Hotel Industry Rates and Occupancy… What Will it Mean for Starwood Award Categories in 2011?

Starwood assigns hotels to award categories (which determines the number of points it takes to redeem a room night) based on each hotel’s projected average daily room rate for the year.

Back in February, Starwood announced that they wouldn’t be changing hotels’ award category assignments (for the most part) for 2010.

They spun this as doing a favor for their members — we aren’t raising point requirements! — but my view was that given the way they structure and describe the program, they should have been lowering points costs.

Each year when they moved more hotels up in categories than down, it was justified based on the room rates those hotels were drawing. Starwood has even added increasingly higher category levels to the program in order to charge more points for the highest priced properties.

But then 2009 was the worst hotel occupancy and revenue environment since the Great Depression.

So it seemed to me that on the whole hotels should have been going down in category, not staying the same — that was just locking in award chart inflation in a falling price environemnt.

In fairness to Starwood, they did get into the nitty gritty with me and explain that award categories are based on their revenue projections for the year going forward, and that they expected 2010 to be better than 2009 and thus on the whole many properties should have been going up in price — but they weren’t passing along those increases.

Ok, they base these things on forecasts so they get to ignore the abysmal 2009 actual numbers (as one Flyertalk member observed early in the year, “They look into their crystal ball, and based upon what they see the ADRs are likely to be in the coming year, they adjust the categories. GAAP needs a provision for this approach to accounting”). How they expected 2010 to be even as good or better than 2007 or 2008 it’s hard to imagine.

Fairness to Starwood, in 2009 they suspended high season surcharges for top category properties, and certainly it’s true that some hotels would have gone up in price.

But after an award category decision at the beginning of 2010 that struck me as sleight of hand, but which Starwood assures was not, it will be especially crucial to watch their decision-making for 2011. It’s a key time for the program, where members will really discover whether or not they can trust the program (with their point balances and their loyalty).

As we enter the fourth quarter of the year, industry-wide hotel occupancy is 5.7% below the median for the entire 2000 through 2007 period. Occupancy is below 2008 levels. And more importantly, average daily rates (which Starwood bases its categories on) are off more than 10% from 2008 levels. So if current trends hold, and fuzzy math about projections aside, we should see an on-net reduction in hotel categories for Starwood at the beginning of the year.

My bet is that we won’t, but I’d love to be proven wrong!

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, 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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  1. I’m Starwood PLAT and Hyatt DIAMOND. I will likely have to sacrifice top tier status with one of these chains in 2011, and obviously I will keep whichever one offers better value for the points I’ll be accumulating…

  2. I think snow in Miami is more likely than a wholesale reallocation of SPG hotels into lower categories. Whether they’ll fess up or not, they’ll just draw the boundaries for each category at, say, 10% lower rates.

    Hopefully, “a good hotel” somewhere will drop a category. That’s probable, I would think. Alas, it’s the marginal hotels that are most likely to go down. My #1 vote: the Princess Kaulani on Oahu. Cat. 4, with room rates in the low $100s. Even on a cash & points, a bad deal right now!

  3. I think another concerning trend to consider with SPG is the increase of rooms defined as anything other than “standard” which is essentially a back-pocket way of introducing capacity controls. This wasn’t so bad when it applied to a unique property of two (such as the Westin Verasa Napa) but it seems like more and more I am hearing from my SPG Plat concierge that there are no standard rooms available even when the hotel has tons of inventory.

  4. Notwithstanding SPG’s attempted rationale for adding new categories and general category shift (i.e. program devaluation) several years ago, I would be shocked to see any material number of decent properties dropping in category in 2/11. And the “no blackouts” marketing ploy borders on fraud.

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