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The inside scoop on how much hotels get paid when you redeem points

September 1 2021
6 min read
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Most major hotel chains don’t actually own most of their individual hotels. Rather, they typically outsource most of their properties to franchisees or simply have management contracts for them. What they focus on is building a loyal customer base to send to these hotels.

Franchisees pay hotel groups a significant amount of money to have access to these customers. In addition to the ongoing fees and commissions, hotel franchises pay the hotel company every time someone stays at their hotel and earns points.

But how do the economics work in the opposite direction? Today we're going to try to uncover how a hotel gets paid by a loyalty program when guests redeem points for a free night.

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The AC Hotel by Marriott Maui Wailea. (Photo by Zach Honig/The Points Guy)

Whenever a guest completes a stay booked with points, the loyalty program pays the hotel a certain rate in actual cash. However, the amount a loyalty program compensates a hotel can vary widely and often doesn't have to correlate to the number of points you're redeeming. Rather, hotels are generally reimbursed based on their occupancy level.

In an interview with TPG, Jeff Borman — a former vice president of revenue management at both Marriott and Hilton — said that hotels are reimbursed for the full daily rate during peak times because those rooms would likely sell out regardless.

However, during less busy times — think when hotels are less than 90% occupied — they're reimbursed around cost-price. Although there's no fixed amount hotels get per point, this is likely why many of the big hotel programs offer peak and off-peak pricing for award nights.

Related: The economics behind hotel loyalty programs (with insights from a former Marriott VP)

TPG reached out to spokespeople from Hilton, Hyatt and Marriott to try to get more information and received the following response from Marriott:

The reimbursement rate is based on multiple factors for each day. Here are some but not all factors:
  • Hotel occupancy for that day
  • The hotel’s total average daily room rate for that day
  • Type of hotel
  • Member status is irrelevant.

We also asked if hotels get reimbursed more when they need to provide elite benefits like upgrades and were told, "For upgrades (not Suite Night Awards), reimbursement is based on the difference in price between room types."

How low does the reimbursement get when hotels have more vacancies? It can be as low as a third or a quarter of the cash rate.

There've been numerous instances where guests on award stays accidentally received folios showing how much the hotel was being paid.

For instance, in 2018, One Mile at a Time shared that Marriott Bonvoy reimbursed the Sheraton Nairobi Airport just $36 for a stay that cost 17,500 points, equating to about 0.2 cents per point. The lowest cash rate currently available at the hotel is about $150. Meanwhile, in 2019, Running with Miles received a bill showing a nightly rate of about $31 for a 5,000-points-per-night room at a Hyatt Place.

Related: How (and why) to calculate award redemption values

The Andaz West Hollywood. (Photo courtesy of Hyatt Hotels)

Although World of Hyatt did not provide comment, Gary Leff at View from the Wing suggests that the program has more defined reimbursement ranges for when the hotel is less than 95% full. Leff explains that a hotel with an average room rate up to $80 is going to get $25 in compensation, a hotel with an average rate of $165 is going to get $60, an average rate of $550 is going to get $300 and so forth. Note that's before factoring in the extra amount for a club room or suite. Leff suggests that Hilton Honors' reimbursement rates are even lower.

This may explain why hotels aren’t always thrilled to have guests staying on points.

In January 2020, the owners of the JW Marriott Phuket Resort & Spa filed a complaint that Marriott unilaterally sets the reimbursement rate for stays booked through Bonvoy. "Marriott was requiring us to sell rooms at a below-market rate. This business (Bonvoy) is some of our lowest-margin business, yet we are forced to honor these redemptions — which hurts our profitability," said Dillip Rajakarier, CEO of the group that owns the hotel. The hotel asked if they could opt out of the rewards program, but Marriott denied the request.

On the flip side, the hotels benefit by getting revenue from the loyalty program for a room that would have otherwise sat empty. And if the guests that are brought in by the ability to redeem points for the room then spend that cash instead at the spa, restaurants and bar, then that can obviously benefit the hotel's bottom line.

(Photo by Summer Hull / The Points Guy)

Related: These are the best hotel credit cards

Bottom line

Not all hotels in the same category are reimbursed the same amount when a guest stays on points. Furthermore, the hotel doesn’t necessarily receive better compensation if you pay a "peak" or "premium" award rate, though it does get more points off the loyalty program's books. When a hotel is at capacity, it will usually be reimbursed based on the going rate, but that is balanced out by ultra-low reimbursement amounts other times of the year.

If you take advantage of a perk like a free fifth night on award stays, the hotel will normally still get its full reimbursement amount.

The relationship between the loyalty program, the guest and the individual hotels where the member redeems their points has the potential to be symbiotic, but there are different factors that play into who comes up the biggest winner in each individual transaction and how much a hotel is reimbursed for each award stay.

Featured photo by (Photo by Benji Stawski/The Points Guy)
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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  • Airline points transfer ratios are poor
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  • Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.
  • 6x points at hotels participating in the Marriott Bonvoy® program.
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Best Marriott card for Business Owners
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
3 / 5
Go to review

Rewards Rate

6X6x points at hotels participating in the Marriott Bonvoy® program.
4X4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
2X2x points on all other eligible purchases.
  • Intro Offer
    Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.

    Limited Time Offer: Earn 100,000 points
    75,000 points
  • Annual Fee

    $125
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
    Excellent/Good

Why We Chose It

The Marriott Bonvoy Business Amex is a stacked card with a rewards rate that will help you earn bonus points on everyday and business-related purchases. You'll earn 15 elite night credits each calendar year, and receive automatic Gold elite status. Finally, the free night award certificate with a redemption level of 35,000 points or less can get you hundreds of dollars in potential value each year.

Pros

  • 6x points on eligible purchases at hotels participating in the Marriott Bonvoy program
  • 4x points at restaurants worldwide, U.S. gas stations, wireless telephone services purchased directly from U.S. service providers and U.S. shipping
  • 2x points on all other eligible purchases
  • Earn a free-night award each card renewal month (up to 35,000 points)
  • Receive 15 elite night credits to jump-start status
  • Transfer Marriott points to 40+ airlines

Cons

  • Airline points transfer ratios are poor
  • Must spend $60,000 in a year for second free-night award
  • Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.
  • 6x points at hotels participating in the Marriott Bonvoy® program.
  • 4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
  • 2x points on all other eligible purchases.
  • Receive a 7% discount off standard rates for reservations of standard guest rooms at hotels that participate in the Marriott Bonvoy program when you book directly. Terms and Conditions Apply.
  • Receive 1 Free Night Award every year after your Card renewal month. Plus, earn an additional Free Night Award after you spend $60K in purchases on your Card in a calendar year. Awards can be used for one night (redemption level at or under 35,000 Marriott Bonvoy® points) at hotels participating in Marriott Bonvoy®. Certain hotels have resort fees.
  • Enjoy Complimentary Marriott Bonvoy Gold Elite Status with your Card.
  • Terms apply.
  • See Rates & Fees