Marriott announced a deal for $920 million dollars with its co-brand credit card partners. In exchange for the cash Marriott has extended its co-brand deals with both partners.
- $350 million from American Express is primarily pre-purchase of points although includes “other consideration” that hasn’t been announced.
- $570 million from Chase which involves “$500 million of prepayment of certain future revenues” (and most revenues in the deal are associated with points purchases, although since they say that’s what the bulk is with Amex and use different language here it may include other revenue from their marketing agreement too) along with $70 million early payment of their card agreement signing bonus (it’s interesting that the signing bonus was structured with a multi-year payout).
This follow’s Hilton’s billion dollar pre-sale of points to American Express.
In general these deals are good for customers because they shore up the travel brand. Banks are vetting the financial positions of these companies before handing over even (secured) cash. And they make points available to the banks at lower marginal cost, which in the past has meant banks rewarding consumers with more points – a good short run benefit, and good for those who pick up those points, although a contributing factor in long-run devaluations.
It’s not surprising to see hotel chains accessing their loyalty programs for cash from their credit card partners before airlines do, even though the airline programs are generally more valuable. Airlines have been talking to their bank partners about this (Delta denied this late last month.) However the U.S. Treasury has frequent flyer programs on the table as collateral for billions in CARES Act loans.
American Airlines, for its part, intimated that they had the AAdvantage program appraised at $30 to $40 billion in value. United pointed out in its earnings call that there’s a maximum amount they’ll be able to extract from their loyalty program.
So they’re likely seeing how the dust settles on the cheap government money before locking in deals with bank partners that access these programs for cash (using the federal government as lender of first resort, before accessing private dollars, which isn’t how the programs were intended). Hotels of course do not have this option.
“Look at you. You used to be so cocky. You were going to go out and conquer the world! You once called me a warped, frustrated, old man. What are you but a warped, frustrated young man? A miserable little clerk, crawling in here on your hands and knees and begging for help.”
-Henry F Potter
Hopefully, this will result in Marriott’s credit card partners to launch new and better promotions to capture credit card spend as Hilton has done with it sale of points to AMEX — to wit, extension of new Free Nights from a 1 year expiration to a 2 year expiration, as well as applicability of the Free Night awards to any day of the week for new and outstanding certificates.
In addition, AMEX and Hilton also launched much more lucrative and lengthy promotion periods for use of their co-brand credit card for home bound holders.
Inasmuch as Marriott’s free night extension to just 1/31/21 pales in comparison to Hilton’s ~ 18 month extension for existing certificates to 8/31/21 and 2 year extension for new Free Nights, let’s hope with the sale of Marriott points to these 2 lenders, that Marriott certificates will follow a similar arc.
If not, then Marriott will demonstrate to this segment of the market that they truly will remain one of the most customer unfriendly loyalty programs.