We know how it generally works for airlines. They make seats available as ‘saver’ awards when they don’t expect to sell those seats for cash.
A year in advance they’ll have some idea what seats those might be, and may make some award seats available when the flights are loaded into the schedule. Very close to departure they’ll have a pretty good idea which seats that haven’t sold will go out empty, which is why the very last minute can be about the best time to book awards (but also a gamble, because sold out flights – which many are nowadays – won’t be bookable at saver award prices).
Hotel programs generally work differently. The economics aren’t always the same but in general most now offer a room for points whenever the base or ‘standard’ room type at the hotel is available for sale.
Hotels used to operate like airlines, they would evaluate which rooms were likely to go unsold n a given night and make only those rooms available as awards. As a result, it could be as ‘tough’ to use hotel points as it is to use airline miles.
The idea here was that hotel programs were compensating individual hotel properties with very little cash for the room nights, just enough to cover costs and then a little bit more, and they wanted to make sure not to trade off with any paid stays the hotel might be able to get.
Starwood Preferred Guest revolutionized the hotel loyalty industry, they introduced what they called ‘true redemption’ which was usually referred to as ‘no blackout dates’ (specific dates where you weren’t permitted to use your points) but it was actually something much stronger — ‘no capacity controls.’ If a standard room was available for sale, you could use your points to redeem for that room.
The way they accomplished this was by paying modest compensation to hotels on award nights, but telling their properties that whenever they actually hit 90% occupancy on a given night, award nights would be paid at the hotel’s average daily room rate from the previous year. Starwood wasn’t paying the retail price of last room availability, but rather treated award guests as any average paying guest. That way the hotel didn’t lose out by giving out award rooms when they ended up being full.
When occupancy rates shot up in the middle to late part of the last decade, that made Starwood’s costs pretty high, they were paying out lots of award nights at the higher room rates to their hotels. And it’s when they introduced ‘category 7’ to charge more points for their most expensive hotel properties.
But they made real inroads in the loyalty industry, enough for other programs to have to respond, such that it’s now standard across most programs that when a standard room is available for sale you can have that room for points.
Hyatt was the second to introduce the concept. Hilton and Marriott have followed, though Marriott’s compensation model for its hotels has been historically different from Starwood’s (the more room nights redeemed at a property, the higher price per night they pay to that property, which is why Marriott categorizes hotels based on redemption popularity rather than strictly on room rates).
Some programs also let you use more points to get access to a better than base-level room. Starwood, Hyatt, Marriott, and Hilton all offer this in one form or another (Starwood is, in general, tops for upgrades to better views while Hyatt offers better redemption value for suites.) IHG Rewards doesn’t offer this at all.
A hotel generally sets aside a certain number of rooms as ‘standard’ and all rooms of that sort — paid or points — should be treated the same. But there are certainly hotels that would prefer not to have award guests, or many of them, and they create ‘artificial’ definitions of just what standard means. A higher floor, 15 extra square feet, or a view might be considered premium (at least considered premium to the hotel, and maybe to some guests, but it’s not always obviously the case that it’s premium).
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I’ve encountered a number of days where the Park Hyatt Vendome has standard rooms available for cash, but not for awards. Hyatt’s representatives told me that they had “exhausted” the rooms set aside for awards. What’s up with that?
The name of the game with hotel redemptions is to book 330 days out and then you can always cancel with no penalty………I have never found a property with “more” availability closer to the date so you have to have a schizophrenic approach to the airline/hotel reservation……..while you can get FC last minute you won’t find a Park Hyatt on points last minute YMMV…..
Marriott’s policy is not nearly as nice as SPG – they can fail to offer rooms on points even if a standard room is available, a problem I’m currently running into with reservations I want to make in 2015.
Gary, when Starwood hotels exceed 90 percent occupancy on a given date, they receive the ADR from the previous year for the award night. That would be 90 percent of the average rate for the entire year, correct, not 90 percent of a Christmas previous year if it is a Christmas award?
Also, is the ADR the retail rate if paid by an individual consumer and the wholesale rate if a group or similar, or is the ADR adjusted downward to account for commissions, booking fees charged for using starwoods reservation system, etc?
Finally, curious how much it costs a franchise to be with Starwood. Are they paying annual management fees, a percentage of all sales, a percentage of sales booked through starwoods booking engine, or a combination of all of these and some other fees?
Love it when you explain the economics of the industry so that I can understand my bed opponents thinking.
Thank you
So what is the policy of Hilton Hotels? I can never figure out any sensible correlation between their cash rates, point rates and points+cash rates. Makes no sense to me.
Where do Club Carlson and Fairmont fit in? Seems to me that Carlson makes almost all rooms available whereas Fairmont often, “prefer not to have award guests, or many of them, and they create ‘artificial’ definitions of just what standard means”. Agree with this assessment?
@Andrea – hotels get their projected ADR for the current year, rather than actual from the prior year but yes it refers to average across the year not for a given night. I believe the ADR is gross, without deduction for commission, but I could be mistaken on this – I have never asked, and it is a great question. The best insight into the Starwood deals probably comes from the Parker Meridien lawsuit I blogged about. Specific payments can vary e.g. while a hotel will pay fixed fees and reservation fees, in some competitive markets a chain will offer minimum revenue guarantees to a hotel owner (because the chain will be competing with other chains to sign up the hotel).
@Chris – are you certain these were standard rooms? That shouldn’t be the case. Which representatives were you speaking to?
Gary,
Had an interesting experience just happen to me. IHG releases their Point Breaks list every two months. One property on their list was Staybridge Suites in Savannah, Georgia. Tried to book not available. No rooms were available on any date until June, 2015.
Hotel said they had a lot of reservations. Another blogger said it was a glitch. IHG said, the point breaks availability wasn’t loaded for that property. However, nothing became available.
Good stuff. I always wondered about that.
IHG plays games. I’ve seen plenty of hotels with no reward nights period.
IHG is awful lately and certainly doesn’t have award space for standard rooms. Trying for weeks at thalasso bora bora and nothing on award for the end of the booking calendar. Don’t think I’m being beat out by someone else as I try at 12:00:05 and nothing!