for the heads up. I have a big stash of points (both Chase cards got me and p2).
The are already worth the least of any hotel point, sad to see it go lower.
Do you think they’ll be any notice?
Standby for another points sale with a 100% bonus…..which will be worth a third of what you paid for them in a month after their next “enhancements”.
Hotel loyalty at this point is for suckers.
@jamesb2147 +1
IHG has a number of problems, most of them self-inflicted, including:
They have dueling loyalty programs with Intercontinental and the lower end hotels working at odds with each other instead of together.
They took the fun out of the loyalty program. Remember a half dozen years ago when IHG made a game of involving loyalty members by offering quarterly interlocking bonuses for doing things like stays, credit card spend, etc.? That really drew you in. Remember the valuable saver awards for 5,000 – 10,000 points at all kinds of hotels including some very nice ones (generally during low season but still…)? Or how about the award chart that maxed out at 50,000 points for any hotel? Or maybe the unrestricted free night at ANY IHG hotel annual certificate for keeping the $49 credit card? There was fun, interaction, value and engagement. Now those are largely gone.
Royal Ambassadors used to be able to nominate another person for that same status, and at the time RA status was pretty valuable in some situations.
Long story short, IHG hasn’t done much for loyal members and has done a lot against them. While devaluing their program is unlikely to keep people away from a HIE when work is paying, the direction they’re heading doesn’t look to offer many incentives for customers to actually chose to stay with IHG.
@Christian is more or less right. And IHG confirmed it when they renamed their program “IHG One” even though it isn’t one loyalty program. Doesn’t Kimpton offer its own thing too? At the end of the day, for all the nice Regent or Intercontinental properties, the vast majority of IHG’s portfolio are dumpy, low-end Holiday Inn Express and Holiday Inn properties. IHG can’t decide if it’s going after Hyatt and Marriott customers or Wyndham and Choice customers.
I am anxiously awaiting their 250,000 SUB, and rose gold metal card.
IHG has some nice Six Senses properties. And some of them are available using IHG points.
But I suspect we will see IHG devalue the points more as part of a revenue and earnings management program and also will probably try to cap its breakfast and lounge benefit expenses by making the former benefit a “milestone” type benefit and hiking the requirement for the latter benefit (unless and until they decide to eliminate that lounge milestone benefit too).
IHG has already been providing some of us with Diamond status this year for nothing more than opening up an IHG Premier credit card. But I don’t take that as meaning that IHG will improve the benefits for Diamond members and even increase the value of IHG points being earned from and redeemed for hotel nights.
Christian,
In the summer of 2010, I had more or less moved into the Grand Hotel in Stockholm by paying 5k Priority Club points or something like per night as a PointSaver award when it was an InterContinental hotel. That was when the IHG hotels’ program really was generous. Nowadays, the program isn’t generous anywhere close to that level, but now they try to placate some of us with breakfast as an elite status benefit or being able to get the lounge access as a milestone benefit. I would rather go back to the days of the PointsSaver award nights.
Christian is right on the money. THE $49 credit card I had for many years was great. Any hotel available was good for a free night. This year I ended up throwing away that free nite as there was literally no hotels available that would accept that NITE. I cancelled that card. The new card that’s $99 let’s you add points to the ” free nite” so basically Not a free nite at all. Sometimes a hotel retail shows $250 a nite or your free night plus 25,000 points that’s a joke. My goal this year is to spend every point I’ve accumulated and cancel all IHG cards. Loyalty means nothing to IHG.
It seems IHG is navigating a tricky landscape in the loyalty program arena, aiming to boost profitability while facing challenges unique to the hotel industry. One approach they’re taking is a strategic overhaul of their credit card partnership to increase revenues. This mirrors efforts by other hotel chains like Hilton and Marriott, which have seen significant gains from their co-branded card deals.
Moreover, IHG’s move to ramp up the sale of miles to partners suggests a shift in focus towards leveraging their loyalty currency as a revenue generator.
Okay, then. Goodbye, IHG. I left Marriott because value for my membership was dramatically reducing (and their hotels were more and more disappointing), so I invested in IHG for a couple years, and I already don’t like how they jack up the number of points needed for stays to compensate for that 4th “free” night and give me higher cash rates when I try to book an “offer” as opposed to regular rates. Constant bait and switch. They are the ones who sold us on the benefits of membership, then had buyer’s remorse and are now trying to take it back like greedy little children. I’m going to iPrefer from now on.