A few nights ago I was wrapping up work and headed to bed when I noticed a Tweet from a good friend of mine, Michael. He was complaining about some issues at his favorite hotel chain, Hyatt.
This seems like a good place to stop for a reminder that I’m a Hyatt HomerTM. They get most of my business when I travel, though I do hold SPG Platinum status as well (and somehow managed 100 nights there as well each year the last couple years). Some will call my love of Hyatt irrational, and there’s a tinge of truth there. I’m fiercely loyal to a brand that takes great care of me. But, this industry has rewarded that with bricks frequently over the years.
However, it’s not my love of Hyatt that has me disagreeing with Michael. Rather, I think it’s the years I spent working in the hotel industry, having it drilled into my head that hotels sell a commodity that disappears every night, a time and place (namely, your hotel room). Anyway, back to Michael’s concern. His Tweet actually had two concerns, but lack of detail on one will have us focus just on a singular issue.
He was especially concerned that a particular hotel, the Andaz Amsterdam (122 rooms) had no “Points & Cash” availability through the end of 2015. Not even a single day. Points & Cash (P&C) was something Hyatt rolled out recently in an effort to match competitors. It offers exactly what you would expect from the name, the ability to book a room using a combination of cash and points.
I can see why someone might be disappointed. But, Michael went further than disappointment, saying, in effect, that this coupled with his other concern had him questioning the lofty status he’d given Hyatt in his mind. I can certainly understand why he might be disappointed, since P&C essentially translates to a cheaper hotel room. Does anyone really want to spend more money?
But, before we ding Hyatt (or any chain, for that matter) we should look at the individual circumstances. Additionally, we need to define what any product that involves both points & cash really is. But, the best place to start is with the event that lead people to even have such expectations.
Starwood Preferred Guest was the first chain to launch the philosophy of “no blackout dates” in 1999. Prior to then, if you wanted to redeem hotel points you were free to do so for any date. Except Christmas. And New Years. Well, Easter, Labor Day, Memorial Day, Flag Day, Weekends, holidays we didn’t mention. Oh, and any time there’s a big convention.
As SPG ate the lunch of their competitors with this massive change, they started to adopt the same strategy. Fast forward to today, where “no blackout dates” for a standard room is now the norm. The way SPG got their member hotels to get on board with this was to offer them a much higher rate of reimbursement to the property when the hotel was sold out (or very close to being sold out). This would actually come back to bite them when a few of their properties started playing interesting math games, but it has served them well. As far as I can tell, most hotel chains that offer no blackout dates on standard awards follow a similar blueprint.
So, what blueprint does “Points & Cash” follow? Let’s try to paint that out using the Andaz Amsterdam as an example. That property is a Category 6 redemption with Hyatt Gold Passport. So, a P&C booking costs 12,500 points and 150 USD.
The cheapest rates I found at Andaz Amsterdam over the next 12 months were around 320 Euro (or $350). Rates varied as high as a few thousand Euro a night. For the most part, though, rooms can be found for 350-600 Euro on most nights. So, let’s use the lowest cash rate of $350.
Subtract $150 for the cash component you pay the property, and now you have a $200 room. If the 12,500 is going to cover the rest of the base rate, that works out to 1.6 cents per point that Hyatt would have to pay the Andaz Amsterdam to “make them whole” on the reservation. But, this also doesn’t take into account any applicable taxes that would be due on the room. In most cases, I would expect the room would still have the same tax liability to the hotel regardless of the fact that points were used to pay for part of it.
And, I don’t think there’s any way Hyatt is reimbursing properties at a level like 1.6 cents, since that’s generally where they sell points (a recent sale was in the 1.7 cent range). I don’t believe the reimbursement rate Hyatt pays is anywhere near that 1.6 cent math I use above, but I don’t know the exact number. I suspect it’s much lower, in the half a cent range.
The other primary difference here is that the lowest rate I quote above (about $35o) is nonrefundable, fully paid in advance.
The last piece of the puzzle here is to define (according to the hotel) P&C as a “rate” as opposed to a “benefit”. What does that mean? It means the hotel is deciding whether to offer P&C availability just like any other rate they might offer, whether that’s advanced purchase, a daily rate, or a premium rate. This is “distressed inventory”, and that was the original purpose behind loyalty programs. Airlines and hotels want to “reward” loyal members with free flights and rooms, but only when they’re not going to be able to sell them for more. So, in this case where they’re not required to offer the benefit on every room, hotels will have different opinions of what is truly expendable inventory. They aren’t required to offer this like a standard room award with no blackout dates.
And, if they were, it would come at a much greater cost to Hyatt. Now, they’d be offering to reimburse hotels any time someone wanted a standard room, whether they chose to redeem for all points or a combination (P&C). I doubt there’s any provision in the existing franchise agreements that would allow Hyatt to require the availability of P&C and not offer reimbursement at a higher rate.
So, why does Andaz Amsterdam choose not to offer P&C? I haven’t heard it from them, but this is what I’d guess. The property is small (122 rooms) in a very competitive market. Some of those 122 rooms are suites, so the number of standard rooms is even smaller than that. It’s a beautiful, upscale property that frequently operates at high occupancy.
They can sell rooms at a premium, and appear to do so. When managing their book, they can choose to take reservations for P&C where they don’t collect the cash up front (and are subject to more generous cancellation terms) or take an advance purchase booking where they’re paid up front. They can also choose to float a higher rate for people to book last-minute. Now, even Michael would say he doesn’t blame the property for not offering P&C under these conditions. And, he did say as much in our discussion.
The other part of his argument is that Hyatt should offer a better redemption in order to encourage properties to widely offer more P&C. They’re a smaller chain, and they should try harder to “surprise and delight”. This is much more nuanced an argument, and hard to prove in either direction. Would offering a higher reimbursement rate cause more hotels to offer P&C? Probably. Would it increase P&C bookings at the same percentage? Probably not, since P&C are still not available on the website for booking. I would imagine only a nominal percentage of members are searching for (and booking) P&C members.
Remember that these are all financial decisions. Points are just an alternative currency. Hyatt has a budget to promote loyalty. If they’re going to “try harder” are they better off increasing P&C availability, or making global promotions more lucrative? That’s an easy choice.