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Reader Alex727 asked the following question in the Ask Lucky forum:
What’s Citi’s business model for Citi Prestige’s 4th night free benefit?
Why I love the Citi Prestige fourth night free benefit
My single favorite benefit offered by any credit card is the fourth night free on the Citi Prestige Card. This benefit has literally saved me thousands of dollars. In my first year of card membership alone, the benefit saved me over $2,000.
What’s great is that when you use the fourth night free benefit you still earn points with your hotel loyalty program like you usually would. While some credit card free night benefits are highly restrictive, this one can be used on any publicly available paid rate. That means you can use it on a pre-paid rate, AAA rate, etc. Furthermore, the cost of the fourth night is reimbursed on the back end, meaning that you earn hotel points for the cost of the entire stay, rather than just the cost of the first three nights.
In the past you had to call to use this benefit, though nowadays you can actually request to make a fourth night free reservation by email.
The Citi Prestige Card has a $450 annual fee, though offers a $250 annual airline credit (which can be used towards any purchase directly with an airline), so the way I view it, the real out of pocket on the card is ~$200 per year. I think a lot of people would get outsized value from that from the fourth night free benefit alone.
How can Citi afford to offer a fourth night free?
When you use the Citi Prestige Card fourth night free benefit, is Citi simply covering the cost of the fourth night? Yes and no. That’s to say that the hotel has no part in reimbursing you for this benefit, and that they don’t even know that you’re getting the fourth night free.
However, your fourth night free isn’t actually costing Citi the face value. On the most basic level, Aspire Lifestyles (the concierge service that facilities this feature) is getting at least a 10% commission on each of these bookings. If they have access to one of the larger travel platforms, there’s a chance they’re getting an even bigger commission than that, especially at independent hotels. In practice I’d say they’re getting an average commission of 10-20% on these bookings.
So the cost to Citi is 25% of the cost of a four night stay, and then they’re getting somewhere between 10% and 20% back.
But also keep in mind that this benefit only applies to the fourth night of a stay, while in practice many people are probably using this benefit for longer stays. In other words, I imagine people are in many cases making week-long bookings through the concierge, in order to get the fourth night free.
That increases the commission they’re earning on these bookings, since they’re also earning that commission on the additional nights beyond the first four.
However, I suspect there’s still a net loss on this, and that’s fine. This is a perk of the card that I suspect is a cost center. Any benefit offered on the Citi Prestige Card is costing Citi money — the $250 airline credit, a Priority Pass membership, a Global Entry fee credit, etc. — that’s part of the value proposition of the card, and how they can justify charging a $450 annual fee. But the cost to Citi isn’t anywhere close to being the full cost of the fourth night stay.
The fourth night free benefit on the Citi Prestige Card remains my single favorite perk offered by any credit card, given how much value I get out of it. It has really changed how I book hotels, since I’ll now typically add a fourth night to any three night hotel stay I’d otherwise make. While I do think this benefit is costing Citi some money, it’s nowhere near the cost of the free night — they’re probably making money on some peoples’ bookings, while they’re losing money on others.