No, There Has Not Been A “Big Devaluation In Hilton ‘5th Award Night Free’ Benefit.” Au Contraire!

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  1. NYCUA1K

    NYCUA1K Gold Member

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    A post over at Traveling for Miles has this headline: “Big Devaluation In Hilton ‘5th Award Night Free’ Benefit”. The only problem is that the claim is bogus. In fact, based on what I will show below, Hilton has done two things at once with this policy change: (a) they have simplified how the "5th award night free" benefit is calculated, which was the official reason provided for the policy change, and (b) in some instances, award costs and corresponding cash room rates, which are linked in a revenue-based system, are left unlinked, thereby preserving the outsized value that can be achieved with this benefit, rather than "devaluing" it. Let's elaborate.

    Here's Traveling for Miles' claim [emphasis on "massive" added]:
    The blogger then proceeded to provide examples that s/he claimed proved the claimed "devaluation" of the 5th award night free perk, except that the examples either reflected very special cases or the blogger's misunderstanding of the policy change, or both.

    First the easy math:

    A. Before Migration to the Revenue System

    Pre-revenue system, figuring out the cost of the '5th award night free' benefit was straightforward because the award costs were fixed (i.e., the same) for all 5 nights.

    If one booked 5 nights, and the award rate or cost for each of the 5 nights was R, with 1 of 5 nights or 20% free, then the total cost, C, for the entire 5-night award stay was calculated as follows:

    C = (R -0.2*R) * 5 = 5*R - 1*R = 4*R

    That is, the cost for the 5-night stay was just (4 x the award cost for each night), which meant that one could just drop the cost of the 5th night. Straightforward.

    For my 5-night award stay at Conrad Koh Samui in 2015, the nightly award rate (R) was 95K, therefore for the stay I paid:

    C = 4*R = 4 * 95K = 380K vs. 475K w/o the '5th award night free' benefit

    I saved 95K points -- a huge value, which is why I rank this benefit among the very top in the hotel loyalty business. A program that does not offer it is automatically downgraded in my book (World of Hyatt, here's looking at you, kid).

    B. After Migration to the Revenue System

    After Hilton Honors migrated to the revenue system in which award costs vary in synchrony with room rates in cash, figuring the cost of the '5th award night free' benefit got slightly -- just slightly -- more complicated because award costs were no longer the same (constant) and fixed for all nights of a 5-night award stay, since the room rates in cash can fluctuate from day to day. Therefore for a 5-night award stay, one can have 5 different award rates:

    R1, R2, R3, R4 and R5.

    The award cost for the 5th night can no longer simply be dropped because it can be different from the costs of the 4 prior nights, which can also differ among themselves. At least that was the initial thinking, so Hilton devised the following formula:

    1. Compute the average rate, R_ave, for a 5-night stay = (R1+R2+R3+R4+R5)/5
    2. Subtract the average rate from the total cost of the 5-night award stay, so that the total cost, C, for the stay becomes:

    C = (R1+R2+R3+R4+R5) - R_ave.

    It should be clear that if R1=R2=R3=R4=R5, then this second equation for "C" -- i.e., the total cost of a 5-night award stay -- is the same as the first equation for "C" that applied before the migration to the revenue system (see item A above).

    Hilton provided a demonstration of the calculation at "What is an example of how the 5th night free is calculated", so I won't provide one here. However, the point is clear: calculating the cost of the '5th award night free' benefit got more complicated. Hilton realized this so they announced a policy to simplify things:

    "After the 5th Night Free benefit is applied, eligible members will be charged 0 points for the 5th night, 10th night, 15th night, and 20th night of the stay, as applicable. All nights of the stay will be charged at the applicable full Standard Room Reward price. A standard room is defined by each hotel and subject to availability at participating hotels within the Hilton Portfolio. Applies to Standard Room Reward stays only, not to paid stays or Points & Money Rewards™. Does not apply when stay is booked as part of a Reward Stay offer, package, or promotion offered by Hilton or any of its partners."

    The question is what does that really mean? Members will be charged 0 points for the 5th award night and every multiple thereof "at the applicable full Standard Room Reward price." That last part about "applicable full standard room reward price" might, in fact, account for some of the confusion and claims of "devaluation" of the benefit. Rather than speculating about what it all means, I decided to find out by doing dummy bookings at some of my favorite Hilton properties, as well as at properties that would demonstrate the "nuances" of the new policy.

    The dates: December 23-28, 2017, because I previously stayed at a number of the hotels for which I did the dummy bookings during a similar time of the year, so that they can provide a reference point.

    So, here we go [ below, a hotel category is simply that in which a hotel was before Hilton Honors did away with their award chart]:

    Hilton Shanghai [will no longer be a Hilton hotel after 2017 :(]

    upload_2017-11-4_23-49-29.png
    upload_2017-11-5_1-3-52.png
    upload_2017-11-5_1-4-16.png

    Category 6 hotel:
    - Minimum Standard Reward Rate: 27,000 HH points/night
    - Maximum Standard Reward Rate: 50,000 HH points/night

    The result of my dummy booking a 5-night award stay for Dec 23-28, 2017, is shown below on the left and the corresponding daily cash room rates are shown on the right (click image to enlarge):

    upload_2017-11-4_17-5-38.png

    Note that, as per the new policy (left panel), the cost of the 5th night is simply set to 0 points. Also, the costs for the 4 prior award nights are the same, which made me curious to check the corresponding daily rates in cash (right panel), and they too did not change from day to day. So, the correspondence between award rates and cash room rates, which is the central feature of the revenue-based system, was not "violated" in this instance. Importantly, note that the award cost is at the minimum number of points (27K points) for this category 6 property, and not at the maximum number of points (50K points), as some who claimed the policy change was a "devaluation" (mis)interpreted "at the applicable full Standard Room Reward price." What is clear is that with this award stay booking, one does as well as is possible at this property. It is absolutely the cheapest that a 5-night award stay at this property can cost. Already, right there, the notion of a massive "devaluation" as a result of this policy has already bitten the dust! The phrase "at the applicable full Standard Room Reward price" in the policy simply means any award rate between the minimum and maximum for a property, which would be dictated by seasonal variations, as well as by the same economic principles of supply and demand that govern room rates in cash. However, one example a proof does not constitute, or even enable us to fully understand the implications of the policy change, so let's look at more examples.

    Hilton Singapore

    upload_2017-11-5_1-20-57.png

    Category 7 hotel:
    - Minimum Standard Reward Rate: 36,000 HH points/night
    - Maximum Standard Reward Rate: 60,000 HH points/night

    The result of my dummy booking a 5-night award stay Dec 23-28, 2017, is shown below on the left and the corresponding daily cash rates are shown on the right (click image to enlarge):

    upload_2017-11-4_17-32-2.png
    This situation is at the other end of the spectrum compared to what we just saw at Hilton Shanghai. The award costs are at the maximum number of points for this category 7 property (60K/night). However, again there is no change in the daily award rates even though the room rates in cash fluctuate, but that is again consistent with the stated Hilton Honors policy that award costs will not exceed their prior category maximum when reached even if cash room rates increase further (something I previously showed graphically to be true). In this case, the cash rates started at SG$342/night or a cost of 0.57cent/point, and then they rose to SD$427/night or a cost of 0.71cent/point for the final 3 nights. The award costs did not rise correspondingly because they were already at their maximum level for this property. As per the new policy, the cost of the 5th award night, one of the 3 more expensive in cash, was simply dropped. In short, there is still no evidence of a "devaluation". In fact, the situation here is exactly what it would have been before the policy change.

    Now, let's look at various situations in which the award costs are somewhere between the category minima and maxima, along with corresponding rates in cash, which may or may not change from day to day.

    Rome Cavalieri Waldorf Astoria

    upload_2017-11-4_23-48-45.png

    Category 9 hotel:
    - Minimum Standard Reward Rate: 55,000 HH points/night
    - Maximum Standard Reward Rate: 80,000 HH points/night

    The result of my dummy booking a 5-night award stay for Dec 23-28, 2017, at this iconic property where I spent my birthday last year [in the depicted suite upgrade with Imperial Floor benefits!] , is shown below on the left and the corresponding daily cash rates are shown on the right (click image to enlarge):

    upload_2017-11-4_18-49-28.png

    The standard award rates, which are highly discounted from their possible maximum of 80K points so that it would be silly to speak of a "devaluation", were the same for 4 nights and set to 0 points for the 5th night, as per the new policy. Note that there was an increase of €5.90 after the first night, without a corresponding increase in award rates. I found several such cases of small increases in cash rates that were not accompanied by corresponding increases in award rates, suggesting that there is a threshold cash room rate change that is necessary before the corresponding award rate would also change. Nevertheless, there is still no evidence of a "devaluation".

    Here's strange case that can be characterized as a "devaluation" in reverse!

    Waldorf Astoria Beijing

    upload_2017-11-5_0-45-41.png

    BTW, breakfast -- a full and real royal feast -- is free for Diamonds (maybe Golds too) at this WA. :)

    Category 9 hotel:
    - Minimum Standard Reward Rate: 60,000 HH points/night
    - Maximum Standard Reward Rate: 80,000 HH points/night

    The result of my dummy booking a 5-night award stay Dec 23-28, 2017, is shown below on the left and the corresponding daily cash rates are shown on the right (click image to enlarge):
    upload_2017-11-4_19-2-28.png

    The standard award rates, which are highly discounted from their possible maximum of 80K points so that it would be silly to speak of a "devaluation", were at 69K points for the first two nights, dropped 11K points to 58K points for the 3rd and 4th nights, and then set to 0 points for the 5th night as per the new policy. However, look at the cash room rates on the right. They did not change, and yet the award rates dropped significantly for 2 of 4 nights! Some "devaluation"...;)

    Here's a case that shows the revenue system at work, explaining the slightly more complex calculation for the 5th night benefit that the new policy of simply setting the 5th night to 0 points replaces.

    DoubleTree Suites by Hilton Hotel New York City - Times Square

    Category 10 hotel:
    - Minimum Standard Reward Rate: 38,000 HH points/night
    - Maximum Standard Reward Rate: 95,000 HH points/night

    The result of my dummy booking a 5-night award stay Dec 23-28, 2017, is shown below on the left and the corresponding daily cash rates are shown on the right (click image to enlarge):
    upload_2017-11-4_19-19-51.png

    This is an all-suite, category 10 property near Times Square in NYC. Note that cash rates, which are relatively high, fluctuated quite a bit, first dropping by $41.52 from night 1 to night 2 and then climbing back up, but by nearly $200 ($194) for nights 3 to 5. The award rates also changed in synchrony, first dropping 11K points and then rising 15K points to the maximum possible award rate of 95K points by the 3rd night. And guess what? Based on the cash rates, the fifth award night, whose cost was simply dropped as per the new policy, would have been at the maximum number of points (i.e., 95K) for this category 10 property! Some "devaluation"...;)

    Finally, suppose I decided to book a 5-night award stay at the iconic Conrad Koh Samui around the same time of the year (December 24-29) as I did a couple of years ago, how much would it cost, with the purported "devaluation" and all? Let's see...

    Conrad Koh Samui

    upload_2017-11-4_23-17-8.png

    Category 10 hotel
    :
    - Minimum Standard Reward Rate: 50,000 HH points/night (am not sure about this)
    - Maximum Standard Reward Rate: 95,000 HH points/night

    Here's the result of the dummy booking I just did today (380K for 5 nights with the 5th costing 0 points):
    upload_2017-11-4_19-38-57.png
    The award cost was at the maximum level (95K/night) for 4 nights (set 0 for the 5th night) and the cash room rates did not change for all 5 nights -- exactly as before the new policy.

    Just for the fun of it, let's assess the redemption value for this dummy booking.
    Code:
    Nightly cash room rate for each of the 5 nights: ฿29,500 or US$860.57
    The total cash cost of the 5-night stay (including taxes): ฿169,147.50 or US$5,105.57.
    Total cost of the 5-night award stay: 380,000 HH points.
    
    The value of the redemption: US$5,105.57/380,000 = US$0.0134/HH point.
    
    That is ¢1.34/HH point, or nearly 3 times the average redemption value of ¢0.5/HH point. In terms of other points currencies, that is like getting ~¢4.0/Hyatt point or ~¢8.0/starpoint. ;)

    Right there is the type of outsized redemption values that one can get for 5-night award stays at 'aspirational' properties thanks to the '5th award night free' perk enjoyed by HH Silvers, Golds and Diamonds, but not WoH Globalists!

    Below is what it cost me two years ago for a 5-night stay at this property, as documented by AwardWallet:

    upload_2017-11-5_1-35-42.png

    See? No difference, et vive la difference!

    Bottom line: While there is little doubt that there will be instances that would show the policy change to be unfavorable (like the cost of the 5th award night, which is dropped, being the cheapest), I did not find a single one. Please feel free to post such unfavorable cases here so that we may get a full picture of the implications of this new "5th award night free" policy. However, Hilton's intent in introducing this policy change was not at all as nefarious as the usual suspects would have us believe. It was truly designed to simplify how one calculates the total cost of a stay with "the 5th award night free" benefit. That goal appears to have been achieved with no evidence of a massive "devaluation."
     
    Last edited: Nov 13, 2017

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