Hotel loyalty program changes show luxury travel is back

Hotel loyalty programs reflect the business model of their operators:

• most hotel properties are franchised and owned by investors,
• often operated via management contracts that may or may not be with the franchiser, and
• sell rooms largely based on the brand name.

Loyalty programs, such as Hilton Honors and Marriott Bonvoy, build brand loyalty and drive sales. They’re operated by the brands themselves, but largely rely the on investor-owners to deliver benefits—such as upgraded rooms or free breakfast—for which hotel properties are often reimbursed pennies on the dollar.

The way this works when a loyalty member redeems points for a free night depends on how many rooms are available for sale at the property that night. When hotel occupancy is low and properties have rooms that would otherwise go unsold, they receive minimal reimbursement from the franchiser for loyalty redemptions. When occupancy is high, however, Marriott Bonvoy or World of Hyatt must reimburse near the selling rate, so properties don’t lose revenue.

Historically, the number of “points” required for a free night at a hotel was tied to a category level, with properties in the lower categories costing fewer points. World of Hyatt’s program has eight categories, with 8 being the most expensive.

Changes in hotel loyalty programs are indicators of what’s happening in the hotel industry generally. World of Hyatt recently announced hotel category changes, and many travel blogs took note. Over at One Mile at a Time, Lucky noted Hyatt is changing redemption categories for “roughly 28%” of its portfolio, with the vast majority of properties increasing the number of points required for a free night. These increases disproportionately hit Hyatt’s luxury properties, with some moving to Hyatt’s most expensive category for free-night redemptions. These changes seem to confirm what hospitality investors, operators, and analysts have been telling us: travel is back with a vengeance, with luxury travel especially in demand.

During the COVD-19 pandemic, business travel was primarily the domain of those who could not work remotely—think construction managers, HVAC technicians, and traveling nurses; this created strong disproportionate demand for cheaper and extended-stay properties, such as those operated by Choice Hotels (eg, Comfort, Econo Lodge) and Wyndham (eg, Howard Johnson, La Quinta). The pendulum is now swinging back; luxury vacations are becoming even more expensive.