Last week IHG Rewards Club announced that 100 hotels would be going down in cost by 5,000 points per night as of April 15, 2014. My first thought was “okay, and I assume that means 200 hotels are going up in price?”
Nope, as it turns out IHG Rewards Club was legitimately just lowering the award redemption rates at ~100 hotels by 5,000 points per night.
LoyaltyLobby has the full list of properties going down in cost. Of the 100 properties, a vast majority are Holiday Inn and Holiday Inn Express properties. There’s one InterContinental and there are a handful of Crowne Plaza properties.
The InterContinental Shanghai Puxi decreased by 5K points
Why do hotels (typically) shift award redemption levels?
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 category adjustments are typically 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).
So why did IHG Rewards Club not raise any award costs?
The above hopefully makes sense, but it doesn’t explain IHG’s actions here. Hotel occupancy and average daily rates are up this year, not down. For example, Marriott recently announced their annual category adjustments, and of the hotels that changed categories, 78% went up and 22% went down.
I think IHG Rewards Club did this as a gesture of goodwill. Last year was the worst year I can remember for hotel loyalty programs, as we saw devaluation after devaluation:
- Hilton literally destroyed their award chart for high end redemptions by adding three new hotel categories and introducing seasonal pricing
- Marriott added a new hotel category, and 36% of properties went up in price
- Wyndham more than doubled the cost for redemptions at their top end properties
- Starwood announced their 2013 hotel category changes, whereby fewer than 50 properties went down in price while over 200 properties went up in price, and also increased the cost of cash & points by 20-25%
- IHG Rewards Club introduced a nine category award chart, which resulted in many aspirational properties going up in price
IHG Rewards Club has over 4,600 properties. I think they decreased the cost of ~2% of those to make us feel good, which I appreciate. My guess is that the properties they chose to lower the costs of are also among the ones that the fewest points are redeemed at.
Or does someone have a different theory on this IHG Rewards Club change?
Regardless, kudos to IHG Rewards Club!