Why Hotel Chains Don’t Own Their Hotels

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Have you ever stayed at the same hotel brand in two cities and wondered why the quality was so different?

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It’s because brands like Marriott, Hilton, and Hyatt don’t actually own their hotels.

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Marriott, Hilton, and Hyatt own less than 2% of the hotels with their brand name on them, per The Wall Street Journal.

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The hotels are generally owned by independent owner-operators who pay the major hotel brands a franchise fee, typically between 5% and 15% of the property’s revenue, to use their name as a “hotel flag.” Independent owner-operators must pay the costs to buy the real estate, hire employees, and run the day-to-day operations.

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However, this was not always the case. In the 1950s, the same company owned, operated, and flagged everything. But, along the way, hotel brands realized that owning the real estate and paying the hotel's operating costs restricted their growth.

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The benefits for an independent owner-operator working under a significant hotel flag include access to:

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• Customers through hotel loyalty programs: Marriott signed up its 200 millionth member earlier this year, per Skift
• Best-in-class operational practices supported by data: Amenities, room pricing, room availability, how lobbies should look, what breakfast items to serve, and more
• Lower commissions on 3rd-party travel websites: Major hotel brands negotiate down the commission fees they pay 3rd-party travel websites like Booking.com and Expedia.com when a room is booked

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However, it’s not always beneficial to operate under a hotel franchise. The highest-performing hotels in Manhattan, where there is more leisure travel and greater elasticity of demand, are typically independent and smaller. They have the flexibility to create a unique brand, ambiance, and guest experience that can better cater to individuals who are willing to spend more for a luxury experience.