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Will Loyalty Programs Welcome Greater Growth in U.S. Hotels?

Zacks

The U.S. hotel industry is set to see continued growth albeit at a decelerating pace for the rest of the year. This is premised on a rise in business and leisure travel along with higher transaction volumes on the back of an improving economy, rising employment, higher real income, and increased household net worth.

Even then, peaking supply growth is expected to put pressure on pricing power, thereby tempering the performance somewhat. Another major threat comes from home sharing companies, like Airbnb, Inc., that have made steady inroads into the industry and are grabbing share from giants.

Thus, in order to survive in a tough economic environment, hoteliers are continuously devising ways to enhance guest experience and raise occupancy. Of these, offering loyalty programs is one of the best ways.

It is to be noted that rewards’ members stay longer than nonmembers and generate more revenues for their franchisees. Also, apart from bracing against the popularity of Airbnb, hotel operators are emphasizing loyalty programs to persuade travelers to book rooms directly through their channels and limit the flow of commission dollars to online travel agents like Expedia Inc., TripAdvisor and The Priceline Group Inc.

In fact, loyalty programs have started to play an essential part in determining customer preference for hotels and influence their stay frequency and spending — more than ever before. Consequently, despite the added costs associated with these programs, hoteliers are increasingly focusing on these.

Top Players

As loyalty becomes a priority for the industry, hotels are doing away with traditional ideas and trying new strategies to lure both short and long-term business.

Evidently, all the top players in the hotel space continue to make multiple enhancements to their loyalty programs to make them customer-centric. They do so to add value for guests and the overall system.

Notably, Wyndham Worldwide Corporation’s WYN Wyndham Rewards offers one of the most generous reward program payouts in the industry. Recently, Wyndham became the first hospitality company to globally expand its loyalty program across vacation ownership and vacation rental properties.

With over 52-million members, the company expects Wyndham Rewards to generate nearly a third of the incremental tours needed to hit its new owner growth target of 23%. Further, the company has formed an alliance with Caesars Entertainment Corporation CZR, which will unite two of the world’s leading hotel and casino loyalty programs.

Markedly, post its acquisition of Starwood, Marriott International Inc. MAR has linked industry-leading guest loyalty programs, namely Marriott Rewards, Ritz-Carlton Rewards and Starwood Preferred Guest. It also announced the matching of member status between the programs, thereby leading to an even larger loyalty community. Loyalty programs are Marriott's most powerful marketing platform and it continues to invest in marketing partnerships and innovations designed to provide a more rewarding experience to its guests.

It is to be noted that Hilton Worldwide Holdings Inc. HLT has created one of the largest loyalty programs, Hilton Honors. With more than 63 million members, this network has created an extremely valuable asset for the company. In fact, about 57% of all occupancy per night takes place through this member program.

In fact, the company recently entered into a partnership with American Express (Amex) in a bid to boost the program’s ability to drive demand. Slated to begin in January 2018, Amex will launch and market a portfolio of Hilton Honors credit cards in the country, which will aid in growing the program’s membership and deepen member engagement.

Meanwhile, in first-quarter 2017, Hyatt Hotels Corporation H launched a new loyalty program, World of Hyatt, which replaced its Gold Passport loyalty program. Notably, World of Hyatt is a platform for guest engagement. Given these enhancements, the company expects the program to build even higher levels of guest preference and help in sustaining market share gains.

Choice Hotels International, Inc.’s CHH loyalty program, Choice Privileges, is rapidly expanding and continues to drive guest to its franchisees’ hotels. The program recently surpassed 32 million members and has already added more than 2.5 million new members this year.

In fact, as per a recent study conducted by Ideaworks Company last week, Wyndham Rewards is touted to be the most-rewarding loyalty program in the U.S. hotel industry with an average return of 16.7% in value on every dollar spent on a room booking, followed by Marriott Rewards and Hilton Honors.

While Hilton has a Zacks Rank #2 (Buy), Wyndham, Marriott, Hyatt and Choice Hotels currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bottom Line

Over the past six months, the Zacks Hotels and Motels industry has fared better than the broader S&P 500 index. While the industry has gained 22.1%, the broader index has added only 8.4%.



Going forward, hoteliers need to be smart enough to capitalize on the shifting trends and adapt to new consumer expectations.

Given that loyalty programs are the key to better brand experience, hoteliers must continuously reengineer these to provide a more fulfilling experience. Loyalty will follow automatically.

Also, as loyalty programs offer greater flexibility and personalization, these may incentivize repeat bookings and lead to long-term revenue growth.

Thus, loyalty programs are likely to play a key role in moving the industry even higher than its current position at the top 31% among the 265 Zacks industries.

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