There’s a real thrill to redeeming points for stays at luxury properties, and getting outsized value. I’m sure many people have wondered about the economics of that. How much is the hotel getting reimbursed for your stay? Who is paying for any elite perks that you receive? Does the hotel care if you redeemed points or not? Let’s talk about those various points in this post…
In this post:
The complicated economics of hotel loyalty programs
The major global hotel groups (Hilton, Hyatt, IHG, Marriott, etc.) don’t own a vast majority of their properties. Instead, the companies have an asset light strategy, and have management or franchise contracts for the individual properties.
In some cases, large investment firms own hotels, and they may have properties belonging to all kinds of brands. In other cases, a hotel may even be family owned.
The way the major hotel groups make money is primarily through fees (they’re also increasingly directly monetizing their loyalty programs, but that’s a whole different topic). There’s typically an initial fee to open the hotel, and then on top of that, there are fees on ongoing revenue. The ongoing fees typically fall into one of two categories (and they’re typically a percentage of revenue):
- There’s a general fee for belonging to a particular hotel group, and being able to use the name and branding
- There’s a system fund fee, which is used for funding the loyalty program, marketing, IT, and more
Then any upside (or downside) typically falls with the hotel owner. So the major hotel groups are making money, regardless of whether a hotel is raking in the cash or hemorrhaging money.
Now, one of the reasons that consumers flock to certain hotel groups is because of their loyalty programs, which are massive marketing machines. A big part of the value proposition of these loyalty programs is the ability to redeem points.
As you’d expect, those points are redeemed centrally through the program, and then the loyalty program has to “buy” that room from the hotel. After all, the hotel owner wants to be compensated for each head in a bed, especially since they’re already paying a system fund fee, to fund these perks. That brings us to the question of how hotels are reimbursed…
How are hotels reimbursed for award nights?
As you’d expect, hotel groups don’t publicly disclose how they reimburse their properties when members redeem points. However, over the years we’ve been able to get some insights into this.
Sometimes guests are given folios that are actually intended for the loyalty program, while in other cases the reimbursement rates showed up online when they weren’t supposed to.
While the exact reimbursement policies differ by program, here’s the general concept:
- When a hotel isn’t full, the loyalty program compensates the hotel at a pre-determined rate that’s above the marginal cost of accommodating a guest, but hardly lucrative for the hotel
- When a hotel is full (think 90-95%+ occupancy), the loyalty program compensates the hotel at close to the average daily rate, in recognition of the fact that the room may have otherwise been sold to a guest paying with cash
So I’m totally making this up here, but if a hotel is charging $400 on a particular night, maybe the loyalty program would pay $80 for that room if occupancy is under 90%, while it might be paying $350 if occupancy is over 90%.
Note that the number of points you redeem for a stay doesn’t directly determine reimbursement for a hotel. In other words, a hotel doesn’t get paid X amount per redeemed point. Similarly, if a program offers a fifth night free on award redemptions, the hotel is getting reimbursed for all five nights, as it’s the loyalty program incurring the cost there.
Instead, points redemption rates are set by the loyalty program, and are intended to reflect the cost incurred by the program. That’s why in many cases you’ll find that redemption rates don’t correlate directly to how much a property would cost in cash, but rather also factor in average occupancy at a property.
A hotel loyalty program would probably rather you redeem your points at a $1,000 per night hotel that’s 50% full, rather than a $500 per night hotel that’s 95% full, because the latter redemption will cost the program more. Hotel loyalty programs use historical data to determine points pricing, and the costs they incur.
How do elite perks fit into all of this?
If you have elite status with a hotel loyalty program, how does taking advantage of elite perks factor into this when redeeming points? Who pays for breakfast? Who pays for suite upgrades? Who pays for waived destination fees and parking?
The answer is that “it depends,” though here are a few general considerations:
- Hotels aren’t compensated for most space available and non-confirmed benefits they provide, like room upgrades subject to availability, late check-out, etc.
- Some confirmed benefits, like Marriott Bonvoy Nightly Upgrade Awards and World of Hyatt Suite Upgrade Awards, do offer some compensation to the hotels (think tens of dollars, not hundreds of dollars)
- Reimbursement for breakfast varies by hotel group, though generally, the hotel eats most of the cost there, and it factors into the overall agreement between the hotel group and the company
- World of Hyatt offers some generous perks like waived resort and destination fees when redeeming points, and free parking for World of Hyatt Globalist members when redeeming points; hotels are reimbursed for this, at least some percentage
- Points that are awarded to members for stays are covered by the system fund fee, so hotels aren’t paying extra beyond that
As you can see, funding elite benefits is a combined effort between the loyalty program and hotels.
For those curious, generally individual hotels don’t know how you earned your elite status. So it doesn’t matter to them if you earned it through actual hotel stays, or just by holding onto a credit card. Presumably a front desk agent could look at your stay history, but they typically wouldn’t have any reason to do so, in this context.
Do hotels care if you redeemed points for your stay?
This is a loaded question, and there’s obviously no single right or wrong answers. A few thoughts, though.
Hotel staff are trained by corporate to treat guests redeeming points the same way as those paying cash. Many hotel groups even train front desk staff to thank people for redeeming their points, since it reflects engagement in the program. Officially, you should expect exactly the same treatment as if you paid cash, and you absolutely shouldn’t feel sheepish about the fact that you didn’t pay cash for your stay.
Now, in practice that might not always be how things play out. There’s sometimes a back and forth between hotel owners and hotel groups. Hotel owners often want it both ways — they want the power of the major hotel group distribution channels and loyalty programs, without actually incurring the costs associated with it, whether it’s complimentary upgrades, points redemptions, or a decent breakfast.
Will you sometimes find a hotel that’s perhaps a bit condescending if you redeem points and have an issue? Absolutely, but it’s not how it should be, and it’s the exception rather than the norm. Some may remember my stay at the Aegon Mykonos, at the time a Marriott Autograph Collection property (the hotel has since… mysteriously disappeared?).
Long story short, I was downgraded despite using a confirmed upgrade, and the manager was completely unapologetic about it, and was unwilling to do anything meaningful. One of his defenses was that I was staying “complimentary,” and therefore shouldn’t be complaining.
Bottom line
The hotel industry is complex, given the various parties involved, from the hotel group to the individual hotel owners. Hopefully the above is a useful rundown of how reimbursement works when redeeming points. The important thing to understand is that hotels get paid a lot more when you’re redeeming points if the property is full.
When redeeming points, you definitely shouldn’t feel sheepish about it. You earned your stay, and the reason hotels belonging to major loyalty programs are able to command a revenue premium is because of the points and loyalty perks they offer.
What’s your take on how hotels are reimbursed for award stays? And do you feel like you’ve ever been treated differently when redeeming points?
Not trying to pick on Hyatts, but used our suite upgrades for Hyatt Etoile in Paris. Our first trip they wouldn't honor it.
We spoke to management and to our Concierge, if they have the rooms, they need to honor it.
2nd trip they had to honor it. The upgrade was for 7 nites as per Hyatt rules. After 6 days, they said we need to move.
Then for the standard room...
Not trying to pick on Hyatts, but used our suite upgrades for Hyatt Etoile in Paris. Our first trip they wouldn't honor it.
We spoke to management and to our Concierge, if they have the rooms, they need to honor it.
2nd trip they had to honor it. The upgrade was for 7 nites as per Hyatt rules. After 6 days, they said we need to move.
Then for the standard room they overcharged for an additional reservation without informing us. Only found it out on our credit card.
Its a large hotel and they operate fairly recklessly and flaunt the Hyatt rules.
I guess they can as the previous GM is now the regional manager of Europe, so he has their backs. Hyatt corporation should keep an eye on those breaking and flaunting the rules
Did their asking you to change rooms after 6 days have anything to do with a request for late check-out? Did they tell you at time of upgrade and/or at check-in that the upgraded room types was for only 6 days? Did they provide an excuse or reason for you having to move after 6 days?
I am currently staying at HR in Europe. I made four one-week reservations four and a half months ago. I also applied SUAs for all four reservations and requested higher floor room as my preference. I was assigned a suite at the lowest level of the hotel when checking in. When I asked FD staff why my request was not at least partially accommodated, the staff simply responded, “your reservation is so long.” I could...
I am currently staying at HR in Europe. I made four one-week reservations four and a half months ago. I also applied SUAs for all four reservations and requested higher floor room as my preference. I was assigned a suite at the lowest level of the hotel when checking in. When I asked FD staff why my request was not at least partially accommodated, the staff simply responded, “your reservation is so long.” I could not understand what the problem was. From my perspective, I earned those SUAs by paying for over one hundred nights at various Hyatt properties. In reading this article, I realize the hotel may perceive I got the suit for “free” at their expense. Therefore I decided to shorten my stay and booked with another Hyatt property in a different city.
The answer does not surprise me. Also complimentary upgrades (e.g., to next higher room category) come very often for short stays, but never for longer ones.
@Andy - that's because if you're staying one night, the cost of providing that suite/premium room is more or less zero. If you're staying a week, there's a good chance it would still be sold for some of those nights.
I had a plenty of nice upgrades on longer stays though. It varies by hotel.
Exactly. The longer the stay into an upgraded room using a complimentary upgrade benefit or points/award certificate upgrade, the more likely the upgrade eats into a potential sale for the upgrade room type.
Hyatt does compensate the hotels for room upgrades using the suite upgrade certs but it’s not a whole lot of money per night given the difference between a standard room’s rate and the suite’s rate can easily be well over $100...
Exactly. The longer the stay into an upgraded room using a complimentary upgrade benefit or points/award certificate upgrade, the more likely the upgrade eats into a potential sale for the upgrade room type.
Hyatt does compensate the hotels for room upgrades using the suite upgrade certs but it’s not a whole lot of money per night given the difference between a standard room’s rate and the suite’s rate can easily be well over $100 while Hyatt doesn’t compensate most or all of the difference.
I am in the industry and can confirm it is likely due to your stay being "too long". Hotels have to manage their inventory, and are blocking room types, often a month+ out in order to have clean inventory. In most larger hotels there is at least one person who's sole function is doing this. This is to ensure that each room category has stay through capabilities.
You were able to book a suite...
I am in the industry and can confirm it is likely due to your stay being "too long". Hotels have to manage their inventory, and are blocking room types, often a month+ out in order to have clean inventory. In most larger hotels there is at least one person who's sole function is doing this. This is to ensure that each room category has stay through capabilities.
You were able to book a suite for a month with a request for a high floor. When that comes in someone is looking for the availability, and a long stay is hard to block out. But they also need to ensure that other types os suites are available for shorter stays in order to not turn away reservations. For an extended stay such as your's its a hard one to do and manage.
There is some "make more money" also in play here, as a higher floor suite may come with a premium rate, and those are held for guests either paying full price, or on rewards for only a few nights.
Have you checked the rates for other hotels? The American chains are consistently overpriced in Europe and it's quite typical for them to charge more for a basic room than what you'd pay a local competitor for a junior suite. Those elite upgrades are far from free, you're often paying a serious premium for them.
Firm believer that upgrade to a viewless room at PHKyoto is actually a downgrade. I said no and got a beautiful garden view.
Marriott's new low end brands have a fixed cost to owners and don't charge the kind of fees Marriott has typically charged. I think that's why they get zero elite-qualifying nights.
As a somewhat-related aside, most lodging contracts for FAs, Pilots, Train Crews, etc are written in a somewhat similar way, although in some ways disadvantageous for the hotel. Generally if the hotel isn’t sold out and a flight cancels and results in no-show rooms, the carrier pays nothing for those rooms. However if the property was sold out less those rooms, the carrier is on the hook for the full bill. It’s good daily income...
As a somewhat-related aside, most lodging contracts for FAs, Pilots, Train Crews, etc are written in a somewhat similar way, although in some ways disadvantageous for the hotel. Generally if the hotel isn’t sold out and a flight cancels and results in no-show rooms, the carrier pays nothing for those rooms. However if the property was sold out less those rooms, the carrier is on the hook for the full bill. It’s good daily income for a hotel but can occasionally be a downside.
I can't imagine that ALL or GHA reimbursements work like that, but then again we have established that those programmes are invisible to OMAAT.
Well, yes. The author of OMAAT is in the United States. This website is clearly meant for US audiences as evidenced by the credit cards for which only US residents can apply. Accor and GHA have no meaningful presence in the United States as regards points-based hotels.
Is this one of the FlyerTalk moderators hating on Gary Leff?
A bunch of Europeans in particular seem to not be happy with the very rich bank card-pushing and bank card opportunities available in the US but not in Europe. I don't understand why you or anyone would hate Gary Leff.
I’d love to know how much the Calala Island Resort receives per night. Based on my recent experience, as well as numerous other reports, half the visitors stay on Hilton points and half are auction purchases at charitable events in the UK.
That resort seems to have an interesting way of doing business for its owner. It could be that the resort is a personal pet project, but the resort owner seems to really like unloading a bunch of inventory for a big discount via charity auctions that sell well below the going cash rate on Hilton’s site. Hopefully, the hotel is financially viable for its owner with some kind of tax management strategic play and the...
That resort seems to have an interesting way of doing business for its owner. It could be that the resort is a personal pet project, but the resort owner seems to really like unloading a bunch of inventory for a big discount via charity auctions that sell well below the going cash rate on Hilton’s site. Hopefully, the hotel is financially viable for its owner with some kind of tax management strategic play and the good times keep going with Hilton and redeeming Hilton points for the property.
A visitor from the UK thought the owner could deduct the rack rate (4K per night for 2 persons) as a charitable contribution. If no one is paying cash directly for a room, I wonder how strong the owner's valuation for the tax deduction or the Hilton points redemption is.
Also if more rooms are booked through points or charity stays, maybe they fill at 90% and get the higher rate from Hilton and so still a couple thousand a night from Hilton corporate
Some hotel loyalty programs only ever pay a fixed rate to hotels where the members use points for award nights and occupancy level has no bearing on the reimbursement/direct bill rate. Other hotel programs have a sliding scale or matrix of reimbursement/direct bill amounts that are impacted by occupancy level for the nights.
Makes sense. But, no clue whether you're right or wrong. You're an unreliable narrator because if you add up all of your stories from all your comments across the web:
- your spend 800 nights a year in hotels
- you spend half the year in Sweden, half in India, one-third in Africa, and the remainder split between seeing your grandkids in New York, DC, and Kansas City
- you claim to be known within high society yet none of my Partners have ever heard of you.
Do you need a hug?
Thanks Arps for your false accusation contribution and attempt to misrepresent me. ;)
Do you not understand how it's possible to have more elite status nights accumulated in a given time period than there are actual nights in the same time period? And it's rarely been anywhere close to 365 elite status nights for me in any given year. I just know how to play the game to get a lot more hotel elite status...
Thanks Arps for your false accusation contribution and attempt to misrepresent me. ;)
Do you not understand how it's possible to have more elite status nights accumulated in a given time period than there are actual nights in the same time period? And it's rarely been anywhere close to 365 elite status nights for me in any given year. I just know how to play the game to get a lot more hotel elite status than most others, and I keep hotel rooms even when I am spending the night in hotel rooms or homes elsewhere; and I have other means to run up hotel elite status/elite status nights.
I have barely been to Africa by my own account, so who knows where you come up with your fabrications about me. I do bounce a lot between the US, Europe -- where I am again today and listening to Swedish music ;) -- and Asia.
Who knows or who cares what you based your last claim about me, as you and your "partners" have no clue about me other than what you have read about me and obviously misunderstood to various extents about me or my posts.
Arps is whipping a dead horse of Arps' own fabrication and fishing poorly for info about me. I have literally never posted any comment about who inherits anything from me so who knows where Arps come up with the "your grandkids" and Kansas City fiction.
Arps is very well known in high society and highly sought after as a dinner party guest for his wit, whimsy and ebullient sense of joie de vivre. The rarified salons of New York, London, Paris, Rome and Monte Carlo would fall deathly silent were they not filled with the music of his bon mots. Arps does not merely attend parties; Arps transforms them by his mere presence into historical occasions worthy of meticulous documentation....
Arps is very well known in high society and highly sought after as a dinner party guest for his wit, whimsy and ebullient sense of joie de vivre. The rarified salons of New York, London, Paris, Rome and Monte Carlo would fall deathly silent were they not filled with the music of his bon mots. Arps does not merely attend parties; Arps transforms them by his mere presence into historical occasions worthy of meticulous documentation.
One does not simply know Arps - one experiences him, like a particularly exquisite sunrise over the Alps that somehow manages to taste of bergamot. In fact, Arps brings such luminous charisma to even the most pedestrian of conversations that one feels compelled to transcribe his casual observations for posterity. Indeed, the greatest achievement of modern society's cultural gatekeepers is not what they have preserved in museums or captured in biographies, but simply that they have managed to document Arps without diminishing him - a feat akin to bottling the Northern Lights without losing their luminescence.
Lawyers are retained and instructed by high society, and although they might be invited to a holiday event or a day on the yacht, they'll always be introduced as "my lawyer" rather than "my friend". You can't buy your way into the upper echelons of old money. You're in from birth, or you're not in.
At Hilton the hotels are billed for points earned during a stay, separately from any system fund. It's one of the more expensive invoices I pay each month.
@Murray Barnes - this is fascinating to me.
- What size property do you own/operate?
- Do you tend to have more business or leisure guests?
- Roughly what percentage of your guests are a part of Hilton‘s loyalty program and what percentage are not?
- Have other Hotel groups attempted to incentivize switching to them once your contract with Hilton is up?
I'm just the on property accounting guy, most of those are beyond the scope of what I can answer.
I will never again stay at a Remington managed property.
Then you may want to check out this list:
https://www.hospitalityonline.com/remington-hospitality/locations
They have properties affiliated with Best Western, Hilton, Hyatt, IHG, Wyndham and perhaps even more than just that.
That's the way Radisson's program worked too when they used to have one that covered Radisson properties worldwide. Not sure how it has changed since the split and then the acquisition of the Radisson Americas portfolio agreements by Choice, but its pretty much industry standard that the properties pay the loyalty program owner for points the guests earn from the stay net of other charges being settled.