The CEO of IHG Hotels and Resorts admits that they make only 1/10th as much off of their Chase credit cards as Hilton and Marriott make on their co-brands.
- Total fees form their card portfolio total $100 million a year
- All of this used to get passed through to hotels. Now one third is kept at the corporate level. A recent loss by Hyatt in tax court explains how hotel program economics work and they’re very different from airlines. For the most part the chains don’t own the hotels, and the programs are very different than airline frequent flyer offerings.
- The amount kept by the chain is almost all profit. And IHG wants Chase to pay more in a deal re-up. The current card agreement expires in 2025. Banks pay a lot more than you think for airline miles with 1.5 cents a low end and 2 cents far more common.
- It’s natural to think that because IHG sells points super cheap to consumers, and IHG points are worth just about half a cent, that Chase must be paying less. But that isn’t how it works, because they aren’t just buying the redemption value of points they are buying access to customers.
To give you an indicator, two of our leading competitors [read: Marriott and Hilton] are probably earning more than 10 times on their P&L from the fees than the $33 million or so that we’re taking.
This would suggest that Marriott and Hilton are netting $300 – $400 million per year from their card deals, after money that goes to owners through their programs.
More cardmembers doing more spend should drive better card economics for IHG.
“It gives us an opportunity to renegotiate or rebid that agreement against the backdrop of a stronger brand portfolio, a higher spending customer base, a broader customer base, and a stronger loyalty plan,” Maalouf said.
“The two new credit cards we launched late last year have been performing very well this year, with 80% growth in uptake from customers and double-digit spending increases from the customer per card,” Maalouf said.
While it’s probably right that IHG can do better than they do today their portfolios won’t be worth what Hilton’s and Marriott’s are, let alone with American’s and Delta’s are.
The quality of the product matters. Who the customers are matters. While IHG has luxury hotel properties in their portfolio, they skew more midmarket. And their credit card just doesn’t earn very well for spending and that matters to customer adoption and use.
Even though IHG is large in its hotel footprint, it’s Hyatt that punches about its weight in card because the card delivers value and Hyatt’s loyalty program delivers value.
At the same time you can think of the revamp of IHG’s One Rewards program, in some ways bringing it closer to Hyatt (they now have the second best suite upgrade program behind Hyatt’s, and the second best breakfast benefit behind Hyatt’s), as a credit card play as much as a guest loyalty play.
The IHG program is now quite good. They have hotels everywhere, but not necessarily hotels you want to stay in everywhere. The cards, though, needs to be better integrated into the loyalty program as a driver of status and incremental benefits in order to be successful – and worth more.