Is the Hotel Franchise Fee Model Still Worth It for Owners?

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The Hotel Blueprint

Royalty, marketing and loyalty fees are compounding faster than the room revenue they’re priced against, and the gap is widest in the one segment where brands are signing the most new flags.

The franchise fee model that underpins most of the world’s branded hotels is being tested by a simple arithmetic problem: at nearly every major hotel company, fee revenue is now growing faster than the room revenue it is supposed to track. This isn’t a story about brand strength or loyalty-program scale, the two things earnings calls tend to lead with. It’s a story about a cost line that keeps compounding on an owner’s P&L even in years when RevPAR barely moves โ€” and it is compounding fastest in upper-upscale, the segment where Marriott, Hilton, IHG and Accor are all pushing hardest to sign new hotels. For a GM watching system fees post to the ledger or a revenue manager building next year’s budget, that divergence is the number worth understanding before the next franchise renewal conversation.

– The Fee Line Is Outgrowing the Room Line

Every franchise agreement charges a base royalty on room revenue โ€” Marriott discloses a range of four to seven percent of room revenue, plus up to four percent of food and beverage revenue for some brands, on top of separate charges for its loyalty program, reservations system and marketing fund, according to its own annual filing. In theory, if room revenue is flat, the royalty owners pay should be roughly flat too, since it’s a straight percentage.

That isn’t how full-year 2025 played out. Marriott’s worldwide RevPAR rose 2.0 percent for the year, but its gross fee revenues โ€” the royalty, marketing, loyalty and reservation charges billed to owners and other fee sources โ€” rose 5 percent to $5.4 billion, and the company has guided to 8 to 10 percent fee growth in 2026 against RevPAR guidance of just 1.5 to 2.5 percent. Hilton’s system-wide comparable RevPAR grew only 0.4 percent for the year; its management and franchise fees grew 6.4 percent. IHG’s global RevPAR rose 1.5 percent against fee revenue (what it calls “revenue from reportable segments”) growth of 6.7 percent, and its fee margin expanded 3.6 percentage points to 64.8 percent.

CompanyFY2025 RevPAR growthFY2025 fee revenue growth
Marriott International+2.0% (worldwide)+5% (gross fee revenues, to $5.4bn)
Hilton Worldwide+0.4% (systemwide comparable)+6.4% (management & franchise fees)
IHG Hotels & Resorts+1.5% (global)+6.7% (revenue from reportable segments)

Fee Revenue Growth vs. RevPAR Growth, Full-Year 2025. Each row is drawn from the named company’s own full-year 2025 results announcement.

The mechanism explains the gap: fee revenue isn’t just a percentage of one owner’s room revenue, it’s a percentage applied across a growing system, plus a set of ancillary streams โ€” co-branded credit card royalties chief among them โ€” that ride on cardholder spending rather than on any single hotel’s performance. Marriott’s own guidance flags an expected 35 percent increase in the co-branded credit card fees it recognizes within its franchise-fee line for 2026, a component that has nothing to do with how any individual property traded. For an owner, this is the commercial consequence in one sentence: the cost line on the P&L is increasingly driven by system-wide growth and card spend the owner doesn’t control, not by the RevPAR the owner is actually delivering.

What’s worth watching is whether brands begin breaking out these ancillary fee components with more granularity in owner statements, given how much of recent fee growth is now attributable to them rather than to comparable hotel performance.

– Why the Pressure Is Concentrated in Upper-Upscale

The other half of the story is where the growth is happening. IHG launched its 21st brand, Noted Collection, in February 2026, aimed at independent upscale and upper-upscale hotels โ€” joining an already crowded field that includes Marriott’s Autograph Collection and Tribute Portfolio, Hilton’s Curio and Tapestry Collections, Hyatt’s Unbound Collection, and Accor’s MGallery and Emblems. The pitch to owners is consistent across every one of these programs: keep the hotel’s name and identity, gain the parent company’s loyalty membership, reservations system and distribution.

This is a deliberate expansion strategy, not incidental brand extension. Independent upper-upscale hotels are exactly the inventory these soft-brand collections are built to capture, because that’s where a meaningful pool of unaffiliated, well-located assets still exists. IHG’s EMEAA region, for instance, delivered close to 8 percent net system growth in 2025 with signings up 19 percent year over year, a large share of it conversion activity rather than new construction.

For the hotel that converts, the commercial consequence is a new, stacked cost structure layered onto an asset that previously had no franchise fee at all: royalty, marketing fund, loyalty and reservation charges, plus a property improvement plan that industry advisors estimate can run $15,000 to $40,000 per key for a soft-brand conversion, even though “soft” implies minimal physical change. That capital outlay lands on the owner’s balance sheet before any incremental RevPAR from the new distribution shows up on the income statement โ€” and the timing mismatch is precisely where the segment’s fee burden and financial pressure start to overlap rather than offset each other.

Worth tracking over the next renewal cycle: how many of these conversions still show a measurable rate premium three to five years in, once the initial marketing push around a new flag fades, versus how many quietly get absorbed into harder brand standards at the next agreement renewal.

– What the Owner’s Side of the Ledger Shows

Brand earnings calls report system-wide fee income, which is a different number from what any individual owner is experiencing. RLJ Lodging Trust โ€” a real estate investment trust that owns 94 premium-branded, largely upscale and upper-upscale hotels under Marriott, Hilton and Hyatt flags โ€” reported RevPAR down 1.5 percent in the fourth quarter of 2025 and down 1.7 percent for the full year, according to its own results. That’s a portfolio of exactly the branded, premium-tier hotels the fee-growth story above is describing, and its RevPAR moved in the opposite direction from the fee revenue the parent brands reported over the same period.

This is the convergence the thesis turns on: an owner group in the segment brands are courting hardest posted a full-year RevPAR decline, while the same period saw those brands report mid-single-digit-to-double-digit fee revenue growth. The commercial consequence is margin compression that shows up below the room-revenue line โ€” the American Hotel & Lodging Association’s 2026 State of the Industry report notes that gross operating profit per available room across the U.S. industry sat at roughly 90 percent of 2019 levels through 2025, even as credit card commissions and franchise fees โ€” costs tied to revenue rather than to profit โ€” continued to represent a meaningful share of administrative and marketing department expense.

This publication’s earlier analysis of hotel development costs established that CMBS delinquency, broken out by chain scale, does not sit cleanly where the industry’s midscale-distress narrative would predict: Upscale and Upper Upscale carried the highest delinquency rates of any class as of March 2026, accounting for 72 percent of total delinquent loan balance against just 41.4 percent of outstanding balance, even as Economy and Midscale registered the fastest year-over-year deterioration. Read alongside the fee data above, that ownership-side distress is concentrated in the same tier where brands are signing the most new soft-brand flags and reporting the fastest fee growth โ€” fee burden and financial stress are not offsetting each other in this segment, they are stacking on the same assets.

The point to have on the radar heading into 2026 budget season is whether owner groups start pressing brands, at the point of contract renewal, to cap or share in the ancillary fee lines โ€” co-branded card royalties in particular โ€” that have decoupled furthest from property-level performance.

– The Case Brands Still Have

None of this settles the argument in owners’ favor, and the counter-evidence deserves equal weight. Chain affiliation still delivers a measurable demand advantage over independent operation in most markets. PwC’s Manhattan Lodging Index found branded hotels posting 8.1 percent RevPAR growth in the first half of 2025, against 4.8 percent for independent properties in the same market โ€” nearly double the growth rate, driven mostly by rate. That gap is the distribution and loyalty-channel value a flag is supposed to buy, and in a market as competitive as Manhattan, it is not a trivial difference.

A separate, STR-sourced performance study commissioned by Preferred Hotels & Resorts โ€” a voluntary consortium rather than a full-fee franchisor โ€” found its affiliated hotels achieving RevPAR index scores of 111 to 139 percent against their competitive sets, at a disclosed system cost of under 1.7 percent of gross room revenue, compared with roughly 11 percent of gross room revenue the study attributed to other luxury, upper-upscale and upscale brand affiliations. Read carefully, that’s not evidence that full-fee franchising delivers no value; it’s evidence that a lower-fee affiliation model can deliver comparable or better distribution lift, which raises the harder question of whether the incremental cost of the highest-fee franchise agreements is buying incremental demand or simply buying access to a bigger loyalty program.

The commercial consequence for an owner is that the debate isn’t franchise-versus-independent โ€” it’s which fee-for-distribution ratio is defensible at each specific hotel, and that answer will differ by market, by brand, and by how much of a given loyalty program’s membership actually books that property today. What’s worth monitoring is whether owners increasingly treat the full-fee flag and the lighter-fee consortium as substitutable options to be shopped against each other at renewal, rather than treating brand affiliation as a single, undifferentiated cost of doing business.

– A Relationship Under Renegotiation

The friction over fee structure isn’t new, and it hasn’t fully resolved. The Asian American Hotel Owners Association, whose members own a majority of hotels in the U.S., has pushed its “12 Points of Fair Franchising” for years, calling for clearer disclosure of how marketing fund dollars are spent and fairer terms around fee changes โ€” an advocacy stance sharp enough that Marriott formally ended its association relationship with AAHOA over it in 2022, a rupture that reporting suggests has not fully healed. Separately, franchisee groups have pursued litigation against other major franchisors alleging that loyalty-program fees and vendor arrangements were not properly disclosed at the time agreements were signed โ€” disputes concentrated so far in the midscale and economy tiers, but built on the same structural complaint that applies to any segment with stacked, hard-to-audit fee lines.

None of this litigation or advocacy has produced a system-wide renegotiation of fee schedules, and it would be premature to read it as proof that the model is breaking. What it does show is that fee transparency, rather than fee level alone, has become the terrain owners are contesting โ€” and upper-upscale owners, who are newer to full-fee franchise relationships than the economy and midscale operators who have lived inside them for decades, are arriving at that fight later but potentially with more scale and organizational leverage behind them.

Where this leaves the underlying question โ€” whether the model still pays for itself โ€” is unresolved by design: the evidence supports both the erosion story and the distribution-value counter-case, and which one dominates at a given property depends on facts specific to that hotel’s market, brand, and loyalty penetration. What the FY2025 numbers do establish is that the burden and the stress are no longer moving in opposite directions in upper-upscale. They’re moving together, for the first time in this cycle, at exactly the moment brands are asking more owners in that segment to sign.

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