## Wednesday, February 13, 2008

### Hotel Points Exchange Rate Theory

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. 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.

[Note: The Hotel Points Exchange Rate Theory is my own Loyalty Traveler construct so you won't find it in Wikipedia]

Hotel loyalty program changes throughout the membership year due to factors such as hotel category classification changes, hotel redemption changes or promotions, and special offers using hotel points creates a dynamic potential value for hotel points that rises and falls as redemption exchange rates and conditions change.

Applying the Theory in Consumer Hotel Travel

What is the value of 25,000 Priority Club points?

The cost to buy 20,000 Priority Club points is \$200. There is a 20,000 point purchase limit per calendar year. If extrapolated, 25,000 points has \$250 value based on simple purchase price of points through Priority Club. This is the elementary answer to value of points.

What is the potential value of 25,000 Priority Club points?

The potential value of hotel points is a range depending on money saved at time of redemption. 25,000 hotel points will have no value if they are never redeemed and expire from member’s account. 25,000 hotel points may have a value of \$500 or more if redeemed for an award with that purchase price using cash.

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

The potential value of hotel points is dependent on the exchange rate when you decide to use them. My work involves keeping track of current exchange rates and sharing my analysis of the more favorable exchanges for your hotel points.

Enough with the theory.

Here is how Exchange Rate applies to real world hotel travel:

The simple value of 30,000 hotel points is \$300. The potential value depends on timing and location.

Two examples of timing and location:

Example 1: Priority Club advertises the program feature allowing a member to use Priority Club hotel points for any hotel anywhere. The fact is true, but the details show the real value of hotel points. 29,000 hotel points can be exchanged for a \$100 American Express gift card.
http://www.ichotelsgroup.com/h/d/pc/1/en/c/2/content/dec/pc/0/en/points/us/anyhotel.html
This is a poor hotel points exchange rate. The potential value of 30,000 Priority Club hotel points is much higher than \$100 if used differently.

Example 2 Scenario:

Michael Palin's Eastern Europe travelogue made Romania look like an interesting destination. 30,000 Priority Club points have been sitting in a traveler’s account.

Will 30,000 points get a free night in Bucharest, Romania?

There happen to be two IHG hotels in Bucharest, the Crowne Plaza and the InterContinental. The security of a major hotel in a large foreign city is comforting. The hotel points exchange rate needs to be compared for different options at these hotels to determine which hotel offers the best value for 30,000 points.

First, look at the redemption levels for the two hotels.

Marriott, Hilton, Hyatt, and Starwood all categorize hotels by a number system to determine the amount of points for a free hotel night.

Priority Club structures hotel redemption by hotel brand and there is only variation in the redemption point level for InterContinental, Holiday Inn, and Holiday Inn Express hotels. Some InterContinental Hotels require 40,000 points, while others are only 30,000 points. All Crowne Plaza hotels are 25,000 points for a free night standard redemption.

InterContinental Bucharest takes 30,000 points for a free night. My simple value calculation tells me that my points are worth \$250 to use 25,000 points for the Crowne Plaza or \$300 to use 30,000 points for a night at the InterContinental.

Second, check the hotel room rates for anticipated date of arrival to see if they are above or below the simple value of \$250 per night for Crowne Plaza or \$300 per night for InterContinental.

Hotel rates for April 15, 2008
Crowne Plaza, Bucharest is 743 RON/night (Romanian New Lei) = \$299 USD/night +12% tax
InterContinental Bucharest is 300€/night = \$437/night + 12% tax

The InterContinental Bucharest appears to be a better value with a hotel points exchange rate value of close to \$500 for the 30,000 points. (Award nights generally include the hotel tax in the award redemption.)

Depending on my time I may have stopped my analysis here, checked some hotel reviews, and booked the InterContinental. (TripAdvisor shows Crowne Plaza ranks #8, however only 4 hotel reviews which is too low for statistical validity in my opinion, and the InterContinental ranks #10).

When you check hotel points redemption for Bucharest you should find that the Crowne Plaza has a PointBreaks special redemption offer available for April 15, 2008 for only 5,000 points.

Priority Club PointBreaks Hotel Award- 5,000 hotel points for a free night. http://www.ichotelsgroup.com/h/d/pc/1/en/c/2/content/dec/pc/0/en/points/us/hre/pointbreaks.html?rateCode=IVANI

The potential value of Priority Club hotel points redeemed for the Crowne Plaza has increased to about \$335 for 5,000 points compared to the potential value of \$500 for 30,000 points used for a free night at the InterContinental. The real value of the hotel points exchange is \$67/1,000 points if redeemed at the Crowne Plaza, Bucharest using a PointBreaks award compared to the real value of \$17/1,000 points if redeemed for a free night at the InterContinental Bucharest.

The value of 30,000 Priority Club hotel points potentially is over \$2,000 if used for a 6-night stay at the Crowne Plaza Bucharest.

Hotel Points Exchange Rate Theory shows there is no real value of hotel points until they are redeemed. Points only have potential value when sitting in a member's account. The real value of hotel points when redeemed is all a matter of timing and location.

The Loyalty Traveler seeks out and writes about the higher potential values for hotel points.