How Loyalty Programs May Reshape the Post-COVID Hotel Landscape


Unlike airlines and car rental agencies that own their airplanes and vehicles, major hotel brands no longer own real estate. In the 90s, Marriott spun off its owned assets into Host Hotels and Resorts, still the largest hospitality REIT.  In 2017, Hilton spun off its owned assets into Park Hotels & Resorts.  So, what do these hospitality brands “own”? Customers. 

This asset-light business model means that they need to be able to convince property owners that their brand name will draw in loyal customers and deliver a better ROI to the investor than another brand. This makes the brand’s loyalty program absolutely essential.

The procurement power and management resources that major brands provide are certainly part of their pitch to owners but the primary way to justify the extra investment of outfitting a hotel to the specs of a major brand is that they can deliver a 10 point occupancy premium and do so almost instantly.  Once an owner plugs into, they instantly have access to hundreds of millions of loyal travelers who only consider the hotels presented on those pages.  For the 300 million travelers in just those 3 programs, the independent hotel almost does not exist.  

Loyalty programs were born in recessions and will likely expand their reach in this one.  Betty Crocker created the "box tops" frequent buyer program in 1929 during the Great Depression as a reward to families for brand loyalty and to narrow their shopping behavior. Additionally, loyalty programs were designed because customer acquisition is extremely expensive.  The "father of marketing," Philip Kotler said that to acquire a new client costs five to seven times more than to keep a customer.  

As COVID-19 began ravaging the travel industry, Hilton's Mark Weinstein immediately reassured the 100 million Hilton Honors members that their status would be automatically extended through 2020.  With the recovery timeline protracted to take years, just weeks ago Hilton extended the policy and added more benefits through 2021.  While this move is certainly customer friendly, it is also smart and calculated.  The last thing any brand wants is for its most loyal customers to reconsider their brand affiliation in a year of very little travel.

Among the many mutual benefits, loyal guests willingly hand over their personal data.  To book a hotel, a person really only needs to provide a name, address and a credit card.  But the loyalty program (with immediate perks like free Wi-Fi) incents customers to give more data and far more personal information that can be mined in limitless ways.  A 2018 report from Oracle, The Loyalty Divide: Operator and Consumer Perspectives, showed that 86% of loyalty program members would be willing to complete questionnaires about their preferences as part of a new program membership so that offers can be tailored to them.  They go on to say that "younger age groups in particular have a propensity to join loyalty programs, and they say that their loyalty is growing; countering the commonly held belief that millennials aren’t loyal to brands." If data is the new oil, loyalty programs are deep rich wells.

The hospitality industry's recovery timeline in the U.S. continues to lengthen.  CBRE expects occupancy to reach pre-COVID-19 levels in 2023 and nominal RevPAR not reaching 2019 levels until 2024-2026 for upper tier hotels.  As expected, investors are abandoning projects to build new hotels.  For hotels to survive the 50% occupancy levels anticipated over the next 18 months, loyalty programs (and the extra occupancy they bring) will be the key differentiator in survival.  

With 70% of the new supply pipeline already committed to the biggest hospitality brands, Marriott, Hilton and IHG are likely to extend their market dominance through the recovery period.  By turning the "Hotel No-Name" into the "Curio Hotel No-Name by Hilton", occupancy will skyrocket.  For Independent hotels, the economics offered by soft brands like Ascend (by Choice), Autograph (by Marriott), and Destination (by Hyatt) will be irresistible.  Owners and investors who previously shunned the big brands will find it more difficult than ever to resist the extra occupancy their loyalty programs provide.