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$250 Million in SPG Points and Starwood by the Numbers

In July 2009 Starwood Hotels extended the terms of its co-branded credit card agreement with American Express to June 15, 2015. Starwood Hotels received $250 million in cash towards the purchase of future SPG points by American Express.

SPG points liability increased from $634 million at year-end 2009 to $702 million year-end 2010. That is 10.7% more liability added in one year.

The average daily rate worldwide for Starwood Hotels at year-end 2010 was $160.00.

$702 million in liability at $160 per room night = 4,387,500 room nights in free rooms waiting to be redeemed. I have no idea how liability is actually calculated, but needless to say that members are holding points for millions of free room nights.

I just redeemed 16,000 points yesterday for Category 4 Cash & Points award nights to save $800 at a hotel in June.

Speculation on how many points $250 million buys.

I was thinking American Express probably pays about $10/1,000 points for something like 25 billion points for $250 million. After running some numbers I now think American Express must buy points for far less than a penny a point to cover all the 20,000 points new cardmember bonuses and points given for credit card spend.

Any guesses on how many points $250 million buys?

a table with numbers and a number of hotels

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5 Comments

  • ed April 29, 2011

    Rick, I’m struggling to understand how this pertains to the common man…

  • Ric Garrido April 29, 2011

    Certainly not a common man issue.

    Certainly a travel industry issue.

    Travel loyalty programs are intricately tied with big finance and a $250 million purchase of hotel loyalty points in one program is a big deal.

    Travel and hospitality loyalty programs are a $17 billion per year awards business.

    Colloquy.com released a survey April 19 showing there are over 2.1 billion loyalty program memberships in the USA. An average U.S. household is active in 8.4 programs.

    http://www.colloquy.com/files/2011-COLLOQUY-Liability-Talk-White-Paper.pdf

    As the liability goes up for points I think the probability of higher cost reward nights comes into play to reduce the liability of issued points.

    With SPG the increases have to come at the low end since the high end hotels are already far inflated above the competition in Marriott, Hilton, IHG and Hyatt.

  • BostonFlyer April 29, 2011

    How does cash points affect liability? I see lots of programs moving that way. Are the using the cash portion at SPG to mollify the owners of the hotels and reduce their liability at the same time? Also how many of these points expire each year? I know lot so of people who lose Hilton points because of their policies.

  • Ric Garrido April 29, 2011

    The Colloquy report states one-third of points are never redeemed. I assume this is less for the travel sector, but likely at least 20% of hotel points are never redeemed.

    Cash & Points actually benefit consumers and hotels in my opinion. I can get more hotel nights with a small affordable cash component and save points for other nights. I do not know if the Cash & Points is more benefitical to the hotel or the loyalty program. It depends on how much a cut the loyalty program takes from a cash & points booking.

    Hilton is the worst hotel program for closing accounts. I rarely see people complain about losing all their points in other programs. Airlines are an entirely different beast where miles expiration seems automated for many programs and a revenue source for the cost to reinstate miles that were lost. I imagine hotels will pick up this practice before long.

  • Dan April 29, 2011

    They gained an asset (cash) and created a liability.
    The interest generated off the $250m created another asset. If they earn 4%, that’s $10m a year additional.

    I wouldn’t worry about Starwood.

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