Why Hotels Are Raising Points Prices On Luxury Properties

Hotel loyalty programs are having a bit of a shocker lately. That’s “British” for terrible. With few exceptions, they’ve all been naughty and devalued the values of their points, while cheapening member benefits.

Making matters more annoying for guests, most of the devaluations have been on the luxury end of the spectrum, at aspirational places where redeeming points feels great. Few people want to go to all the trouble of earning points and staying loyal, to cash in at a crummy roadside motel.

Some loyalty programs have even stopped including coffee, tea or juice with the comp breakfast for top tier guests, most of whom must spend $20,000 a year to achieve the status.

While all this may seem mystifying, there’s actually a very logical but annoying reason it’s all happening, and it has everything to do with post Covid-19 travel trends.

Covid-19 Travel Trends Raising Points Prices

One of the more fascinating and quasi-nerdy things to learn about in the world of hotels is how loyalty programs compensate hotels when you use points. Obviously you’re not paying “cash” and hotels can’t pay staff salaries on points alone.

They’ve got people to pay, so there’s a system of reimbursement between the hotel loyalty program and the hotel where you stay, where the loyalty programs pays a certain rate or fees to the hotel, based on a few factors.

The most simplistic way of looking at it, is that the more “full” a hotel is when the person books with points, the more the hotel gets paid. The more expensive the hotel is in cash, the more expensive that will be for the loyalty program when they pay the hotel for your points stay.

A nearly full five star hotel that charges a lot of cash is going to get much more money from the loyalty program than a mostly empty low end hotel.

It may not be their exact room rate thats’ being charged in cash that the loyalty program pays the hotel, but the closer to “full”, the closer to full. There are exceptions, but it’s mostly spot on.

Fewer Trips, Going Bigger

A major trend that’s emerged after so many cancelled trips and the theme of revenge travel is “trading up”, as they say. The other trend is excessive room rates, as a result.

People are taking fewer trips, but when they do, they spend more and go big. People who would’ve settled for a cozy three or four star hotel to catch some zzz’s want the extra refinement, comfort or space that top hotels bring.

Accordingly, hotels are hitting new highs on nightly rates. Mix in inflation, both with points and with actual cash, and prices can be eye watering.

It’s the same in the air. Airlines are seriously struggling to sell long haul economy tickets, but are nearly full in business class, despite the slow business travel recovery. Leisure travelers are using those pent up savings, vouchers and desires to trade up to better experiences.

Loyalty Programs Getting Jammed And Screwing Members In Return

The difference between what a hotel loyalty program compensates a hotel when the hotel isn’t near capacity, and what they pay the hotel when it is near full (say, above 95% occupancy) is massive.

In times before Covid-19, travel was booming, but fewer people were interested in luxury and there wasn’t as much mad “rush” as there is now. People had their rhythm and routines, and that spread out demand across the year.

Now, it’s all “right now”, for the moment.

Everyone is into luxury and everyone wants to travel this summer. Hotels feel like that pent up demand is a right to raise prices, and that’e exactly what they’re doing.

This means hotel loyalty programs find themselves paying higher, near cash rates to the hotels as compensation, where members redeem their points at luxury properties. Even worse, the rates are higher than they were in pre-pandemic times.

So basically, they are paying the penalty rate because the hotels are full, and the higher rates, because of the demand trends. This wasn’t the case quite as often before, but it certainly is now.

A long term thinker would say that the recovery is only just beginning, and the next four years of travel could be the best in a long time, so why piss off loyal members by raising prices, just as loyal guests return. Things will stabilize.

Unfortunately, most hotel CEO’s are sheep simply eager to protect their necks today, rather than invest in their company’s future. That, or their CFO’s are (sheep), and they want those higher redemption costs recouped right away, rather than seeing the big overall benefit of loyalty.

Loyalty programs can be worth multiples of actual hotel groups or airlines.

The easiest way to do that is to raise the roof on what a loyalty program can charge members for a free night at a top place. A hotel loyalty program would feel the burn if they were the only group to do so, but in this current executive environment, once one does it, the rest follow.

See: Hilton and Marriott recently.

Earn And Burn

For people who set goals and change their consumer behaviors, such as getting a hotel loyalty program credit card and changing spending patterns to earn more points, it’s a really evil twist. The goal posts change, at will, with no recourse.

Hotels simply hope people won’t care, or won’t notice, and know that once they move the goal posts, another group will do the same, because why not?

In summary, we’re all getting squeezed by hotel points inflation, over what might be just one year of “revenge” travel, and even after the massive comeback stabilizes, the lower rates of old won’t be coming back.

Use points as you earn them and take full advantage of the best opportunities, while they still exist.