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IHG will let more partners award its points – because it can now keep the money

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Tucked away in the InterContinental Hotels Group PLC financial results last week was an interesting disclosure about its strategy for IHG One Rewards points.

IHG is going to be more aggressive in selling its points to third parties to reward their own customers.

Why? It’s very simple. For the first time, it will be allowed to keep some of the money.

IHG changing how the system fund works

In a linked announcement, IHG is also increasing the amount of money it pays hotels to accept reward night redemptions. This will hopefully mean that hotels are willing to make additional rooms available above and beyond their contractual obligation.

Why wasn’t IHG keeping the money it made from selling points?

We’re now going to jump into the laws relating to franchising. I’ve simplified this to make it easier to follow.

Following multiple historical scandals (not involving IHG!), many countries introduced strict laws on the selling of franchises.

When you stay at a Holiday Inn, the hotel owner pays two types of fee:

  • the fee for the use of the brand (IHG says this is usually 5% to 6%) which must be separated out from all other fees payable to the brand owner, and is almost pure profit

This second pot represents very serious money. In 2023 alone, $1.6 BILLION was paid into IHG’s system fund.

IHG to change system fund

What’s this got to do with selling points?

Historically, whenever IHG sold IHG One Rewards points to an external party – whether to its credit card partners, to you directly or to a partner such as Hertz – all of the money went into the ‘system fund’.

This is now changing.

IHG has received permission from the owners of its hotels to take a profit on the sale of points to third parties.

For example, in a 100% bonus promotion, you can buy IHG points for 0.5 cents each. All of this money historically went into the system fund. Going forwards, IHG will buy points from the system fund at a set price – say 0.3 cents – and keep the remainder as profit.

IHG is now highly incentivised to strike more deals with third parties to award its points because a proportion of the money flows into its profits.

Why did the hotel owners agree to this?

You might be wondering why the hotel owners agreed to this. After all, less money in the system fund means less money for marketing etc.

IHG offered hotel owners a carrot. As part of a new deal, it is reducing the amount of money that hotel owners pay into the system fund to pay for IHG One Rewards. No wonder the hotel owners are happy.

IHG to change system fund economics

But does this stack up?

You don’t need a degree in economics to realise that the statements above are contradictory:

  • IHG will be putting less money into the system fund from the sale of points to third parties (unless sales volumes increase sharply)
  • hotel owners will be putting less money into the system fund for loyalty benefits when you stay in a hotel
  • hotel owners will be paid MORE when accepting a reward night

On the face of it, the numbers don’t stack up. However the system fund is a big beast which covers a lot of different functions and there are many ways to reduce expenses, especially in marketing, to fill the gap.

You can learn more about the change in this Stock Exchange announcement.

PS. IHG is apparently the first major hotel group to pocket a percentage of third party points sales for its own benefit. You can expect the other major players to follow suit.


IHG One Rewards update – May 2024:

Get bonus points: IHG One Rewards is offering 2,000 bonus points for every two cash nights you stay (not necessarily consecutive) between 1st April and 31st May 2024. You can read our full article here and you can register here.

New to IHG One Rewards?  Read our overview of IHG One Rewards here and our article on points expiry rules here. Our article on ‘What are IHG One Rewards points worth?’ is here.

Buy points: If you need additional IHG One Rewards points, you can buy them here.

Want to earn more hotel points?  Click here to see our complete list of promotions from IHG and the other major hotel chains or use the ‘Hotel Offers’ link in the menu bar at the top of the page.

Comments (36)

  • JDB says:

    This published announcement is very interesting, but there is also big pressure on IHG to do more/spend more to increase the share of bookings that come via group sources rather than OTAs which dominate, even when IHG is running promotions. Individual hotels are officially quite constrained about selective discounting/running their own promotions but are pushing back hard on this because IHG isn’t doing enough to help sales.

    • Rob says:

      They should advertise with us then! Their lack of activity vs Hilton, Marriott and Hyatt is presumably noticeable.

  • Chrisasaurus says:

    Should we expect others to follow suit or should we expect this to be robustly challenged given the very real reason for the current rules to exist?

    • Rob says:

      I suspect the argument goes like this: hotels pay the equivalent of (say) 0.3c per point so why should IHG be handing over 0.5c when it sells a point?

      If IHG was trying to pay less for the points it issues externally than the hotels pay for points then it would have been a harder sell.

      What I think is helping the fee reduction is the new redemption system. A major cost for loyalty schemes is when a room is redeemed at a hotel which is 95% full, at which point the hotel is paid in full and not the usual $25-$50. By moving to a revenue based system, there will be fewer people redeeming at ‘almost full’ hotels (because the high cash rates leads to a high points rate) and so they book elsewhere, cutting what IHG has to pay.

      • BBbetter says:

        But wouldnt this revenue based system put off potential points buyers?

        • Rob says:

          IHG doesn’t allow part payment with points, so there will always be people buying as a top up. But, yes, there is no-one out there doing what I do with Hyatt and Hilton, which is to buy huge volumes of points to instantly redeem for a major gain.

          • TGLoyalty says:

            IHG is dynamic based upon pricing but pretty sure it’s not just purely revenue based ie points per £ as you can get different value from different properties.

            And while it doesn’t allow part pay with points it will offer to sell you points at a better rate than its usual non offer price.

          • HampshireHog says:

            Err I did Rob on a 5 for 4 at Hilton Tokyo at 100% bonus, top value

          • Rob says:

            I meant out there in the big wide world, not the HfP world!

      • Chrisasaurus says:

        That’s fair – and level playing field on pride paid to the system makes sense.

        Challenge for the low to mid range hotels now though is that they’re seeing the brunt of the redemptions – the more closely it moves to revenue-based redemptions the more it becomes about taking any opportunity to redeem above a threshold point value and eventually, like Nectar, it becomes a matter of only ever keeping a balance until the first redemption opportunity since there’s no potential upside on the table to wait for.

  • BA Flyer IHG Stayer says:

    Sometimes a hotel reveales how much it gets paid for a reward booking. Same hotel the stay has posted with values of £ 9.94 and £ 20.00 for two separate stays. It’s nice that I get both status and non status qualifying points,

    I assume the diamond breakfasts and use of lounge passes are also paid to hotels from the system fund?

    • ken says:

      Less than £10 seems incredible.

      Can the variable costs of a room (cleaning, changing & cleaning linen & towels, utilities, consumables) be much less than that ?

      What about free breakfast ? How is that accounted for.

      I know the argument sometimes goes that a guest may spend in the bar / restaurant – but I suspect 9 out of 10 don’t.

      Marginal revenue at this level is more trouble than its worth.

      • Chrisasaurus says:

        Suspect that people on a ‘free’ stay may actually be significantly less likely to spend in the hotel vs the business-funded stays that earned them the points…

        But the point I think is that in a business where revenue and costs are entirely divorced from each other (see also: Airlines) making something is preferably to making nothing just so long as you don’t allow opportunities to make ‘something’ cannibalise opportunities to make ‘lots’ – ergo restrictions on bookable points rooms so you’re selling them for cash where possible and filling in the slack with points redemptions

      • blenz101 says:

        The majority of the room cleaning costs will be labour which the hotel is paying anyway at an hourly rate if the room is cleaned or not. Bulk laundry where not undertaken in-house is usually by weight so negligible additional cost. HVAC is centralised so no real extra cost their either.

        In many markets (i.e. think beyond the UK) the hotels will make ancillary revenue through parking fees, F&B spend, paid upgrades at the desk, early / late check in fees, bag storage, commission on concierge bookings, onsite shop, airport pickups etc.

        Given the very low cost of having your already employed cleaning staff service you can see that it having a guest in a room provides far greater revenue potential than leaving the room empty.

        • ken says:

          I’ve heard these arguments for un-profitable marginal revenue for my whole working life.

          Labour costs are in many cases based zero hour contracts (or similar).
          If there are less rooms filled, you can guarantee there will be less hours paid.

          Laundry – yes you may describe it as negligible but its a real identifiable cost, doesn’t matter if charge by weight or per pillowcase / sheet.

          There is a real addition cost in electricity, hot water, air-con even if each of these elements measured in pence.
          Even toilet paper / shower gel has a real cost.

          Then there are the costs that never get attributed when looking at marginal revenue – stained sheets or towels need replacing (unless its Brtannia), micro scuffs and non chargable damage in the room, eventually the room needs re-decorating.

          The examples of incremental revenue you give (paid upgrades at the desk, early / late check in fees, bag storage, commission on concierge bookings, onsite shop, airport pickups etc) – 99 point something percent of reward booking aren’t paying for these things.

          Bag storage ? I’ve never paid for that even leaving cases for the best part of a week.

          • TGLoyalty says:

            I think the real sell is F&B spend and the chance to showcase for repeat business.

            I’m actually one of those who will happily use the money I otherwise would have spent on the room in the restaurant or bar if it’s of a good enough standard.

          • ken says:

            I absolutely get the F&B one, but how many really good restaurants are in IHG hotels ?

            And bars ? A drink before or after you go out maybe, but they are never going to be a destination.

            Hardly the American bar at the Savoy

          • TGLoyalty says:

            I always wonder that and then I walk past a town centre premier inn’s bar every other day and see many guests having a pint where I see far fewer in the more posh boutique style one a few mins walk away, which I visit for the odd drink.

            I feel Indigo hotels outside London have deffo got it right with F&B too.

    • BBbetter says:

      That explains why many indy hotels dont join the chains.

      • Rob says:

        IHG hotels are contracted to make 5% of rooms available for rewards every night, for which they are paid virtually nothing. However, it is sold to them on the premise that these rooms would otherwise be empty (remember that if occupancy goes above 95% the hotel is paid in full), the $25 they get pays for room cleaning and any F&B spend is upside.

        • Alex B says:

          In the world of variable pricing, do you know how the price of the room is calculated in this scenario? Just the average of all the rooms sold that night?

  • BA Flyer IHG Stayer says:

    I’m just reporting what was showing when the points stay posted into my account.

    Others may have similar posts if they check. You can tell because you gain points on that cash element.

    • Ken says:

      I believe you just gobsmacked at quite how low the payment can be.

      • BA Flyer IHG Stayer says:

        No I’ve been aware of how much (or little) IHG pays hotels from previous comments from Rob.

    • John says:

      Earning points is an error.

      All my points stays, for at least the past 10 years show how much the hotel received from IHG (website only) but only rarely is there an error where I actually earn points.

      HI and HIX can be £15 to £25 but CP, Indigo, IC tend to be around the £50-£100 mark even when the hotel is not >95% full. Highest I’ve seen in my account was £450 for an IC.

      If I erroneously earn points, it isn’t on the full amount that was paid by IHG, for example I did earn points on a points stay at HI – according to my receipt IHG paid them £25 ish but somehow I earned points on a spend of £5 (definitely did not spend anything)

  • Simonbr says:

    Does this news increase the liklihood of a new UK IHG points – earning credit card?

    • Rob says:

      Not really – it doesn’t change the fact that the interchange fee is so low that there is no money for the bank to buy points.

      • TGLoyalty says:

        In a world where you compare to what you had x amount of years ago.

        At some point you have to start again and look at new ways of doing it like JV approach Virgin took. $0.5 per point isn’t too bad either tbf.

        The other risk is you lose market share to Amex or chase turns up and captures market share.

        What are the chances of Amex becoming a transfer partner with IHG after this?

  • Alex B says:

    Are there additional payments due to IHG if a booking goes through the IHG website as opposed to say Expedia?

    • Rob says:

      Obviously Expedia takes its 22%. The brand fee would still be due to IHG. I suspect the loyalty fee is waived, not sure about the fees lumped under ‘other’ for the system fund or whether IHG charges its own booking fee if you book direct.

      • John says:

        From I understand some chain do charge a booking fee but it’s much lower then OTA’s. I don’t think IHG charges one themselves.

    • John says:

      They pay the base fees no matter the booking channel. Booking via OTA then makes the hotel pay a rather hefty commission vs what would be payed if booked directly.

  • FNT Delta Diamond says:

    Outside Asia-Pacific and Europe, IHG has neither an attractive hotel portfolio nor an attractive loyalty program. The vast majority of IHG hotels in the United States and Canada are dumpy Holiday Inn and slightly less dumpy Holiday Inn Express properties. I just don’t see how anyone makes IHG their number one program of choice.

    • Tom says:

      Over five billion people live in Asia Pacific and Europe, but you don’t see how “anyone” makes IHG their number one choice because the US hotels are poor? OK then…

    • G says:

      Correct this to “The vast majority of hotels” in the US/Canada are dumpy.

      There’s a world (better one) beyond North America.

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