IHG believes its larger peers make 10 times as much in fees from co-branded credit cards than it does. So it has room to grow this profitable revenue.
IHG Hotels & Resorts CEO Elie Maalouf has been on the circuit talking up his hotel group’s strategy for growth. One of his notable talking points has been on the company’s co-branded credit cards with Chase.
Maalouf recently noted some new facts about IHG’s credit card aspirations when speaking at Barclays’ “Eat, Sleep, Play” conference.
- Today, the hotel group generates approximately $100 million yearly in fees from its total credit card business.
- A few years ago, all the fees went to owners who provided guest benefits, such as free stays when loyalty members redeem points. (Owners of hotels separately also pay fees into a loyalty “system fund” on each paid stay, which is later shared with hotels to cover the cost of rewards stays.)
- Today, only two-thirds of the credit card fee money goes to owners. “About one-third goes to the P&L [profit and loss sheet],” Maalouf said.
- In other words, roughly a third of the fees go to the bottom line, without meaningful costs besides relatively minor marketing expenses. So they are mostly profit.
IHG’s Credit Cards Have More Profit Potential
- IHG could be getting a lot more in fees than it’s currently getting. By fees, we mean that Chase buys loyalty points from IHG to give to its customers when they spend money on their credit cards. IHG wants Chase to pay more.
- How much could credit-card-related fee revenue go up? “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,” Maalouf said.
- In other words, IHG thinks Marriott and Hilton, which aren’t that much larger in number of properties, are generating roughly 10 times as much in co-branded credit card fees.
- While neither Marriott nor Hilton have publicized the exact amounts they make from their co-branded credit cards, the estimate of roughly $400 million a year dovetails with estimates analysts have made based on what those companies have said about their non-room-related earnings.
Why IHG May Make More Via Credit Cards By 2026
- The $100 million a year in fees that IHG generates from its Chase co-branded partnership will likely go up after the company haggles for better terms, Maalouf said.
- As context: Chase and IHG launched their first co-branded credit cards in April 2018. The arrangement expires at the end of 2025. As IHG negotiates, it will want to make the deal more profitable for itself. Maalouf believes that by 2025 it will have boosted the amount of average spending on its credit cards and increased the number of its guests it will have persuaded to sign up for the cards. These factors will boost its negotiating hand.
- “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.
Hotel groups have a long way to go before their credit card partnerships are as powerful as airline ones. “As of January 2023, Delta’s SkyMiles is valued at $27.9 billion, American’s AAdvantage is at $23.9 billion, and United’s MileagePlus is at $22 billion,” said Skift Research’s “The Business of Airline Loyalty Programs 2023” report this year.
By the way, Maloouf’s talking may be having an impact. IHG stock traded up to a new high on Wednesday, despite a market that was broadly down.
Accommodations Sector Stock Index Performance Year-to-Date
What am I looking at? The performance of hotels and short-term rental sector stocks within the ST200. The index includes companies publicly traded across global markets, including international and regional hotel brands, hotel REITs, hotel management companies, alternative accommodations, and timeshares.
The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more hotels and short-term rental financial sector performance.
Read the full methodology behind the Skift Travel 200.