How Much Did IHG Pay For My “Free” Hotel Night?

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As I explained yesterday, I just redeemed my IHG® Rewards Club Select Credit Card annual free night certificate for a stay at the InterContinental Hong Kong. The card has just a $49 annual fee and offers an annual free night certificate valid at any IHG property, with no category restrictions.

So in my case I had an overnight in Hong Kong, and it’s tough to beat the InterContinental Hong Kong for that purpose, given its location. Since I was redeeming my annual certificate, the stay was completely “free” — there were no taxes and fees, or anything.

InterContinental-Hong-Kong

However, I’m sure I’m not the only one who has wondered how much this free night is really costing IHG. Yesterday I checked my reservation through IHG’s mobile website, and it listed a price. Specifically, it said that the stay cost 504HKD, or a total of ~555HKD including tax and service charge. That comes out to ~$72. That’s the internal reimbursement rate that IHG is paying the hotel.

IHG-Reimbursement

For whatever reason, IHG’s website often lists the internal reimbursement rates used between IHG and the hotel on award stays. So at ~$72 for the one night stay, IHG was getting quite a deal. However, that’s still quite a bit more than the $49 annual fee that I paid on the IHG® Rewards Club Select Credit Card in order to get this stay.

Contrary to popular belief, for the most part the global hotel chains don’t actually own individual hotels. Instead they simply have management contracts for them, and they get a percentage of the revenue in exchange for their services. When it comes to award redemptions, typically:

  • The loyalty program compensates the hotel at some reimbursement rate that’s slightly above the marginal cost of servicing a room, etc., when the hotel isn’t full
  • The loyalty program compensates the hotel close to the average daily rate when the hotel is full (call it somewhere around 90%+ occupancy)

Of course the exact details vary by hotel group, but that’s how it works in general.

This also explains the business of hotel loyalty programs selling points. At the moment IHG is offering a 100% bonus on purchased points, meaning you can buy points for 0.575 cents each. That can represent a great deal, though the loyalty program can also come out way ahead.

For example, the InterContinental Hong Kong requires 60,000 points for a free night, which you could buy for $345. If I had used points for my stay, the hotel would have been reimbursed ~$72, meaning that IHG has huge margins there. Of course that can also be very different if the hotel is actually full, in which case the reimbursement rate is much higher.

IHG

Anyway, I find the business side of the hotel industry to be interesting, and I’m sure I’m not the only one. It’s not often we see the numbers behind all this, though this is just a small glimpse.

About lucky

Ben Schlappig (aka Lucky) is a travel consultant, blogger, and avid points collector. He travels about 400,000 miles a year, primarily using miles and points to fund his first class experiences. He chronicles his adventures, along with industry news, here at One Mile At A Time.

More articles by lucky »

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Comments

  1. hmm how were you able to get an upgrade wit harbour view with just standard room free night? I had to pay about 700 hkd to upgrade last time

  2. IHG used to reimburse the hotel the average nightly rate if the hotel was sold out or at 95% capacity when you were using award nights. However, that seems to have changed over the last year or so. I’ve noticed that when I’ve used my points and the hotel was sold out, it was still only getting reimbursed the smaller rates.

    I would be able to go through a cashback site and still get reimbursed based on what the hotel was billing IHG, and when the hotel was near capacity, it was like getting anyway from 5% – 10% on the average nightly rate, so free money! I still get something, but not as much as before.

    When I stayed at IC Bora Bora last March on points, the hotel was reimbursed $201.99 per night, even though they were sold out the week I was there.

  3. Same question as Jung, as I also used the Chase free night at this same hotel and was told they could not upgrade me to a harbour view room unless I pay extra.

  4. Correct me if I am wrong, but the picture is a stock picture. Not where in the article did the author state he was upgraded to a harbour view.

  5. Because Ben is one of the best, if not the best, travel blogger. Do you think that we are the only ones following this blog? Do you think that they dont know that he is going to make a review?….

  6. I haven’t read ALL of your posts Ben, but just curious, have you ever stayed in IH Bali? (You were just in Bali right?) If you haven’t, why didn’t you/are you interested? If you have, what do you think about it?

  7. @Tommy – The Intercontinental Bali is one of my favorite hotels in the world. I stay there first every time I go to Bali (then after 3-5 nights move to another hotel in a different part of Bali.)
    If you stay there I strongly recommend the Club Level. If you are staying there with points, contact them to pay to upgrade to the Club level.
    Here are a few things that I love about the IC Bali Club level:
    1. Full breakfast at multiple locations, full blown tea time with extensive finger food and teas, happy hours with extensive selection of snacks.
    2. The Club pool where you can have breakfast, happy hour, and free non-alcoholic drinks all day. They even have a guy going around asking if you want them to clean your sun glasses (for free of course).
    3. Large quiet ocean front with very nice grounds.
    4. Next to the popular Jimbaran seafood restaurants
    5. The wonderful, warm, and friendly typical Balinese service. The service I get here is comparable to the service I get when flying SQ First Class. The Butler service is very good. They can do a lot of things for you. For example: I always ask the butler to buy and install a local sim card for my travel phone, I save a lot of time and hassle not having to do this myself. Of course I pay for the cost of the local sim card which only costs a few dollars.
    6. The club lounge is large and very beautiful.
    7. The IC Ambassador Club level amenities: box of chocolate, box of nuts, fruit plate, hotel gift, bottle of wine, and fresh flowers. Plus I have always gotten nice upgrades to a suite.

    FYI: They are refurbishing the rooms, but some might still be dated. But the dated rooms never bothered me in the past since I am staying at an exotic place, not an ultra modern place.

    The experience is not as good if you don’t get the club level benefits. I think they are totally worth it and you get so much more than the club levels outside of Bali.

    I have stayed here 7 times already and will be staying here again this year before I move on to two of the Bali Aman resorts.

  8. To piggyback on the business side of this, it is also the individual property that is charged for the points earned during the stay for members. There is really no expense for the brands, it is all push out to the properties. To top it off, the brands still earn their franchise fees on the reward night reimbursement rates.

  9. I used my ihg free night cert at that hotel in late 2014 and was upgraded. No additional status beyond what the credit card offers. The checkin agent said he upgraded us since it was our first time at the hotel.

  10. I stayed for two night on points last October, and we got a harbor view. The woman that checked us in asked if it was our first time in Hong Kong, and when we told her it was, she upgraded us.

  11. Harbour view for free night??no way.
    I am a Spire Royal ambassador and i cant get upgraded to harbour view for free,this hotel is very protective to its harbour view rooms.

  12. I am staying at the Intercontinental Miami on Sunday with my IHG Chase free night and I just looked at my reservation on the mobile.

    The base rate for a king city view room is $271
    The rate on the confirm is $50.

  13. In April 2016, I used my free night and was upgraded to a habour view room. I was also able to check in at 10am. Perhaps I was lucky?

  14. Hahahahahahahaha

    I work at an IHG property so let me give you all a little insight

    1. Whether or not you’re upgraded, if you pay for it, all that – totally up to each individual hotel. At mine, we upgrade people all the time on off season for free. Because why not? It doesn’t cost any more to me if it would be empty otherwise. That means during busy season when I can’t upgrade you for free, you think to yourself “man I really liked that king suite, why not pay for the upgrade” and I make 15 more dollars

    2. IHG hotels pay you a “full reimbursement” if you have over 95% occupancy as someone above mentioned (as of 2017, it’s actually 96% to get precise). Otherwise, our hotel is reimbursed anywhere from 20-44.40 dollars. Depending on how they’re feeling and who you talk to. Not really but there are a lot of weird conditions that apply which change this amount. Truth be told, when you factor in the cost of paying someone to clean the room, the breakfast you eat, etc – we potentially lose money. Break even at best. Never profit.

  15. If the hotel is less than 100% full they wouldn’t be making any money on your room as it would sit vacant so as long as they are reimbursed for what their variable costs are (housekeeping, toiletries, utilities, breakfast if applicable) it seems reasonable as part of the deal for flying the IHG flag.

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