A Theory on Why Starwood is Considering Devaluing its Awards

A week and a half ago I posted that Starwood is apparently considering increasing the number of points required for most awards, roughly speaking a 25% devaluation of its program.

Sure, hotel prices have been rising, and that pushes up Starwood Preferred Guests’ costs since that means the program has to pay each property more for award nights.

But that’s also why Starwood re-evaluates the category that each hotel is in at the end of each year. Starwood award categories aren’t tied to a property’s quality or demand (occupancy rate) but to its average daily room rate in the prior year. And when the rate goes up Starwood bumps it up a category (or two) — requiring more points for a room night and paying the property more for that same night.

So it didn’t seem intuitively reasonable that Starwood could say, “the cost of properties keeps going up, so we have to increase the number of points for each award.” After all, they increase the number of points required already for each property whose rates go up!

It also didn’t help that the survey that Starwood was conducting framed the issue as “Hilton raised their points prices across the board, how should we do it too?” (In reality Hilton recategorized hotels, as Starwood does every year, which is a price increase — but now Starwood is considering two separate increases.)

As I think about it more and more, the issue with Starwood is likely very different from Hilton.

Hilton awards are capacity controlled, except for HHonors Diamond members. In other words, the Hilton program only gives members incremental rooms that in theory are likely not to be occupied otherwise. Starwood offers not just ‘no blackout dates’ but advertises ‘no capacity controls’ — that if there’s a standard room available for purchase you can have it with an award.

This is a huge benefit to members, and something which really sets the program apart.

Something struck me in Starwood’s survey:

    Add a seventh tier of hotel with a 30,000 Starpoint redemption level for a free night. All high demand hotels would be added to this level e.g. St. John, Maui, Paris, New York

(Emphasis mine.)

This was an odd choice of properties, as one wouldn’t expect a property to jump from category 4 or 5 to category 7 out of the blue.

But the choice was a telling one.

When Starwood issues an award night at a hotel that reaches 90% or better occupancy on the night, the Preferred Guest program has to pay that hotel something akin to the property’s average daily room rate rather than the reduced, negotiated program rate (which is otherwise something like 4/5ths of a penny to one penny per point).

With not just room rates rising but occupancy levels rising Starwood’s cost for free nights must be going through the roof, as it now likely has to pay, say, a category 3 property $150 for a night instead of $55 (hypothetical numbers only).

Starwood is probably in a bind: it needs to either increase the number of points per award or end its ‘no capacity controls’ feature.

This is just a theory, mind you, but if true then Starwood would do well to explain it clearly and concisely (much more clearly than I’ve done) to members. It would still make the program less attractive to members than it is now, and some might view other hotel programs as more lucrative, but a little candor and honesty might make the pill go down a bit more easily.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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