The airline and hotel industries are very different when it comes to their cost structures on award redemptions.
When you redeem points for an airplane seat (say you redeem American miles for travel on one of their own flights), it’s sort of tough for the airline to quantify the cost of that. The airline owns the plane, and if that seat would have otherwise gone out empty, the cost of it is virtually nothing. Meanwhile if that seat could have otherwise been sold for the highest possible fare, the airline potentially lost a lot of money by making that award seat available.
The hotel industry is very different. For the most part, the hotel chains don’t actually “own” their properties. Instead the properties are franchised/owned by investment companies, and the hotel chains simply have a management contract for running the hotels, for which they receive a percent of revenue in exchange.
As a result, the loyalty programs actually reimburse the individual hotels for every award stay. As a general rule of thumb:
- If occupancy isn’t especially high (below 90-95%), hotels are reimbursed for award nights just slightly above the marginal cost of providing the room
- If occupancy is high (90-95%+), hotels are reimbursed for award nights at the average daily rate
All this is to say that hotels should treat you just as well on an award stay as on a cash stay, especially when they’re full, since they’re being compensated very well for your redemption. And for the most part they do.
However, here’s an example of a hotel which wants you to redeem your points to stay there. The St. Regis Monarch Beach is actually offering an incentive to redeem points at their property.
Via Points, Miles & Martinis, the St. Regis Monarch Beach is offering those on award stays waived resort fees, 50% off parking, and a $25 daily food & beverage credit. Per an email they sent out to SPG members:
Exciting enhancements are underway at The St. Regis Monarch Beach. During this time, we invite SPG members to take advantage of an exclusive offer to redeem Starpoints for Free Nights and receive:
- Waived resort fee
- 50% discount on parking
- $25 daily food and beverage credit
That’s not an insignificant value, and is worth $75 per day (the resort fee is $30, parking is $40, and there’s a $25 food & beverage credit).
Now this does coincide with the dates that they’re renovating their public spaces, though interestingly the above offer isn’t available on paid stays.
Perhaps part of the explanation is that it’s easy to adjust paid rates during periods of low demand or when the property is under construction, while it’s not as easy to adjust the number of points required, as a Category 6 property requires 20,000-25,000 Starpoints per night, regardless of what the paid rate would be.
And it can vary significantly at this property, from $195 per night…
…to $725 per night for the same room.
It’s interesting to see a hotel actually incentivize award redemptions.
And beyond that it’s worth remembering that free night redemptions really do matter to hotels, and often can play a significant role in their business plan/overall profitability.
The Park Hyatt Maldives used to be a Category 6 property, then got changed to a Category 7 property, and then without notice got changed back to a Category 6 property. I’d assume that had to do with the increased award price impacting demand for the property. Since that’s a property where a significant percentage of guests are on awards, a decrease in demand for award nights can have a real impact on the hotel’s bottom line.
So yeah, not only does your loyalty matter to the hotel chain as a whole, but in many cases you redeeming your points matters to the individual hotels. That’s a refreshing thought, and certainly not how the airlines make us feel!