Marriott and Hilton, two of the largest hotel chains, are currently engaged in a battle over the fees they charge owners and credit-card issuers. While analysts often focus on factors like room count and loyalty program growth, the fees earned by these companies for their services to hotel owners are a key metric to consider. In the first quarter of this year, fee revenue accounted for approximately 95% of Hilton’s adjusted EBITDA, highlighting its importance to the company’s financial performance.
A comparison of the fees earned by Marriott and Hilton over the past 26 quarters shows that Marriott is significantly ahead in terms of total fees generated. Despite Hilton’s faster growth rate in franchise and licensing fees, Marriott’s fee revenue volume is far greater. In fact, it would take Hilton about 40 years to catch up to Marriott if current trends continue. Marriott generated $1.24 billion in gross fee revenue last year, compared to Hilton’s $773 million.
Both Marriott and Hilton charge hotel owners base fees and incentive fees based on performance targets. These fees are crucial for profitability and are influenced by metrics such as average daily rates and occupancy rates. The companies aim to maximize profitability while also remaining competitive in pricing for hotel owners. As they expand into new segments such as midscale and extended-stay offerings, they face challenges in maintaining fee structures due to lower fees in these segments.
While net-room growth and loyalty program membership are often emphasized by analysts, the focus on generating fees is equally important. Hyatt CEO Mark Hoplamazian highlighted the significance of fee growth, emphasizing that one high-end hotel can generate the equivalent fees of multiple midscale hotels. Marriott and Hilton are expanding their offerings to cater to middle-class travelers and capture market share in underserved segments like midscale and extended-stay.
Analysts tend to prioritize metrics like hotel development pipelines and loyalty program numbers, overlooking the critical importance of fee generation. Marriott CEO Tony Capuano humorously noted that his tombstone may feature a net-room growth number, reflecting the industry’s obsession with this metric. Despite Hilton’s faster growth in footprint and loyalty members, Marriott remains larger in terms of room count and fee revenue generated.
As Marriott and Hilton continue to expand their offerings and loyalty programs, the relative power of each company’s loyalty program will become a metric for investors to track. The focus on generating fees per room, rather than on metrics like development pipelines or loyalty member counts, is key to understanding the financial health and competitive positioning of these hotel giants. Ultimately, the battle between Marriott and Hilton over fees and revenue generation will shape the future of the hospitality industry.
