Oct152009

Hotel Points Exchange Rate Theory

A common question is “How much are hotel points worth?”

 

A frequent guest wants a variety of strategies for reducing the cost of a hotel stay. Your choices are dictated primarily by the investment of time you are willing to make to find the best deal. Traveling with a big picture view of your frequent hotel stay plan allows you to consider a variety of strategies to find lower hotel rates. Earning hotel loyalty points is the major strategy I discuss on this blog.

 

A knowledge base of the different ways to earn hotel points combined with knowing your options for hotel points redemption is the basis for understanding and applying Hotel Points Exchange Rate Theory.

 

Hotel Points Exchange Rate Theory

 

Principle #1

Hotel Points have real value only when redeemed, or exchanged for an item in lieu of cash.

 

Principle # 2

Hotel points sitting in an account only have potential value.

 

Principle #3

The potential value of your hotel points is not a constant value.

 

Hotel loyalty programs change throughout the membership year due to factors such as hotel category classification changes, hotel redemption changes or promotions, and special offers using hotel points. The fluctuation of hotel rates based on season, events, location, and special offers creates a dynamic potential value for hotel points that rises and falls as room rates, redemption exchange rates and hotel loyalty program conditions change.

 

Principle # 3 is the focus of my hotel loyalty program work.

The potential value of hotel points is not a constant value. The potential value of hotel points is dependent on the exchange rate when you decide to use them. Hotel room rates, loyalty program promotions, and your account balance determine the potential value of your points.

 

My work involves keeping track of current exchange rates and sharing my analysis of the more favorable exchanges of your cash for hotel points and your hotel points for free nights.

 

Applying the Theory in Consumer Hotel Travel

 

What is an objective cash value for 20,000 Starwood Preferred Guest points?

 

The cost to buy 20,000 Starpoints is $700 or $35 per 1,000 points.

There is a 20,000 point purchase limit per calendar year.

 

20,000 points can be assigned a $700 value based on simple purchase price of points through SPG at a rate of $35 per 1,000 points. This is the elementary answer to the objective value of points.

 

What is the potential (subjective) value of 20,000 Starpoints?

 

The potential value of hotel points is a range of values depending on money saved at time of redemption.

 

20,000 hotel points will have no value if they are never redeemed and expire from member’s account. (This recently happened to me with Hilton HHonors inactivity. HHonors rules state a member’s account may be closed after 12 months of no activity. My account had been idle over two years.)

 

20,000 Starpoints may have a value of $1,000 or more if redeemed for hotel free nights with that purchase price using cash.

 

Real Hotel Example:

 

Let’s say I find myself in New York City desiring a room. W New York – The Court is a Category 6 hotel with a $479 room rate on October 21, 2009. One free night at an SPG Category 6 hotel requires 20,000 points.

 

After tax the W New York-The Court is a $553.15 room if I pay cash at the current room rate or

I can pay 20,000 Starpoints to check in and check-out with no charges to my credit card (assuming I have 20,000 points in my account).

 

While I stated in the beginning Starpoints have a value of $700 based on the SPG purchase price, the actual value upon redemption of 20,000 points in this example is only $553.15 for one night at the W New York – The Court.

 

$553/20,000 points.

Hotel Redemption Value = $27.65 per 1,000 points.

 

The individual member must decide if that is an acceptable exchange value for points. If you have to be in New York and the choice is spend $550 or 20,000 points, many of us would prefer to spend points.

 

[In Loyalty Traveler calculations I prefer to value points at the dollar amount per 1,000 points rather than dealing with cents and decimals. The results are less likely to have a math mistake and I think most of us can relate to a $10 value difference better than a 1 cent difference. Also, most loyalty programs price awards in 1,000s of points. Points purchases are generally required in increments of 1,000 points.]

 

Personally, I value my points too much for spending so many points for a single night at a Category 6 hotel. The occasion and circumstances need to be really special for me to blow 20,000+ points on a hotel night since I know there will be plenty of hotel night redemption opportunities that will offer better value for my points.

 

I earn very few points from credit card spending so I try and get the most value from the 30,000 to 40,000 points I earn each year from my hotel stays.

 

SPG Cash & Points Award Nights

 

InsideFlyer had a poll recently where 80% responded never having used a Cash & Points award. I find these awards to be the best value of my SPG points. when staying at hotels rated Category 3 and higher.

 

October 19 update: I see SPG has just changed the Cash & Points table adding Category 1 and 2 hotels in the US and Canada. Last week and for the past couple years SPG C&P awards were only allowed for Category 1 and 2 hotels in Asia Pacific.

So now there will be significantly more opportunities for SPG members to receive great value from C&P awards at Category 1 and 2 hotels in the US, Canada, and Asia-Pacific region.

http://www.starwoodhotels.com/preferredguest/account/starpoints/redeem/cash_points.html

 

 

The Westin Diplomat Resort & Spa in Hollywood, Florida has a room rate of $301.50 per night for a 4-night stay October 19-23. After tax the rate is $1,338.66 for a 4-night stay.

 

This hotel is a Category 5 hotel and available for the 4-night stay using 48,000 points. Using only points the member could also get a 5th night free award for the same 48,000 points, but that doesn’t help when you only have four nights before your flight out of town.

 

Free Hotel Stay Using Points:

$1,339 cash saved/48,000 points spent.

Points redemption value is $27.90 per 1,000 points.

 

 

 

Cash & Points option for this category 5 hotel at $90 per night + 4,800 points is an even better value.

 

Paying $360 ($400 after tax) + 19,200 points increases the redemption value of the points. The cash cost is only 30% of the fully paid room rate ($400/$1,339) and conserves 28,800 points for future award nights.

 

Actual redemption value of points for this Cash & Points award stay:

 

$1,339 (fully paid room rate) – $400 (Cash portion of Cash & Points) = $939 saved with Cash & Points nights.

 

19,200 points saves $939 in cash.

$939/19,200 points = .0489 or $48.90 per 1,000 points redeemed.

Points Redemption Value = $48.90 per 1,000 points.

 

 

Cash & Points award redemption for the 4-night Westin Diplomat hotel stay increased the value of my points from $27.88 per 1,000 points using only points to $48.90 per 1,000 points.

 

The Cash & Points redemption value in this example is even higher than the cost to buy 19,200 points for the hotel stay for a member who does not already have sufficient points for this option. SPG members can purchase 20,000 points in a calendar year at $35 per 1,000 points.

A member with no points in account can buy 20,000 points ($700) and redeem for a Cash & Points award costing just an additional $400. $1,100 all-in compared to $1,339 for the cash rate.

 

Keep in mind that free nights using points or Cash & Points award nights do not earn points, night or stay credit for promotions, or elite stay credit. These are factors that influence the redemption value of points to the extent that a paid stay would have more future stay benefits than an award stay.

For example, the Westin Diplomat room only rate (no points are earned for tax portion of hotel stay) of $1,206 would earn 2,412 or 3,618 (SPG elite member) base points. And there is nearly always a promotion worth an additional 1,000 bonus points per hotel stay.

The real comparison needs to be $939 cash savings using Cash & Points nights to 19,200 points used for C&P + 3,400 – 4,600 points not earned from a paid stay.

$939/23,800 points = $39.45 per 1,000 points which is still a good redemption value with an exchange rate higher than the cost to buy points directly from SPG ($35 per 1,000 points).

Bottom line: Cash & Points awards will often provide the highest value for your SPG points redemptions.

About Ric Garrido

Ric Garrido of Monterey, California started Loyalty Traveler in 2006 for traveler education on hotel and air travel, primarily using frequent flyer and frequent guest loyalty programs for bargain travel. Loyalty Traveler joined BoardingArea.com in 2008.

More articles by Ric Garrido »

Pingbacks

Comments

  1. well doneRic, always enjoy what you written. keep up with the good job.

    by the way, why you say “I find these awards to be the best value of my SPG points when staying at hotels rated Category 3 and higher”

    I think it is also not bad for Category 1 & 2.

  2. I had written a reply stating the Cash & Points awards for Category 1 and 2 hotels were limited to hotels in Asia-Pacific region and I went to SPG to add a link to the C&P table.

    I see SPG has just changed the Cash & Points table adding Category 1 and 2 hotels in the US and Canada. Last week and for the past couple years SPG C&P awards were only allowed for Category 1 and 2 hotels in Asia Pacific.

    So now there will be significantly more opportunities for SPG members to receive great value from C&P awards at Category 1 and 2 hotels in the US, Canada, and Asia-Pacific region.

    http://www.starwoodhotels.com/preferredguest/account/starpoints/redeem/cash_points.html

  3. Many people like to travel, but they usually can’t find best rate in hotel! Bad luck! The best way how to get your destination is planing with agency, even with high cost but you are serve fully

Comments are closed.