You Won’t Believe How They Profit

Good Evening! 👋

Welcome to Wealth Wednesday! I came across this, and I thought it was pretty cool!

Dear friend,

Most people think Marriott, Hilton, and Hyatt are in the hotel business. The truth? They’re in the branding business.

If you’ve stayed in a Marriott recently, chances are the company didn’t own the building, didn’t hire the staff, and didn’t run the day-to-day operations. Instead, independent owners did all of that. Marriott just put its name on the door and collected a fee.

This model has quietly reshaped the entire industry. Marriott has tripled in size over the past two decades. Hilton and Hyatt have followed a similar path, and together, they’ve become global giants not by owning more real estate, but by owning more hotel brands.

So why did hotels shift away from real estate, and what lessons can we take as investors?

The Shift to “Asset-Light”

In the past, hotel chains grew by building, owning, and operating properties. That worked fine until growth hit a wall. Real estate is expensive, and every new hotel adds risk to the balance sheet.

By moving to a franchise model, Marriott and its competitors changed the economics entirely. Owners buy the building, take on the debt, hire the staff, and run the business. The hotel chain simply licenses its brand, shares its operating playbook, and provides revenue management tools to maximize room rates.

For this, they collect fees that typically range from 5 to 15 percent of revenue. It is recurring, high-margin income without the headaches of owning property. And because Marriott does not have to cover construction or payroll, most of that money flows straight to the bottom line.

Think of it like the difference between being a landlord and being Visa. A landlord collects rent but has to fix the leaky roof, deal with repairs, and eat the cost of a vacancy. Visa just skims a fee every time you swipe a card, no matter what happens in the economy.

That is what Marriott and Hilton have built. They turned themselves into toll collectors on global travel. Today, Marriott and Hilton each own less than 1 percent of their hotels. Hyatt owns about 2 percent. The “asset-light” model has transformed them from property managers into global royalty collectors.

Pricing Power on Display

If you’ve ever tried to book a hotel room and noticed the price jump overnight, you’ve seen this model in action.

Chains like Marriott and Hilton give their franchise owners powerful pricing tools. These systems adjust rates in real time, based on demand in the local market. If Taylor Swift announces a concert in town, prices don’t just rise in the city center. They spike across a 40-mile radius. Rooms that were $199 yesterday might jump to $249 or more overnight.

This kind of revenue management is a huge value-add for owners. It means they’re not leaving money on the table during high-demand events, and they’re not overselling their rooms on slower nights either.

Here’s the investing lesson: pricing power is one of the strongest signals of a great business. If a company can raise prices without losing customers, it has leverage that competitors can’t easily copy. Marriott, Hilton, and Hyatt have turned real-time pricing into a competitive advantage that keeps franchisees loyal and profits steady.

Loyalty: The Secret Weapon

If dynamic pricing helps owners squeeze more out of each room, loyalty programs make sure those rooms actually get booked.

Marriott Bonvoy has over 180 million members. Hilton Honors is roughly the same size. Hyatt trails at around 40 million, but that is still a massive customer base. For travelers, these programs are like currency. You might stay at a Marriott in Tallahassee not because you care about the hotel itself, but because you want to rack up points to redeem later in Miami or New York.

That changes the entire equation for hotel owners. Flying a big flag is not just about name recognition. It is about instant access to millions of loyal travelers who actively seek out Marriott, Hilton, or Hyatt when they are booking.

From the brand’s perspective, this is where the compounding really kicks in. More loyalty members attract more owners. More owners expand the footprint. A bigger footprint gives members more places to earn and redeem points, which pulls in even more loyalty members.

It is a flywheel effect, and it is one of the biggest reasons these companies have scaled into global giants without owning much real estate.

The Luxury Exception

Not every hotel can be franchised. At the high end of the market, brands like Marriott, Hilton, and Hyatt still choose to operate many of their properties directly. The reason is simple. Luxury is built on consistency, and consistency is hard to guarantee when someone else owns and manages the property.

When you book a Ritz-Carlton or a Waldorf Astoria, you expect a certain level of service, design, and detail. The brand is not just selling you a room. It is selling you a carefully crafted experience. From the moment you walk through the lobby to the way the staff greets you, every touch point matters. That level of precision is much harder to achieve when the hotel is operated by an independent franchisee who might cut corners to protect margins.

This is why most luxury hotels are still operated directly by the brands themselves. Marriott manages EDITION and The Ritz-Carlton. Hilton manages Waldorf Astoria. Hyatt manages Park Hyatt. In such cases, the company assumes full responsibility for operations, as the brand's reputation is at stake. One bad experience at a luxury property can ripple through the entire brand portfolio.

There are strategic reasons, too. Luxury hotels often act as laboratories for new ideas. Marriott acquired the W Hotel in New York to utilize it as an incubator for innovative designs and guest experiences. Hyatt purchased Hotel Irvine, renovated it from the ground up, and later used the lessons learned to influence other properties. Luxury gives these brands a playground to experiment with innovation before scaling it across their broader network.

For investors, the lesson here is that even the strongest business models have limits. Franchising works beautifully for scale, but it is not always the right tool. At the very top of the market, control and reputation matter more than efficiency. The ability to recognize where to franchise and where to manage directly is part of what makes Marriott, Hilton, and Hyatt such durable companies.

The Investor Takeaway

What I love about the hotel industry is that it shows how powerful an “asset-light” model can be. Marriott, Hilton, and Hyatt figured out they did not need to own the buildings to scale. They just needed to own the brand, the loyalty ecosystem, and the systems that helped owners make money.

As investors, we should pay attention to businesses that follow a similar playbook. Visa and Mastercard do not issue credit cards or lend money. They simply run the network and collect a fee every time a transaction happens. Airbnb does not own the properties you book. It just connects hosts and travelers, taking a cut of the revenue. Even software platforms work the same way. Build the system once, then collect recurring fees every time someone uses it.

The common theme is scale without the burden of heavy assets. Companies that can compound revenue without tying up massive amounts of capital often become the most durable long-term investments. They can expand faster, earn higher margins, and ride out downturns because they are not stuck holding the risk.

That is the lesson from Marriott and its competitors. Growth is not always about owning more. Sometimes it is about owning less and scaling smarter.

Talk to you on Sunday,
Matt Allen

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