LIH Prem asks about how a hotel’s room rate affects the number of points you have to pay to redeem for it in the Starwood Preferred Guest system.

Understand that each hotel program is different, and Marriott for instance reimburses hotels an amount that depends on the number of room nights redeemed at the property versus being strictly based on the hotel’s room rates.

Starwood – like Hyatt – assigns hotels to categories based on the hotel’s rate since it’s the rate that determines how much the program has to pay to the hotel for your reward night, and also how much the program charges you in points for that night.

However if the hotel is full it gets more revenue. That’s how they get to ‘no capacity controls’. No capacity controls (often mistakenly referred to as no blackout dates) means that if a standard room is available for cash, it will be available for points.

The program pays the hotel a discounted rate, but if it’s full the hotel is being forced to give up the ability to sell the room at full price. Starwood reimburses the hotel its average daily room rate instead of the discounted award rate in the case a hotel hits 95% occupancy.

The idea there is that the hotel isn’t making the most amount off of your reward night that they are making off any night, but they’re probably not making less than the least expensive room they’ve sold for that night.

Here’s the specific question:

…a post on how category affects redemption rates might be nice.

If a hotel is near full or full, SPG pays a high percentage of the average rate, so it doesn’t really affect the near-full rate.

..So I imagine it affects the rate when the property is below the ‘nearly full’ water mark? How so? What’s the difference in a cat 5 vs 6 rate or 6 vs 7 rate?

There are still plenty of overpriced hotels in SPG. The one that always sticks out in my mind is the St. Regis Bangkok.

I wonder what goes on behind the scenes there. I’m sure you remember the decade+ old post from William about how it’s not a bad thing when a property moves up in category. The assumptions in that post that the categories were tied to their rates has proven to be false, especially during dark periods for hotels when almost none dropped in category even though their rates had fallen by quite a bit.

Here’s something that’s often misunderstood. Starwood doesn’t use actual, historical average daily rate data. They use projected (target) average rates for each property to set that property’s redemption category. It’s a hotel’s goals for the year that determine category, not their actual performance.

And then there’s an appeals process a hotel can go through. Some hotels argue they want more compensation for their rooms, SPG agrees, and bumps them up in category so they get more points in return. Other hotels actually push for a lower category to drive greater redemptions and occupancy (and thus incremental revenue) for empty rooms.

Now, these daily rate targets aren’t just used for hotel awards (in other words these targets aren’t set primarily with redemption costs in mind). These are the targets a hotel management team has, that they get compensated on, so they’re pretty real targets.

Nonetheless it still seems squirrely when we get penalized with higher redemption rates for high revenue years at a hotel, but we don’t actually get to capture the benefits in the form of lower points rates for award nights when a hotel has a bad year as long as the hotel keeps a strong revenue target for the coming yet. That’s what seems to me to happen in Thailand — lots of ‘surprise’ events like coups and protests that depress rates, each year the hotels likely don’t make their target rates, but each year the targets appear to be maintained since of course the coups or protests are in the past (until the next ones come, seemingly every year).