Hotel Loyalty Programs Are Playing A Dumb Game They Will Lose

Why take 10 nearly useless points per dollar when you can take 10 very useful points per dollar?

Hotels are playing a dumb game with points and loyalty right now, and it’s plausible that they’re doing so without any vision for the tidal wave of industry change that’s headed their way.

Everyone said it might be Airbnb that takes them under, and it still might be, but right now greed seems to be one of the greater risks.

Minute by minute, hour by hour, hotels are eroding the value of their loyalty programs, as financial problems from other areas of the hotel business mount. Seriously, can you name a distinctly positive change made by a major hotel chain loyalty program in the last year?

The newly revamped IHG definitely made some improvements and Hyatt has stayed true, but who else? Loyalty programs are usually the most profitable part of a hotel or airline operation, so when quick cash is needed, robbing loyalty is the first place hotel leadership lacking in foresight often turn for help in making them look good.

Here’s why this time, that might be a huge mistake, as two disparate but highly linked themes in hotel loyalty come head to head in the new battle for travel.

Making The Sausage Of Hotel Loyalty

Hotel loyalty is more complicated than airline or even car rental loyalty.

The loyalty program you earn points or perks from rarely owns the hotel you’re staying in. They are just the familiar face on the marquee helping to use their marketing reach to put heads in beds for the people who actually own the hotel, and the reality is that the property is owned by independent investors.

These investment partners don’t like the costs associated with giving points to people for their stays, and certainly don’t like the costs of providing free breakfast, upgrades to suites or late check out. These cost them “real” money.

They like their rooms being sold out thanks to being part of a big loyalty group, but they don’t like coughing up the bolted on perks.

Accordingly, owners of these hotels constantly push loyalty programs to be far less generous with what they make their hotels give to guests. They want the lowest cost possible, while still having their “cake” that comes with being a part of a major loyalty brand.

Hotel Loyalty Programs Are Playing Ball Now

Hotel loyalty programs are effectively nothing without physical hotels. If all the hotels in their system suddenly disappeared, that would be a problem.

Under pressure from hotel owners griping about operating costs, inflation and labor shortages, hotel loyalty programs are doing exactly what they shouldn’t, and listening to the owners, rather than guests.

They’re marginalizing benefits, making it harder to use points and stripping the main signature amenities of staying in a hotel, like daily housekeeping. You might literally get better service with a serviced apartment than a hotel these days, which is wild.

Yes, major hotel brands have discontinued daily house keeping, as a cost cutting measure to appease hotel owners. This makes the thin line between Airbnb and hotels even harder to delineate.

The Tidal Wave Headed For Hotel Loyalty

Unlike airline ticket sales, which offer extremely low commission, hotels face costs of up to 20% commission when you book via an online travel agency such as Hotels.com or Expedia, or via your credit card company.

This is why they only offer points and perks when you book direct, and why they’re so unfriendly to requests for things like late check out when you don’t. 20% is a lot when talking about $1000+ reservations.

The problem is, a system built on these fat commissions allows people outside of the hotel loyalty program to create amazing rewards with their chunk of the commission. This is how sites like Hotels.com offer a free night after 10 nights. They effectively take a 20% commission and give you half back as reward.

Now, credit card companies, which have actual reason to be rewarding (they don’t need to make money on hotel sales) are jumping into the game, and any smart hotel loyalty program would see this as a time to send out a distress call and regroup.

Instead, most seem to be folding, and devaluing their programs, which only makes the native credit card offerings stronger. These credit card companies can give their entire trip commission back in cardmember rewards, because they make money anyway.

For hotels, this represents a tidal wave which could eclipse any usefulness found in hotel loyalty programs as credit cards become more rewarding to people for booking through their platform, rather than direct with hotels.

They’ll basically need to rely on customers not figuring this out, or having such unwavering loyalty that they don’t care.

The Wave Is Growing

Capital One launched its first “premium” credit card, the Venture X. The card comes with many notable features, but among the most notable is 10X points earning on all hotel bookings made via Capital One Travel.

10X points from a program like Capital One are worth far more than 10X points from a hotel group, given the underlying value of each point.

In the simplest terms, a currency like IHG Rewards points are worth under 1 cent per point and Capital One Venture Miles are worth circa 2 cents per point. Earning 10 of 1 is doubly better than earning 10 of another.

So when Capital One starts offering 10 points per dollar to book with them, rather than direct with a hotel loyalty program or property, it makes the case for booking direct far weaker. In fact, it’s hard to see a case, unless you’re a top tier elite status guest.

This applies to all hotel loyalty brands, and guests would really have to start weighing the benefits of marginal perks like late checkout – versus earning much better rebates and savings by booking elsewhere, like with their credit card company.

Plus, credit card points can be used as cash back, as airline miles or as hotel points, whereas hotel points are much more limited. This theme only gets worse with recent points chart devaluations from the likes of Marriott and Hilton.

10X Becoming Standard For Credit Cards

Capital One isn’t the only one offering this major 10X earning. In fact, Chase was first. Chase now offers 10X earning on some cards for all hotels booked via Chase Ultimate Rewards Travel. Like Capital One, Chase Ultimate Rewards Points are far more valuable than any hotel currency.

Hotels are devaluing the values of their loyalty points while credit card companies are offering more points to book with them rather than directly with hotels. Eventually, this trend could render hotel loyalty utterly useless, as more flexible and powerful points in greater quantities are dished out.

Why take 10 points per dollar spent from Hilton, which are worth half a cent per point when I could take 10 points per dollar from Chase, which are worth nearly two cents per point. That’s just bad math. Plus, hotel loyalty programs typically give “base” level guests between 5-8% back via points, not 10%, as credit card companies do.

When Hotels Will Be In Trouble

If more and more people are convinced that middle tier status from a hotel, or tiny benefits aren’t worth the squeeze it takes to make the juice, and start booking travel via their credit card’s travel website — hotels are in trouble.

That rings even more true if corporate customers ditch the traditional big chains and move toward more boutique luxury, where service standards remain high. Already, I know from major firms that they’ve switched away from certain major chains because their return on experience has been so diminished.

Loyalty is the tool to get people back into hotels, and if people continue to have sub par experiences with hotel loyalty, they’ll become hotel unconstrained. Meaning – they will choose a hotel based on price and location alone, not on any merits of brand or the relationship.

When credit card companies become the best way to book hotels, rather than booking hotels with hotels, we’ll know that the greed of Hotel CEO’s looking for short term prop ups to balance sheets (raiding loyalty programs) ended up selling out the long term business.