Every year around February Starwood announces their annual hotel category adjustments. Through this announcement Starwood isn’t changing the actual number of points required per night at a hotel category, but rather adjusting the categories that certain hotels are in.
Why Starwood adjusts hotel categories annually
I’ve written in the past about how hotel loyalty programs compensate hotels for award stays. For the most part the major chains simply have management contracts for hotels and don’t actually own them. They’re getting paid a portion of revenue for slapping their name on the hotel and providing management services, marketing, and loyalty programs, but that’s the extent of it. There are of course exceptions, but most chains don’t own a majority of their hotels.
If you redeem points for a stay at a hotel, the loyalty program reimburses the hotel for it. If the hotel isn’t close to full then the reimbursement rate is very low, only slightly above the marginal cost of the stay. If the hotel is quite full, though (typically over 90%), the loyalty program reimburses the hotel at or close to the average daily rate. So for example, over Christmas I redeemed Starpoints at the St. Regis Bal Harbor, a stay that would have retailed for nearly $1,500 per night. Since it was Christmas and the hotel was packed, my guess is that Starwood actually had to pay the hotel close to $1,500 per night for the stay. That’s crazy.
So these adjustments are supposedly based on the anticipated average daily rates at hotels, and I would assume also partly based on anticipated occupancy (since even if a hotel is really expensive, it’s not costing the loyalty program a whole lot if it’s never full).
Starwood 2014 annual hotel category adjustments
Starwood’s 2014 category adjustments kick in for stays booked on or after March 4, 2014. So you have a bit over a week to still lock in hotels in their old categories. Do keep in mind that many hotels are going down in category, so this isn’t bad for everyone.
On the whole, 20% of hotels are changing category, and of those 56% of hotels are moving down and 44% of hotels are moving up. That’s right, more hotels are moving down in category than up.
This is actually a relief. With the economy recovering and hotel occupancy at a near all time high I was expecting many more hotels to go up in category than down, but that’s not the case. Compare that to the 2013 annual hotel category adjustment, where fewer than 50 hotels went down in category, while over 200 hotels went up in category. Not only that, but in 2013 Starwood also increased the cost of Cash & Points redemptions, which was a big hit to the value of Starpoints for hotel redemptions.
It’s also interesting to note that there are lots of hotels going up in category in North America and lots going down in category in Asia. That seems interesting to me. Maybe there has been a bit too much growth in the hotel market in parts of Asia the past few years?
Of course the impact of these changes is highly dependent on individual travel patterns, but objectively this isn’t any sort of a devaluation. It could have been much worse, as they could have raised redemption rates, added a new hotel category, etc.
(Tip of the hat to Gary)