Hotel Fee Wars: Why Marriott and Hilton's Growth Isn't Equal

20.05.2024 - 23:51 / skift.com / Mark Hoplamazian / Sean Oneill / Marriott International / Hilton Hotels

Marriott and Hilton appear to be neck-and-neck in the race to expand their footprints and loyalty programs. But if you look at the more important metric of fees earned for services they provided hotel owners, you’ll see Marriott far ahead.

Hotel groups charge owners fees for managing or franchising hotels. This fee revenue is critical. Hilton’s fee revenue drove about 95% of its adjusted EBITDA in the first quarter.

Fee revenue also has the virtue of being subject to auditing — unlike metrics like net room growth and loyalty program membership, which don’t have agreed-upon industry standards.

Skift compared the fees Marriott and Hilton earned in the past 26 quarters, from the start of 2018 through the first months of this year. Here are a few takeaways:

The hotel giants charge hotel owners base fees, which are static, and incentive fees that are generated by meeting performance targets. Higher average daily rates and improved occupancy can boost both types.

Hilton, for instance, generated 80% of its total fees in the first quarter from base and incentive fees for franchising hotels. Hilton’s cut typically reached about 5% of a franchisee’s room rate, but details varied by contract.

Marriott and Hilton aim to optimize their fee structures to max out profitability while maintaining competitive pricing for hotel owners. This strategy involves a careful balance between base fees, incentive fees, and additional revenue streams from their loyalty programs.

Yet this strategy will become more difficult as the companies expand their offerings downscale, where fees tend to be lower.

The companies aim to grab share with middle-class travelers in midscale, extended-stay, and premium economy segments that they’ve previously avoided. Last year, Marriott absorbed City Express, announced an extended stay brand in the “affordable midscale” category called StudioRes, and debuted a midscale brand in Europe called Four Points Express by Sheraton. This year Hilton debuted LivSmart Studios and bought Graduate Hotels.

“I always marvel at everyone focusing on net-rooms growth instead of net fee growth,” said Hyatt CEO Mark Hoplamazian while speaking in April at the Hotel Investment Conference South Asia (HICSA). “One of our hotels, a Grand Hyatt in a great location, is probably the equivalent of about 10 midscale hotels [in terms of fees].”

Despite the usefulness of fees, you rarely hear about them. Hotel analysts obsess over hotel development pipelines instead.

“When I die, they’ll put the net-rooms growth number on my tombstone,” joked Marriott CEO Tony Capuano at a press event this year.

But the net-rooms growth race needs to be put into context. By room count, Marriott is a third larger than Hilton. Yes, Hilton has been