Who's afraid of loyalty programs, headwinds?

SINGAPORE – Loyalty programs have become the “identifier” of brands and consumers’ “point of contact” to bands of brands in segments from economy to luxury.

The top five global hotel chains – Marriott, Hilton, IHG, Wyndham and Accor – have among them around 140 brands and counting as consolidation in the industry continues. This poses “a growing challenge” for independent brands, according to Global Hotel Alliance (GHA) CEO Christopher Hartley, speaking at a HICAP 2024 View from the Boardroom panel session last week moderated by Hotel Investment Today's Managing Editor Rob Schneider.

“Does any consumer actually wake up in the morning and have a personal affiliation to any of these smaller individual brands? Arguably the answer is no, and what we’re witnessing, to a significant extent, is the consolidation of these brands now under loyalty umbrellas,” Hartley said.

“So, from a consumer point of view, the loyalty program becomes their point of contact or entry to brands of different segments... ‘I'm part of this loyalty family and I like the choice of brands and the recognition they give me across the world.’

“I see that as the future for smaller brands. They need to collaborate.”

Moreover, a challenge for independents that don’t want to go with a big brand is the growing cost of sales of working with OTAs, said Hartley, who reminded that OTAs are paying $2 billion to $3 billion dollars in marketing and to search engines to “push billions of customers into their distribution channels and that comes at a very high cost for independents.”

GHA Discovery has 40 upscale to luxury independent brands, and a membership of 28 million. The largest program in the world, Marriott Bonvoy, has 210 million members (as of end-June) and is growing “at least over two million members a month,” said Rajeev Menon, president, Asia Pacific, Marriott International, who was also on the panel.

Menon shared that in September, 70% of occupancy in Marriott hotels in Asia Pacific, excluding China, were Bonvoy members. “That’s the power of the program,” he said.

With data like these, it’s hard to imagine how small standalone brands can compete, even though another panelist, Jeff Wagoner, president and CEO of Outrigger Hospitality Group, strongly believes they still can, provided they have the fundamentals of the hotel business, which are “a great service, the right product and the right people,” he said.

Fact is, however, customers these days want more than just fundamentals, i.e., “a broader experience” beyond hotel stays, Menon said. To illustrate, access to Singapore Grand Prix 2024 in September saw Bonvoy members burning 19 million points, he said. Access to Australia Open 2024 in January saw 13.6 million points redeemed.

Bonvoy also flaunts ‘a hotel brand for every type of journey’ to customers – perhaps a Ritz-Carlton on one trip and a Courtyard by Marriott on another, depending on their travel purpose. “Having that flexibility does play out in a big way,” Menon added.

And this is the root of brand proliferation as chains amp up to offer customers brands across multiple segments and global markets, filling up white spaces in segmentation to widen the choices to guests, Hartley observed.

Who’s afraid of headwinds?

The panel also discussed headwinds facing the industry. Dillip Rajakarier, group CEO of Minor International, said hotels operate in different economies and geographies, so there will be headwinds all the time. “Agility and adaptability become key – the ability to move really fast and make decisions, not having 200 layers in the company. We have only three layers, which I think is two too much.”

Minor owns two-thirds of hotels in its portfolio; thus it bears the risk of those assets. Its mindset is different in that it focuses on equity returns and not “how much management fees we are going to make,” Rajakarier said.

“We operate in countries like Argentina, where inflation is 140%. We own the asset, and we make a profit... It becomes a piece of cake for us to operate in other countries like the U.K. where inflation is 1.7%, or the U.S., 2%.

“People jump up and down at 9% unemployment [rate] but, honestly, [there’s] the other 91% of people who are employed and who can use hotels and the facilities,” said Rajakarier, adding that headwinds create opportunities and people must have a fight mindset to find and seize them.

Rajakarier believes, for instance, that having a standalone hotel doesn’t cut it anymore today. “It doesn’t work because of the land cost. So, then you have to bring in a mixed-use concept – residences, timeshare, hotels, wellness, F&B and so on. We operate our own F&B. We don't outsource or bring in consultants to look at F&B.”

Outrigger’s Wagoner, seeing there were young hoteliers and students in the audience, addressed them directly, “There’s an element to our business and that’s about driving success...To create success, we have to be relentless in the pursuit of finding business [for the asset]. It’s what we do day in and day out, and how we continue to do better every day.”

Asia the powerhouse

One bright light amidst the headwinds is Asia, which Marriott’s Menon said “is becoming a powerhouse” that will remain “a decades-long growth story.”

“Both the U.S. and China, and other parts of the world, are investing heavily in ASEAN [Southeast Asia] and in South Asia, in India, for example. The emerging middle class in India is going from basically $3,000 GDP per capita to $10,000 in the next five to seven years to become the third largest economy in the world. There’s going to be enough and more discretionary income, and that’s where the opportunities lie. Indonesia is transitioning to become the fifth largest economy in the world in the next five years.

“Five to seven years ago, probably 40% of our business came from within Asia. Today, it’s almost 60%. We see incredible opportunity on both the development side and the return side. When you develop great assets, you’re able to deliver phenomenal returns to your owners. So, I think the world is going to shift focus [to Asia].”

Another Pacific Asia-based executive, Hannah Yulo-Luccini, CEO of Singapore-based Hotel101, talked about her company's model and how it is using "micro-ownership" of its hotel units to fuel global expansion to places like Madrid, Spain; Niseko, Japan and Los Angeles.