The Secret Behind Your Free Hotel Room

Hotels used to operate like airlines; they would evaluate which rooms were likely to go unsold on a given night and make only those rooms available as awards. As a result, it could be as ‘tough’ to use hotel points as it is to use airline miles.

The idea here was that hotel programs were compensating individual hotel properties with very little cash for the room nights, just enough to cover costs and then a little bit more, and they wanted to make sure not to trade off with any paid stays the hotel might be able to get.

Starwood Preferred Guest revolutionized the hotel loyalty industry when they introduced what they called ‘true redemption’ which was usually referred to as ‘no blackout dates’ (specific dates where you weren’t permitted to use your points) but it was actually something much stronger–no capacity controls. If a standard room was available for sale, you could use your points to redeem for that room.

The way they accomplished this was by paying modest compensation to hotels on award nights, but telling their properties that whenever they actually hit 90 percent occupancy on a given night, award nights would be paid at the hotel’s average daily room rate from the previous year. Starwood wasn’t paying the retail price of last room availability, but rather treated award guests as any average paying guest. That way the hotel didn’t lose out by giving out award rooms when they ended up being full.

When occupancy rates shot up in the middle to late part of the last decade, that made Starwood’s costs pretty high, and they were paying out lots of award nights at the higher room rates to their hotels. And that is when they introduced ‘Category 7’ to charge more points for their most expensive hotel properties.

But they made real inroads in the loyalty industry, enough for other programs to have to respond, such that it’s now standard across most programs that when a standard room is available for sale you can have that room for points.

Hyatt was the second to introduce the concept. Hilton and Marriott have followed, though Marriott’s compensation model for its hotels has been historically different from Starwood’s (the more room nights redeemed at a property, the higher price per night they pay to that property, which is why Marriott categorizes hotels based on redemption popularity rather than strictly on room rates).

Already most hotel points-earning (other than through co-branded credit card spend) is based on the amount of money spent at a hotel. And for the most part the price in points of a hotel is based on ranges of a hotel’s price. So hotels, more or less, have pseudo-revenue based programs. Of course there are real values when a given hotel is expensive on a particular night, much more expensive than usual, but the price in points doesn’t fluctuate so you get a great deal. Or with a program like Hyatt where hotels are clumped together at the top end, a $350 room night at the Grand Hyatt New York costs the same number of points as a $750 room night at the Park Hyatts in Paris, Sydney or the Maldives.

Which brings me to a question I received today by email from Robert W:

This has not happened to me previously so I wonder if this is a policy change. I have found when a hotel has only a few rooms left and I search from SPG.com, it will state call to redeem points. Usually when I call they allow me to book with points; however, sometimes they are charging more considering the room to be premium. For example, a recent 12,000 points room became 16,000 points. I did not notice that room to be premium in any way BTW. This morning I was told that the room would not be given to me on points, even though it was available.

My answer? There’s been no policy change at Starwood. If a ‘standard room’ is available, it’s supposed to be available on points. The website will say to call for points redemption when standard rooms aren’t available, since you can spend additional points for a higher-than-standard category room but that functionality is not currently available on the Starwood Preferred Guest website.

Now, there are premium rooms and there are premium rooms and some people won’t even notice the difference! Each hotel determines the categories of its own rooms, and there certainly are hotels that ‘play games’ with their room categories. For instance, over in the InterContinental chain the Mark Hopkins hotel once put a fax machine in a basic room and called that an ‘executive room’ in order to satisfy the terms and conditions of the program for elite upgrades.

A hotel generally sets aside a certain number of rooms as ‘standard’ and all rooms of that sort–paid or points–should be treated the same. But there are certainly hotels that would prefer not to have award guests, or many of them, and they create ‘artificial’ definitions of just what standard means. A higher floor, 15 extra square feet or a view might be considered premium (at least considered premium to the hotel, and maybe to some guests, but it’s not always obviously the case that it’s premium).

I consider it to be a pretty great benefit to be able to book better than a standard room with points, it’s something that Hilton, Starwood, Marriott, and Hyatt all offer (to varying degrees, I like Hyatt and then Starwood the best here) and it’s not something that Priority Club offers.

I like it the best of course when there is a standard room available and a choice to spend more points for a better room.

I don’t like it so much when a hotel tries its best to limit the number of standard rooms, and defines barely noticeable differences as premium. But the hotel chain doesn’t like it either, and while they may not be powerful enough to stop it in its tracks from a given complaint, do let the chain know of your displeasure. Enough complaints and they may pay greater attention to a rogue hotel property’s practices and do something about it, to the benefit of all of a program’s members.

This article was reprinted from View from the Wing at BoardingArea.com.