Several hotel franchisees are suing IHG making two basic claims,
- They’re required to buy supplies from the company at significant markup
- They’re getting cheated by IHG Rewards
First, they argue that they have to purchase “goods and services only from IHG-approved suppliers, which charge inflated prices for poor quality products” and that “IHG receives rebates or kick-backs from these companies” in a claim reminiscent of the Marriott owner suit against Avendra 20 years ago. Hotels have to buy from a single supplier, the supplier overpays for items and gets a rebate that isn’t passed along to the hotels.
Second they argue that,.
IHG’s loyalty points scheme operates solely for the benefit of IHG and its companies, and leaves the franchisees with loss-making rates for their rooms.
…The lawsuits claim that IHG offers these points to guests for cash payment and then pockets most of the value when they’re redeemed, leaving the franchisees to pay sales tax on the full value of the room while only getting loss-making rates of $30-to-$35 per room.
Hotels want the premium customers the loyalty programs deliver, without the costs associated with it.
One major Marriott hotel owner acknowledged that the new Bonvoy program reduced costs to hotels but complains about having to provide elites with breakfast – and note that the describes these customers as “leads” because the program is viewed as a marketing tool to identify potential guests.
I’d say the one that we’re — we have been a little bit focused on is they — what — on your Bonvoy, they’ve given the leads who are their premium folks, free breakfast at resorts and they compensate us I think $7 a breakfast. But that’s one that in some markets make sense and in some markets probably is it’s too expensive. So that would be one that under the Bonvoy program we’re working with them on solutions to be equitable.
One hotel executive remarked to me years ago about elite free breakfast, “you mean we have to feed them, too?” But it’s hardly just the cost of delivering elite benefits that rankles. The J.W. Marriott Phuket sued to get out of Bonvoy over not getting reimbursed enough money for free award nights. Hotels that disproportionately attract redemption guests will see lower average rates as a result.
“In effect, Marriott was requiring us to sell rooms at a below-market rate. This business [Bonvoy] is some of our lowest-margin business, yet we are forced to honor these redemptions — which hurts our profitability. We requested to cease participating in the program, which we consider to have an overall net negative effect on our hotel, and Marriott refused to consider this.”
The owner who described loyalty program guests as “leads” is actually right. The program delivers guests to hotels and leads those customers to choose a property they probably otherwise wouldn’t select. They get great value out of these programs, but don’t like to pay for them. Every business would like to get what they do today, at lower cost. So why not sue?
As if IHG’s loyalty program with its nonexistent, tangible benefits cost an owner anything. That Holiday Inn Express was already providing breakfast free to all guests.
@ Gary — This and your AA article earlier today are perfect examples of why no one should have received government handouts because of COVID. America already has a robust legal system that could have handled the bankruptcies and lawsuits. Now we have outrageous inflation, more wealth transfer to the wealthy, and lazy people with their hands stuck out. Donald Trump’s socialist agenda is a failure.
It’s The DEMOCRATS’ socialist agenda, not Trumps.
@ James M — Do some research. That is patently false. Yes, the Democrats want to add MORE socialism, but the socialism we are living with now has been what Mitch McConnell wanted to prop up the wealthy.
I think a forgotten point is how much award redemption guests spend at hotels in areas that really matter. The markups for liquor, spa treatments, etc do more than compensate. Perhaps not the case at a Courtyard in Tulsa, but for a JW Marriott resort in Phuket to complain as if these guests offer nothing more to the hotel is absurd. They probably spend more in house than most given the entry savings. And really, since when was Phuket a high end luxury and over the top expensive destination. Even the original Aman is approachable in price there for room rates.
James M: Please go away and take your inane rhetoric with you.
So the hotels are whining about situations that they agreed to beforehand? Are they so inept at doing what they do that they threw caution to the winds on due diligence? None of this is novel for the individual hotels. They knew what reimbursement rates were before they signed. No, they want to sue for what amounts to not being able to grab even more money? Good luck with that. Maybe, just maybe, hotels and hotel chains should band together to provide actual value to the customer to entice more business like they did a decade or two ago. It seems to work pretty well for Hyatt. In my case alone, I’ve spent thousands of dollars at Hyatt hotels this year and zero at Marriott or IHG so I’m putting my money where my mouth is on this.
Socialism is that the means of production, distribution, and exchange should be owned or regulated by the community as a whole. Neither the GOP nor the Democratic Party is Socialist (despite of what Fox “News” says) – they are both Capitalists parties controlled by our oligarchs and big money interests!
Basically we’ve moved to an era where companies can do whatever they want and figure there is little recourse to the customer/client. People can sue but that is costly and very time consuming and the final payoff is often less than the profit the company made off the behavior.
Unfortunately the only real solution is government intervention with severe penalties.
Right now airlines, hotels, stores, etc. change rules and you have no real recourse.
You hear restaurants, airlines, etc. complaining about the lack of employees but that is because when they were off during part of covid they managed to find jobs that either paid more, provided basic benefits and/or treated them better so why go back to abusive companies?
Sadly the US paid off companies when they should have just let them figure out things on their own. Instead they pocketed the money and service has collapsed to the never ending “due to heavier call volumes and covid the hold time is extended”, etc.
Not sure if the US was ever great but it right now has a ton of problems that won’t be fixed in many decades.
Poetic justice.
Imagine an investment advisor delivers performance of 12 percent per year over the course of 10 years and the client complains about stock X losing money. But, you’re getting 12 percent. Yeah, but what about stock X? But, you’re getting 12 percent. Yeah, but what about stock X?
In the same way, the hotel owners fail to see the “overall package” that the program represents and they focus on the specific items of cost. Membership in a loyalty program increases your net as compared to no membership in a loyalty program. Yeah, but what about breakfast? But, membership in a loyalty program increases your net. Yeah, but what about breakfast?
Understand that these owners are typically REITs. The managers of REITs are typically compensated via something called a “fulcrum” fee. In short, they receive a percentage of overall performance. This drives the “every last cent” mentality this article is describing.
It’s a dirty, dirty business.
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By the way, the Democrats and the Republicans are both controlled by the Secret World Government. How can you all be so naive?
Perhaps IHG is simply compensating hotels the fair value of the benefits delivered to IHG elites: $0.
A fair way to handle it is for hotels to get points of their program deposited into an account of theirs. And points that cash guests earn at each hotel would be debited from that account. Only if a certain hotel has too many revenue guests and too few award stays would that hotel have to buy points from HQ for cash!
Why can’t they just limit free nights at hotels to 1 or 2 rooms per night or a set limit per year like 250?
The hotels often do not leverage the individuals on award stays. I am staying at a Holiday Inn on an award stay and was upgraded to a suite; the most expensive suite in the hotel. The suite is twice the price of a standard room so isn’t expensive per se; but the hotel offers little other than the room. Not out of the ordinary for the services provided at the hotel to be prices 2-3X the price of the equal services provided across the street. Examples of overpriced services include breakfast or lunch, drinks, massages, transportation, or parking. Crazy to pay 2-3X for transport to and from the airport with taxi or ride sharing options at the front entrance of the hotel.