Analysis: For or against hotel loyalty programmes?

At the Gulf and Indian Ocean Hotel Investors Summit (GIOHIS), owners’ representatives voiced concerns over loyalty programmes. Omran Hospitality head of asset management Zoltan Kali questioned them and said: “Are these programmes making guests behave in a more loyal manner? In general, people tend to be signed to more than one loyalty programme most of the time. So are we really making guests loyal to one brand, or is it more of a discount aspiration?”

Luca Bandecci, who is the general manager and vice chairman of SBK Holding Hospitality Committee (the company that owns three Fairmont properties in the UAE — Fairmont Bab Al Bahr, Fairmont Dubai, and the newly opened Fairmont Fujairah) told Hotelier over a telephone interview: “Whenever you sign with an operator you have the opportunity to negotiate and relook at the loyalty promrame conditions. In our scenario, when we have an operator that we have already signed up with… and then you look at the acquisition of Accor buying FRHI. In this scenario, the conditions of the loyalty programme changes and you are sort of obliged to take the changes that goes with the whole acquisition. But either way you look at it, these [loyalty programmes] are an integral part of a management contract, and it’s very difficult to sign up with a chain by requesting to opt out of its loyalty programme.”

He also said that in some cases, operators compromised and gave in to the owning companies’ demands of opting out of the programme in order to be present in a particular destination, mainly gateway cities. “Overall there is not much that can be discussed, it’s actually easier to negotiate management fees with an operator rather than the loyalty programme. You can compensate the costs by negotiating the fees,” he said.

However, owners who were speaking at GIOHIS were not in agreement over the incremental value that a loyalty programme provides for each property.

Kali challenged the very reasoning behind a loyalty programme and said: “It is no longer loyalty, we need to be honest about it. From an owner’s perspective these loyalty programmes fly under the radar more often than not, and we rarely look into them because we are mostly concerned about top line [revenue] and cost. I witnessed many asset managers not even understanding how these work because they tend to be quite complicated and only the operators understand them.

“We have not looked into asking third-party companies to audit them, and we currently try to understand it ourselves. In our cases, which are mostly with one large operator, they [loyalty programmes] don’t bring us money. In fact, we are losing money, if we cancel them altogether [it would be a lot different].

“The main assumption here is that every guest that is part of a loyalty scheme is an incremental demand generator. This simply means the guest would have not come to the hotel had they not been a member of that particular operator’s loyalty programme. That’s a wrong assumption, it’s not true.”

However, operators claim loyalty programme members are responsible for a guaranteed percentage of occupancy: Hilton has pegged that number at above 50% of its hotel’s occupancy, and similarly, Marriott’s programme drives 35% of its room nights across the Middle East and Africa.

Aligi Gardenghi, the VP marketing of EMEA and commercial director MEA of Hilton, responded to Kali’s assertion, citing examples from the Hilton Honors (HHonors) loyalty programme.

Gardenghi said: “The way we develop ‘what is meaningful for the customer’ is, we have embedded that in to the loyalty programme. It’s not just about the points that members can earn — but the ability for guests to check in, and choose your room out of the hotel floorplan, that is something we have given our HHonor members exclusively. This also helps the owners protect their interest of creating value on meaningful things.” He also revealed that Hilton does not offer free Wi-Fi for guests who are not HHonor members.

According to Kali and Omran’s calculations, a new property would need around 3,000-4,000 incrementally generated room nights in order to break even with the redeemed stays by loyalty membership holders. “I don’t think that happens because those are a lot of room night; in fact, we cannot measure it,” he said. Omran Hospitality is an asset owner and manager that currently operates nine hotels, which includes the InterContinental Hotel Muscat, Millennium Resort Mussanah, Crowne Plaza Hotel Duqm and the Alila Jabal Akhdar to name a few.

Bandecci looked at it from the guests’ point of view and said it is better to join loyalty programmes rather than resist them.

He said: “We have to see what the guest wants. It’s a fact that consumers and travellers are very keen on earning and being part of loyalty programmes. So, as an owner I’m also thinking why will I fight not to be part of the loyalty programme?, if the market shows that loyalty programmes are an important element in the decision making process for travellers.”

A representative of an owning company of a hotel on the Palm Jumeirah pointed out that the operator “levies additional fees on owners by telling customers ‘become a member and you get free Wi-Fi’”. He added: “So as an owner, now that fee has to be shouldered by me, and is a huge problem — similar scenarios in the USA with different owners and operators have led to lawsuits as well.”

Gardenghi sympathised with the representative and commented: “The onus is a bit on us, and our general managers to explain more clearly to owners about all the details of the programmes. But as operators it’s not like we want the story to be hidden on purpose.”

“Hilton is probably one of the most transparent to its owner’s portal in the industry, where any management company can download an audited statement at the end of the month, which consists of the full list of transactions complete with the breakdown of the cost of the HHonors programme to the detail of a single customer and the re-imbursement on that. We run the HHonors programme as a unique entity from which we are constantly reinvesting in marketing activities. We have a separate balance sheet and disclose part of the audited statement, since we are a publicly listed company, with our owners’ counsel group. We also bounce ideas [and take suggestions] from the counsel group before we implement some of these ideas,” Gardenghi said.

Kali added that no particular loyalty programme stands out as the “ideal one” acknowledging that each operator is trying to put its best foot forward.

He said: “Both owners and operators need to take inspiration from loyalty programmes implemented across other industries. The hotel industry has learned and got inspired by the airlines, who do a fairly decent job in profiling [guests] better than the hotel companies do but they do a great job in value-add–upgrades and retailing.

“We don’t see enough of upgrades, and as a loyalty programme member I will be upgraded because I have a ton of those points. But, I fly Emirates on economy, and if I had a few of those points accumulated, I will certainly get upgraded. ‘How do hotels create that?’ is a question we need to ask the industry.”

Some operators think they have it cracked. Wyndham’s revamped loyalty programme, for example, is based on a straightforward rule; in a separate interview, its regional VP for EMEA, Ignace Bauwens, told Hotelier that Wyndham Rewards members can redeem stays against points across the board without any blackout dates. “It’s straightforward, 15,000 points earns you a night’s stay, and the manner in which points are earned as well is quite transparent.”