Why Marriott, Hilton and Hyatt Don’t Actually Own Most of Their Hotels | WSJ The Economics Of

Summary

The video script explores the transformation of the hotel industry, focusing on Marriott's strategic shift from real estate ownership to brand franchising, which has significantly increased its scale. Competitors like Hilton and Hyatt have followed suit, leveraging the franchise model to expand rapidly. This approach offloads operational and financial risks to independent owners while hotel brands focus on brand value and customer experience. The script also discusses the impact on customers, the importance of dynamic pricing, and the benefits of loyalty programs in driving the industry's growth.

Takeaways

• 🏨 Marriott has grown significantly over the past 20 years by moving away from real estate and focusing on branding.
• 🌍 Marriott, Hilton, and Hyatt are expanding globally, with Marriott operating 8,700 hotels across 139 countries and territories.
• 📈 The hotel industry has shifted towards a franchising model where independent owners operate most of the hotels under big brand names.
• 💼 Independent owner-operators are responsible for the real estate and staff, while hotel brands provide the brand name and support.
• 💰 Hotel brands benefit from franchise fees, which can range from 5% to 15% of a property's revenue, without bearing the cost of real estate.
• 📊 Brands provide data and insights to help owners maximize room revenue, adjusting prices dynamically based on market demand.
• 🏢 The growth of hotel brands has been accelerated by the reduction of financial risks associated with real estate ownership.
• 🛏️ Hotels use revenue management systems to optimize occupancy and pricing, sometimes leading to rapid price fluctuations.
• 🎟️ Loyalty programs are a significant draw for hotel brands, with millions of members incentivized to book through the brands.
• 🏙️ In high-demand markets, independent hotels may outperform branded ones due to greater demand elasticity and personalized service.
• 🏰 Luxury tier hotels are more likely to be operated by the brand itself to control the guest experience and offer a range of amenities.
• 🏗️ The number of branded hotels is expected to continue increasing, with a focus on strategic property purchases for innovation and design.

Q & A

What significant change did Marriott make decades ago that contributed to its growth?

Marriott decided to move away from the real estate business and commodify its name, which allowed it to scale up rapidly.

How many hotels does Marriott currently operate, and in how many countries and territories?

Marriott operates 8,700 hotels across 139 countries and territories, showcasing its global hospitality expertise.

Why are competitors like Hilton and Hyatt following Marriott's business model?

Hilton and Hyatt are following Marriott's model because it allows them to grow their brands faster without bearing the asset costs, by using a franchising approach.

What is the role of independent owner-operators in the hotel industry according to the script?

Independent owner-operators own the hotels, employ the team members, and are responsible for the day-to-day operations while paying franchise fees to use the big hotel names.

How has the shift to franchising affected the hotel brands' financial risks?

The shift to franchising has removed a lot of the financial risks associated with real estate, as the brands are not responsible for the asset costs or day-to-day operations.

What percentage of properties do Marriott and Hilton own according to the script?

Marriott and Hilton each own less than 1% of their properties, focusing more on brand management rather than property ownership.

What are the franchise fees that hotel owners pay to the brands, and what do they get in return?

Franchise fees can range from 5 to 15% of the property's revenue. In return, owners get the brand's name, data on amenities and operations, and access to the brand's loyalty programs.

How do hotel brands prove that having their name on a property is worth the franchise fees?

Hotel brands provide data and support to help owners maximize room revenue, ensuring that the benefits of the brand affiliation outweigh the franchise fees.

What is the significance of revenue managers in full-service hotels?

Revenue managers are responsible for optimizing room rates based on market conditions, ensuring the hotel's bottom line is maximized and managing occupancy across different days.

How do hotel loyalty programs benefit both the hotel owners and customers?

Loyalty programs incentivize guests to shop within the brand's ecosystem, increasing customer base and revenue. Owners benefit from lower fees on booking platforms and higher occupancy rates.

In what scenarios might an independent hotel be more beneficial than a branded one?

In high-demand markets with more leisure travel, independence might be a better option as it allows for greater demand elasticity and potentially higher profits without sharing revenue with a brand.

Why do luxury hotels tend to be operated by the hotel brand itself rather than being franchised?

Luxury hotels require a higher level of service and amenities, and brands prefer to manage these properties to control the guest experience and maintain the brand's luxury reputation.

What is the current trend in the US hotel industry regarding branding?

Two-thirds of all hotels in the US are branded, indicating a strong preference for affiliation with known hotel brands among property owners.

How does the script suggest the future of branded hotels is shaping up?

The number of branded hotels is set to increase, as seen in the properties currently under construction, offering consumers more choices and expanding the reach of hotel brands.