Testing loyalty

Loyalty is a funny old thing. I have a spaniel and they have some of the highest-recorded loyalty out there. But if you walk past him with a roast chicken then I can wave his top-tier loyalty status in his face as much as I like, he’s going with you and not looking back.

Loyalty has been taxing the sector somewhat since the pandemic kicked off. It was the key offensive strategy for the brands against the OTAs, but it means very much nothing when there’s no-one using staying in the beds. Or does it?

Marriott International, which, thanks to its Starwood takeover, has 150 million members, is the king of hotel loyalty. It used its programme to raise $920m in cash through its credit card partners, including $350m through the pre-selling of loyalty points around this time last year. Not too awful at all.

This week saw CEO Tony Capuano’s first run at the group’s analysts for Marriott’s Q1 call and he raised the loyalty programme, commenting: “Interacting with our members who are not yet ready to stay in a hotel has been a priority for us through the pandemic. Our co-branded credit card holders have been particularly engaged and new card holder acquisitions are improving as well.”

In fact, Q1 global credit card spending was down just 5% versus the first quarter of 2019. The group has continued to grow its global co-branded portfolio with the recent introduction of new cards in South Korea and in Mexico, bringing the total number of countries with co-branded cards to seven. Hotel company or credit card company? 

There was some cost to this, with CFO Leeny Oberg reporting that, as leisure demand had accelerated and been particularly strong for resort properties, loyalty redemption nights had accelerated. She added: “Even if redemptions do increase, given our focus on carefully controlling programme administrative costs, we anticipate that full-year cash flows from the loyalty programme could be positive before factoring in the reduced payments we will receive from the credit card companies. 

“After factoring in these reduced payments, which are expected to effectively repay around one-third of the total $920m we received in 2020, cashflows from loyalty could be modestly negative.”

Capuano said that the group was “enhancing the platform through new expanded collaborations”, including one with Uber, allowing members in the US to earn loyalty points in high-frequency activities like ride hailing and food delivery.

Another way Bonvoy members have been engaging was through the whole home rental platform Homes & Villas by Marriott International or HVMI. The division does not contribute financially, but is described by the company as “complementary to our portfolio of hotel brands” and with roughly 30,000 listings is a popular way for members to earn and redeem points.

So what of that other loyalty, that of the owners to the brand? Capuano had comforting words to say about how the group was getting heads in beds, confirming that marketing teams were employing “localised and personalised marketing strategies that utilise our direct channels to help capture more leisure”. Do they have the manpower? We’ll see next quarter.  

The greater concern for investors was that the hiatus in capex during the pandemic would be coming to a grisly end once travel started up again and Capuano caused some pause when he said: “We are currently assessing post-Covid renovation and brand standards with a view towards finding more ways to improve hotel profitability, while preserving the quality and experiences guests expect of our brands when they stay with us”. 

This was tempered somewhat when he added: “We’ve got to make sure that we’re taking into consideration that dramatically-lower cash reserves that the hotel owners have and picking our spots and making sure that we’re picking the renovation work that is critical to the customer experience.”

What is critical? The message from loyalty members is that they want to stay in the sharing economy and get food delivered by Uber. How loyal they are to the pre-pandemic model is about to get tested. 

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