One of the questions I get asked surprisingly frequently by people when they hear that I write about Points and Miles is, ‘how much hotels get paid when you stay using Points?’.
The precise details vary depending on the chain, but generally speaking the answer is “not very much”.
It’s important when talking about this to remember that although we might think of hotel companies like Hilton, Marriott or IHG as being huge monoliths, the reality is that the vast majority of the hotels under those umbrellas are actually owned by separate investment companies. To provide a bit of context, IHG (Intercontinental, Crowne Plaza, Holiday Inn, etc) has over 5,000 hotels carrying its various brands, but more than 4,000 of those operate under franchise arrangements, almost a 1,000 are managed directly but still separately owned, and just 8 hotels are actually owned by IHG itself. It’s an amazing statistic.
I mention this because it feeds directly into how hotels get remunerated by the loyalty programmes, like IHG Rewards Club, when guests pay using Points. LoyaltyLobby published a fascinating piece of information recently, showing exactly what IHG hotels receive from IHG Rewards Club for stays booked with Points.
As you can see below, the hotels receive a fixed amount depending on what the Average Daily Rate of the hotel is. What they receive is therefore only indirectly linked to the number of Points required for an award stay. Hotels receive the same payment whether IHG Rewards Club is charging 60,000 Points per night or 5,000 (if a hotel is on the PointBreaks list).
There are two ways that hotels can get paid more for award stays by IHG Rewards Club. The first is to host at least 1,000 award nights per year (or for 2%+ of annualized room inventory to have been consumed as awards). After one of those thresholds is met, hotels get a bonus for each additional award stay, as below:
The second way that hotels can get paid more is when they host award stays at a time when hotel occupancy is 96% or higher. In those circumstances, IHG Rewards Club pays the hotel the full Average Daily Rate – which is clearly often much higher than the payment amounts listed above.
I always find the mechanics of how loyalty programmes work interesting – thanks again to LoyaltyLobby for getting hold of the information!