Sunday, September 21st, 2014, 9:43 pm
The hotel points business works a lot differently than the airline mileage business.
Airlines offer distressed inventory at rock-bottom pricing. When they see that they won’t sell a seat, they offer it for saver mileage rates. Mileage junkies can get an amazing deal (especially on a last minute, one-way, or premium class award) and the airline gets to recognize revenue against a seat that would have otherwise made them nothing. The airlines get paid cold hard cash from credit card companies for their miles and many airlines wouldn’t be profitable if not for their mileage sales. In fact without the mileage programs some airlines like United may have never made it out of bankruptcy last decade.
When you redeem United miles for a seat on a partner airline in business or first class you have to use more miles than when you fly on a United plane. Which makes sense because United has to pay out of pocket to book you a ticket on another airline. Though United is paying just pennies on the dollar for that distressed inventory.
That’s how British Airways can afford to put someone on a $600 last minute flight for just 4,500 Avios. They are paying American literally just pennies on the dollar for that seat that would otherwise fly empty. That’s the reason it’s sustainable.
Now hotels are a very different story. Most hotels are not corporate owned, so the corporate run hotel programs need to compensate the individual hotel for guests using points.
It used to be that hotel awards were capacity controlled, just as awards are in the airline industry. Starwood introduced hotel award nights without capacity controls for standard rooms and most other hotel programs matched that.
Of course there’s a real cost to that. Hotels with capacity controls can ensure that they only give away rooms that would otherwise have gone unsold. However that meant that during special events or high season rooms were impossible to find.
Without capacity controls hotel points became far more lucrative. When rates are high, the amount of points required doesn’t skyrocket to correspond to the price increase.
Most hotels have 2 types of awards, free nights, which are not capacity controlled. And cash and points which are capacity controlled.
Hotels are divided into categories based roughly on what their average daily rate. When a hotel is nearly full the corporate hotel point program will reimburse a hotel at the average daily rate for paid rooms. But when a hotel is not full they get far less, as the cost of servicing that room doesn’t come at a real cost of a lost paying guest. However that only applies for regular free nights. As hotels control the cash and points nights they don’t get full reimbursement for those even if they are full.
Le Parker Meridien has hotels in NYC and Palm Springs and a whistle-blower told SPG that they were falsifying records to make it look like they were full so that they would get reimbursed for award nights at their average daily rate rate instead of a far lower rate. From that lawsuit we learned that the magic number is 95% occupancy. If an SPG hotel is 95% full then they get full reimbursement for points using guests. Otherwise they only get a smaller reimbursement based on their hotel category.
Once in a while hotels goof and write what the reimbursement is on your folio.
-Mimi and I stayed in a Holiday Inn Tiberias Israel in 2009 using a 5,000 point PointBreaks award and on the folio it showed that IHG was going to pay them $30 for the night. The hotel still gave us a great room, 2 bottles of kosher l’mehadrin wine, cookies, and bottles water.
-In 2010 we stayed in the Le Meridien Khao Lak Thailand using 2,800 Starpoints plus $45 per night. The hotel offers upgrade to a totally private walled in villa without an outdoor shower and pool for 12,000 Starpoints or $300 per night. I opted for the Starpoints upgrade and noticed on a folio that Starwood would only reimburse the hotel $162.50 for the points. That’s just 1.35 cents per Starpoint, far less than what they’re really worth.
For reasons I didn’t understand the hotel wouldn’t allow me to pay $162.50 instead of the 12,000 Starpoints though in the end the upgrade points were all refunded as the hotel had issues with hot water and ants while we were there.
-Last month we had 2 rooms at the Park Hyatt Toronto. 1 room was paid for with Hyatt Points+Cash. Points+Cash is a great award value and it can only be booked over the phone. Hyatt considers points+cash awards like paid nights, so we got back points and stay credit and we were able to use a suite upgrade and got bumped all the way up to a luxury one bedroom suite. The awards aren’t a great value for category 1 and 7 properties, but it’s a great value for category 2-6 hotels.
The Park Hyatt Toronto is a category 4 property, so it costs 7,500 points plus $100 per night. On my folio was the amount that Hyatt corporate paid the hotel for the points, just $51.72 plus tax per night. That’s under 0.7 cents per point, so in that case the Hyatt Gold Passport program pays a fraction of what their points are worth. Direct bill is the amount the hotel is billing Hyatt Gold Passport:
Our 2nd room was occupied by 2 of my brothers and was paid for using credit card anniversary nights. Those nights are not capacity controlled and function just like regular award nights, which in a category 4 property would run 15,000 points per night.
The hotel was sold out the first night of our stay, so it’s not surprising that Hyatt Gold Passport paid the hotel $224.77 plus tax. That’s likely right about the hotel’s average daily rate. It also comes out to about 1.5 cents per point for the same night, which is right about in line for the minimum value you should strive for when using Hyatt points:
The last 2 nights were not sold out, though the charge to Hyatt corporate didn’t show up for those nights. If I had to take a guess though it would probably come in around 0.7 cents per point, so Hyatt Gold Passport would likely cough up $105 per night to the hotel for those nights.
Ever find the corporate reimbursement level stated on one of your hotel folios? Hit the comments!