Marriott Earnings Call: New Upgrade List Encourages Elites To Pay For Better Rooms—But Puts Its Credit Card Cash Cow At Risk

Marriott earned $794 million in the third quarter, up from $728 million a year ago. They’re doing well. At the same time, I’ve been covering reports of layoffs in the customer service teams guests turn to when hotels won’t honor benefits. And on their earnings call, Marriott explained that its new elite upgrade list is being designed to preserve owners’ ability to sell upgrades. The company is getting better at monetizing Bonvoy. More than half its fee growth came from credit cards. But they’re spending down the trust that makes the program worth something in the first place. The hotel business has been good, outside of pockets like the Mideast. Marriott’s revenue per available room rose 6.5%. Adjusted earnings per share rose from $2.47 to $3.02, beating the $2.84 analysts expected. Marriott’s quarterly filing identifies $68 million in additional credit card fees compared with the same quarter last year. More than half of the increase in franchise fees comes from cards. Third Quarter Fee Growth Increase Share From Higher Card Fees Franchise fees $131 million 52% Total gross fees $184 million 37% I’ve covered owners’ unhappiness with these economics. Fifty-one owners representing about 1,000 hotels demanded better compensation for award stays. They’re supplying the rooms, Marriott sells them at a discount to Chase and American Express customers. The basic hotel loyalty bargain is a loop. Hotels pay into a program that rewards guests for stays. Those guests redeem points for more stays. Owners supply discounted award nights in exchange for a program that encourages customers to choose their hotels. A vacant room is cheap to give away. When an award guest doesn’t displace a paying customer, the hotel’s cost is mostly cleaning, utilities and whatever benefits it provides. Deep discounts make sense. But Marriott selling the points through Chase and American Express, using access to those discounted nights to monetize the owners’ inventory, infuriates some of them. As I’ve explained about bank payments for rewards, Marriott’s reported card fees aren’t everything the banks pay. Some money funds points and benefits. Some pays Marriott for licensing its brand and customer access. On the earnings call, Marriott pointed to the ways they’re appeasing owners: lower fees for Bonvoy higher reimbursement on high-demand award nights more flexible renovation requirements (letting owners allow the product to slip) a guest recommendation incentive. Marriott discussed its new upgrade lists. I covered the beta last month. Members can see their place in line and an estimate of upgrades matching their reservation. CEO Anthony Capuano told investors the feature would provide that visibility “while still preserving premium room upsell opportunities for our owners.” Showing you a position on a list doesn’t commit a room to you. A hotel can keep selling premium rooms while guests wait for complimentary upgrades. The later it commits the room, the longer it has to find someone willing to pay. Marriott hasn’t explained the beta’s inventory or clearance rules. They’re promising more visibility, but they aren’t saying hotels will release more rooms or confirm upgrades earlier. People who are lower on the list – and therefore less likely to get a free upgrade – become motivated to buy the upsell. Which, in turn, means fewer upgrade rooms available even at the top of the list. I’ve already described where Marriott’s technology investment is headed: selling room attributes and extras that guests used to receive as part of their stay or status. Better views, room locations and upgrades are going to become new opportunities for revenue generation. Selling a premium room is perfectly reasonable. But Bonvoy also encourages guests to concentrate their stays and spending to earn upgrades. And they’ll sell those same upgrades back to lower-tier elites for tens of dollars – prioritizing minor ducats over long-term value. Meanwhile, Capuano trumpeted 309 million Bonvoy members. I’m amazed anyone keeps repeating these enrollment numbers seriously. It means a guest signed up to get a lower (member) room rate. That tells us they wanted to pay less for the reservation they were already making. It says nothing about interest in Bonvoy or continued engagement. And the numbers are large because Marriott has a lot of hotels and rooms. I’ve reported on employees signing guests up who don’t even know about it, alongside hotel incentives worth as much as $10,000 a month for enrollment performance. Marriott intentionally does not share active members When I wrote about Chris Buckner taking over Bonvoy, I argued that his biggest opportunity was getting hotels to deliver the benefits members had already earned. Marriott’s business depends on guests starting their hotel search with Marriott. The brand is supposed to stand for a consistent product, and Bonvoy is supposed to make the brand sticky. That’s what lets Marriott deliver customers to owners as “leads” and charge for access to them. The reservation system doesn’t have value to sell to owners if guests stop trusting the hotels it displays. An individual owner can save money by denying breakfast or an upgrade. The damage gets spread across the whole portfolio. That hotel benefits from shirking on the program, while the program loses value. That’s why Marriott is supposed to enforce its promises. Yet they rarely seem to! I covered a breakfast dispute where the hotel closed the guest’s case seven times before finally paying the $100 benefit guarantee the guest was clearly due. In Marriott’s system, the hotel becomes the judge of complaints against it. . Topics on this page