Running With Miles had the amount Hyatt was paying his hotel show up on his bill during an award stay, and he speculates on what it means for how much Hyatt compensates properties overall.
Since he offers some common misconceptions – such as that the amount Hyatt pays a hotel is directly related to how many points they charge you – I thought it might make sense to explain to it works when you redeem points for a stay and the loyalty program then pays the hotel.
How Hotel Chains Reimburse Hotels for Award Stays
A hotel program books your room on points. They take the liability on their books for your point balance, and use it to pay the hotel.
Since hotels are mostly independently owned, they need to get real cash from the chain for your stay. Hotels actually benefit by filling unsold rooms with reward night guests, getting revenue from the loyalty program for a room that would have sat empty.
Sometimes a hotel sells out, and they may have been able to sell that award room for more. So many loyalty programs increase their reimbursement rate for sell out (or close to sell out) nights.
Since the hotel has to pay the hotel for your room night, they’re going to set the cost of the room to a level that approximately covers that cost, or at least a blended average of costs that covers regular and sell-out nights.
The secret sauce at each hotel chain is different. Hilton’s reimbursement rates have struck me as exceptionally low. However in no case is a hotel paid based on the number of points you’re charged for a room.
Park Hyatt Hadahaa, Maldives
Marriott’s new peak season pricing is about charging you more points when a hotel might be full (and thus entitled to a reimbursement equivalent to their average daily room rate), but the number of points Marriott charges you has nothing to do with what the hotel receives. If the hotel isn’t full, the reimbursement is the same whether you’re charged peak, standard, or off-peak rates.
How Hyatt’s Hotel Reimbursements Work
Each hotel in Hyatt’s system has a budgeted average daily room rate for the year. Those rates fall into ranges – the last time I was aware there were 20 ranges. And those ranges determined how much a hotel would get for an award night when their occupancy was below 95%. (On 95% or above occupancy nights the hotel gets their full average daily room rate, my stays at the Park Hyatt in Paris have cost the program many thousands of dollars.)
A hotel with an average room rate up to $80 is going to get $25 in compensation. If a member redeems for a club room that’s another $20, or an additional $25 for a suite.
A hotel with an average room rate of $165 is going to get $60 for the award night, plus $20 extra for a club room or $25 extra for a suite.
There are fairly fine gradations here, since the number of room rate ranges far exceeds the number of redemption categories. For instance there are differentiations of $200 – $225, $225 – $250, and $250 – $275 (where hotel reimbursement for a standard room goes up $10 at a time).
A $550 room night reimburses at $300, plus $50 for a club room or $50 for a suite. I don’t know details on additional compensation for premium suite awards.
Grand Hyatt Tampa Bay
Last I knew the top revenue category went up to $800, so there may be more higher categories now.
Bottom-line though is that not all category 7 hotels get the same reimbursement, it depends on what the hotel’s average daily rate is budgeted at for the year and also whether the hotel is sold out when you stay. Hyatt’s partnerships with MGM and SLH hotels may pay those hotels on a different scale.