Here is my non-academic commentary to the ten principles outlined in the report as guidelines for hoteliers developing and managing hotel loyalty programs.

1. Foster customer engagement – this occurs from repeated positive interactions and experiences with a brand. The ability to get a complimentary room upgrade, nice bathroom and amenities, good TV and the opportunity to eat breakfast are big drivers of loyalty for me. 

One suggestion from the report is giving a reward for annual updates to guest profile contact information. Hilton HHonors was a champion of this strategy years ago when members would receive 1,000 points every quarter for updating your email address. This could be done twice per quarter for 8,000 bonus points per year. That kept me attentive and returning to the HHonors website. HHonors inattention to other details of the loyalty program kind of left me seeking a better fit for my travel style.

2. Establish a Two-Way Value System – Here is where the CHR report shows its bias for the hotel industry. The report argues the use of hotel discounts or free nights has low customer value and high cost to the hotel if a free room or discount is given to a customer who would be willing to pay the full rate for a hotel room. As an alternative, the report states giving guests a free or discounted service during the hotel stay is a high customer value, low cost loyalty reward.  

Fortunately complimentary upgrades also fall in the high customer value, low cost award category since an upgrade to an empty room that is a higher category than the customer paid is a value-added customer benefit and the paying guest already at the hotel is a low cost opportunity to give the customer value with an otherwise empty room. The customer leaves with a great memory.

Personally, when I am the customer I am more inclined to spend extra at the hotel in return for feeling I am getting more hotel room than I paid for, therefore I am feeling like I can add more cash to the hotel stay through a restaurant meal or drinks.

The problem for the loyalty program is knowing what a customer values. This is the objective of guest profiling and data collection.

Hey - hotel loyalty wiz-kids mining my data. In short, this Loyalty Traveler gives ultimate value to earning free hotel nights. Second is upgrade rooms. Third is breakfast.

3. Capitalize on Customer Data – this principle argues for the need to analyze customer data and compare the spend for loyalty member guests to non-loyalty member guests to determine the value of the program.  

In my discussions with the corporate heads of a couple of hotel loyalty programs this past year I have been told unequivocally that hotel loyalty program members are highly profitable for the hotel chains.

The major loyalty programs have 5 million to 50 million members. Personally, I believe there is enough profitability among the programs as a whole to mitigate the impact of the few thousand point-hounds like me who maximize several aspects of the loyalty programs for high value on low spend.

4.       Properly Segment across and within Tiers – the authors refer to elite status in this section and use Marriott Rewards (although not mentioned by name in report) as an example of elite tiers that are probably not differentiated effectively. Marriott Rewards confers Silver elite at 10 nights and the next elite tier is not reached until 50 nights.

Marriott Rewards has the greatest gap between tier levels among the major hotel loyalty programs and a much more difficult threshold for high elite levels than any other major hotel loyalty program.  Hilton, Hyatt, IHG, and Starwood all have at least one other route besides hotel nights for obtaining elite status. Marriott Rewards only counts nights and 50 nights is a road warrior level of hotel nights for mid and top-tier elite attainment.

Currently HHonors is the only major program that has a route for earning elite status based on spending (HHonors Gold earned at 60,000 base points ($6,000 annual spend) or HHonors Diamond at 100,000 base points ($10,000 annual spend). Priority Club also gives status based on points earned, however, Hilton only counts base points with a direct correlation to hotel spend while Priority Club allows points earned from nearly all sources to count for elite qualification.

5. Develop Strategic Partnerships – corporate partnerships are common among hotel loyalty programs. The airline frequent flyer miles partnerships with hotel frequent guest programs are one of the primary corporate partnerships providing members with across travel industry sectors. Rental cars are another valuable partnership expanding reward options for hotel loyalty program members. 

Most of the major hotel loyalty programs have shopping mall portals for earning hotel loyalty program points for online retail store purchases.

The authors also make the suggestion to hotel loyalty program managers to seek independent insight and analysis from companies specializing in design of hotel loyalty programs and educational researchers.      

This is my Business Plug: Loyalty Traveler provides low cost independent evaluation of hotel loyalty programs.  Contact me to discuss your needs ricgarrido@loyaltytraveler.com.

6. Develop Dynamic Tiers – Airlines have dealt with the problem of frequent fliers jumping ship by offering additional incentives like additional upgrades and benefits after reaching the highest elite tier. Hotel programs lag in this effort.

One of the interesting comments made in the report is a suggestion that undocumented small rewards be offered to elite members. The problem I find with undocumented offers is the benefits tend to actually be documented in forums like Flyertalk. The social media outlets make it difficult to keep any offers through loyalty programs undocumented from the frequent guest viewpoint. Personally I see (and have actually felt on occasion) some resentment towards a loyalty program when I see targeted offers others receive and wish I had received that same opportunity.

My discussions with hotel loyalty program corporate executives indicate that hotels are interested in developing targeted offers based on guest profile data, but in the consumer world of social media this is a two-edged sword. My feeling is targeted offers tend to alienate frequent guests who feel the benefits and offers being given to others are excluding them for whatever reason.

Marriott is a good example of a program that has regularly targeted offers. Some members feel their hotel spend is not commensurate with their loyalty. For example, some members get points bonuses based on a specific number of nights and some members may get a free night offer. Giving the member the opportunity to choose a different offer based on their own projected stay pattern is an easy remedy. Some members report success at getting their targeted offer (i.e. MegaBonus) switched to some other offer they learn about on FlyerTalk or elsewhere.

Rather than the hotel loyalty program seeking to drive my hotel stay behavior with a targeted promotion for my profile, my suggestion is to provide me, the frequent guest, the choice of an offer that will meet my projected hotel stay pattern during the promotion period. There is no problem sending me a targeted offer, but if I receive an offer “5 nights earns 10,000 bonus points” and I project 30 hotel nights for the quarter, then I might be looking somewhere else for hotels. Particularly when I have read on FlyerTalk that some other member in my same hotel loyalty program is getting 50,000 points for 25 nights.

Hyatt Gold Passport is an example of a program that offers elites additional incentives. Platinum elite is reached with 5 stays or 15 nights in a calendar year and then the next tier for Diamond elites is not reached until 25 stays or 50 nights. This may seem like a hurdle as large as the Marriott Rewards Silver (10 nights) to Gold (50 nights), except for the fact that Gold Passport offers Platinum elites “Platinum Extra Awards” after every third stay until the member reaches Diamond level.

New Platinum members will receive their first Platinum Extras Award certificate in their membership materials.

Your Platinum Extras choices become richer after every third eligible stay. Options include your choice of:

Stay 3 & 6: 1,000 Hyatt Gold Passport bonus points, 1,500 bonus points for dining*, food & beverage welcome amenity*, or a complimentary beverage**

Stay 9 & 12: 1,500 Hyatt Gold Passport bonus points, 500 travel partner miles, 2,000 bonus points for dining*, food & beverage welcome amenity*, or a complimentary beverage**

Stay 15 & 18: 2,000 Hyatt Gold Passport bonus points, 1,000 travel partner miles, Regency Club upgrade*, $10 Starbucks gift card, or a complimentary beverage**

Stay 21 & 24: 2,500 Hyatt Gold Passport bonus points, 1,500 travel partner miles, Regency Club upgrade*, complimentary Continental breakfast*, or a complimentary beverage**

*Available only at Hyatt Hotels & Resorts™
**Available only at Hyatt Place™ and Hyatt Summerfield Suites™

Source: https://goldpassport.hyatt.com/gp/en/awards/platinum_extras_awards.jsp

7.       Cater to Customers Desires to Choice and Fairness

The article talks about choice in redemption which is common in most programs. There are hotel award nights and the choice of miles in all programs. While there has been an extensive catalog of goods and services offered through hotel loyalty programs as points items, in my opinion, the more valuable effort would be developing more hotel reward options.

Priority Club has the great PointBreaks perennial limited time offer of 5,000 point nights for a selection of hotels that are as high as 25,000 and 30,000 points regularly.

Starwood Preferred Guest offers Cash & Points on a select availability basis. Cash & Points awards allow members with relatively few points the opportunity to use points for a hotel night with a cash supplement. Priority Club and goldpoints plus also offer the points and cash option for hotel nights.

The second part of this principle addresses elite status which the authors refer to as a “reward tier”. 

The article states frequent guests want to feel their elite tier is a matter of distinction and needs to be earned. This sentiment is expressed on FlyerTalk every time there is a fast-track to elite status offered.

In 2010 this whole concept of earned status across hotel loyalty programs has been tossed out the hotel window. Hyatt Gold Passport gave away elite to anyone who asked up until a month ago. Best Western advertised a hotel elite match most of the year. Although elite status matches are a widespread practice in the loyalty industry, it is an uncommon tactic to announce it and recruit new members with an elite status match.  

If you do not have hotel loyalty elite status in 2010, then you really just do not have enough interest. Hotel loyalty programs have been giving away elite status to any breathing human. Since my interest is hotel loyalty programs I have elite status in more hotel loyalty programs in 2010 than ever before. Despite the fact that I am not traveling anywhere near my average number of nights over the past decade (yeah, it’s the economy holding me down by the neck too).

I really do like the idea of requalification being easier than initial status. If it is 50 nights to be top level elite, then make the requalification threshold 20% less or 40 nights. This is a measure of compensation for loyal members who feel slightly betrayed when they put out the money and time to reach the elite level and someone else, by virtue of a good fast-track offer, gets in with a much lower threshold of hotel stays.

8.       Avoid Commoditization through Differentiation – Find ways to differentiate your program.

The most astounding aspect to me as I have researched and compared hotel loyalty programs the past few years is the remarkable similarity between programs. There are differences, but they tend to be fewer than the similarities. It is obvious the hotel loyalty programs position themselves relatively close to their primary market segment competitors when creating something like a hotel night award chart or points-to-miles exchange rate.

The authors point out the tendency of hotel loyalty programs to copy each other. My viewpoint of the past year is Hyatt Gold Passport is the hotel chain that has tried to break out of this mold. The unprecedented offer of four confirmed complimentary suite upgrade certificates and the first large-scale hotel program to offer free internet to all elite members are features that set Gold Passport ahead of the hotel loyalty competition when these were introduced 14 months ago.

Another aspect of this principle that I strongly believe in is flexible program management. The bottom line is that the program is not determined by a one-sided interpretation of terms and benefits. Listen to members who object about the way some aspect of a program is run and make alterations to meet guests needs and desires.

The other aspect of this principle reveals the hotel industry bias again. The case study of Jet Blue changing its loyalty program from a model of segments flown to dollars spent is a major adjustment that would fundamentally alter hotel loyalty programs if it became common practice.

In my opinion, the hotel loyalty program marketplace would drop substantially in value if the earn or burn sides of the loyalty points equation are placed on a strictly dollar spend scale.

9.       Avoid the Price Sensitivity Trap

“Many reward programs are still based on a simple design that provides customers with future discounts as a reward for current spending.” 

This is the fundamental part of the hotel loyalty program. In-hotel benefits are certainly a nice feature of hotel loyalty programs, however, the future discount is the primary competitive advantage for using a hotel loyalty program over just making all purchases on Priceline or Hotwire or at some funky boutique property with personalized service. 

The hotel loyalty program rebates and value-added benefits are the features that provide the major chains with additional pricing power for their rooms.

10.   Embrace New Technologies

Rather than following me around the world through a site like Four Square to instantly offer me an incentive on the spot, while nice it may be…

how about simple investments in primary website capabilities? 

Hilton – Is it too much to ask that I can check AAA rates without typing my 16 digit membership number? 

Priority Club – Is there some valid reason why you can’t make it easy to search for the free night redemption cost of Holiday Inn and Holiday Inn Express hotels at the 10, 15, and 25,000 points levels? 

Hyatt – Do I have to call in for nearly every stay to get the G bonus or platinum amenity added?

Starwood – Can you allow me to see AAA rates for a group of hotels in San Francisco rather than needing to check each hotel individually? 

Marriott – I guess you have most of your bases covered since I can’t think of any glaring website deficiencies at the moment. Anyone else have a complaint?

Customer research is stated as the most important strategic investment a hotel loyalty program manager can make.

My Loyalty Traveler opinion is members’ needs are relatively simple for the vast majority of frequent guests. A simple combination of value for money, a return on investment of loyalty through rewards and value-added benefits, and a hospitable hotel environment will keep the loyalty game going.

Keep loyalty simple for a win-win relationship.

Cornell’s Center for Hospitality Research published a new report on hotel revenue management last week. The report reiterates one of the hotel industry’s primary strategies for getting more money from the hotel guest:

“Bundle services into packages that disguise room rates.”

Loyalty Traveler goes into HD (hotel detail) mode with today’s rate analysis by concentrating on the myriad of special offer rates available at one hotel, The Nines, Portland, Oregon, over one Labor Day weekend.

Here is my Loyalty Traveler detailed room rate analysis to illustrate how hotel revenue management rate strategies are a time-consuming endeavor for the guest seeking the best value for a hotel stay at a particular upscale or luxury hotel. It is difficult to know which special offer will truly be a good value until you plug in some dates and give the hotel rate slot machine a spin.

To save readers from needing to read the entire analysis I will tell you the results up front for The Nines this Labor Day.

The Nines Hotel, a Starwood Luxury Collection property is available for $126 per night for a 3-night stay over Labor Day weekend with the 3rd night free special offer rate.

The Nines has been open for less than a year in downtown Portland, Oregon. I stayed last November a few weeks after the hotel opened for $199 per night and that was a discounted rate. Rates this past winter fell to as low as $99 per night. Here is my Loyalty Traveler hotel review from last year with several photos. http://boardingarea.com/blogs/loyaltytraveler/2008/11/12/the-nines-starwood-luxury-collection-portland-oregon/

The 3^rd night free offer from Starwood Hotels reduces the nightly room rate from the default rate of $189 per night to $126 per night for a 3-night stay over Labor Day weekend. The hotel has a true 3^rd night free offer of 33% off the lowest rate. The Ivy Hotel , Minneapolis (yesterday’s rate analysis) also has a 3^rd night free offer that was not the best deal for the lowest rate rooms over Labor Day weekend.

Loyalty Traveler’s Comparative Rate Analysis for

The Nines, Starwood Luxury Collection, Portland, Oregon

September 4-7, 2009 for 3 nights.

Searching Rates for Online Travel Agencies

I start hotel rate searches with an initial search of online travel agency rates for comparative purposes to Starwood Hotels. Rate discrepancies may be applicable to a Best Rate Guarantee claim with Starwood Hotels for 10% off the total nightly rate or 2,000 bonus Starpoints ($70 value).

In 14 Starwood hotel stays in May 2009 I received Best Rate Guarantee adjustments to a lower rate found on an online travel agency website for 8 stays resulting in 16,000 bonus Starpoints in addition to the lower hotel room rate found with the online travel agency. Loyalty traveler post on Best Rate Guarantees. 

The default rate on the hotel chain website is typically the same rate shown on websites for Online Travel Agencies (OTA) such as Expedia.com, Kayak.com, Travelocity.com, and Orbitz.com.

An interesting result for a search of The Nines for a 3-night stay, September 4-7, 2009, is a different rate was found for each of the three major OTA sites of Expedia, Orbitz, and Travelocity. I do not see this occur often.

Expedia.com = $139 rate for Friday (Superior room eligible for Best Rate Guarantee claim with Starwood Hotels? Only Deluxe rooms are shown on Starwood website. This may qualify for a BRG claim. Starwood will notify you within 24 hours if the $139 rate will be matched by The Nines.)

$189 for Friday and Saturday, but no availability is shown Sunday night on Expedia.

Travelocity.com = $189 per night

Orbitz.com = $215.67 per night (Club Floor Deluxe) No availability shown for regular Deluxe room without Club Floor access.

Kayak.com = $189 per night.

GTAHotels = $255 per night (I have had good luck in the past finding BRG rates with GTA Hotels.) 

Starwood Hotels Basic Rate Searches: Default rate, AAA rate, and senior rate

Rate Search #1 – Default rates  

Look on Starwood Hotels main website for Portland, Oregon and “from $189” is the rate shown for The Nines Hotel.

Starwood Hotels $189 default rate for The Nines

Click on the $189 rate and  Starwood’s “recommended” rooms and rates are shown.  These are all rooms with 2 queen beds with or without Club Floor access. The only room with a King bed is shown as a Club Executive Suite with a rate of $950 per night for Friday September 4 for a 3-night Labor Day weekend stay. I’d just like the bed please. No dining room table is necessary.

Deluxe Room $189 (2 queen beds)

Club Floor $219 (2 queen beds)

Club Executive Suite $950 (King bed)

Starwood Hotels Recommended Default Rates

Rate Search # 2: AAA rate, if a member

Deluxe Room $180 (2 queen beds)  This rate is 5% less than initial search.

Club Floor $197.10 (2 queen beds) This rate is 10% less than initial search.

Club Executive Suite $855 (King Bed). This rate is 10% less than initial search.

Rate Search # 3: AARP rate, if a member

Senior discounts vary by hotel and program. Some hotel chains require guest to be 62, but this rate is based on AARP membership. Persons 50 and older can join AARP.

Deluxe Room $159 (2 queen beds) . This rate is 16% less than initial rate of $189.

Hotel Special Offer Rates

Typically hidden in the special offer rates is the best value – if you have the time to search through all the offers for your hotel dates. Loyalty traveler took the time to analyze 10 special offer rates from The Nines for a Labor Day weekend hotel stay.

Click on the hotel name “The Nines” for the link to go to the hotel website.

This is where the potential guest can view special offer rates from The Nines. Click the link on the far right “Offers” to view webpage of special offer hotel rates.

Offers at the Nines, Portland

The Nines has 10 different special rate offers on this page. That is 10 different rates which potentially could offer a better deal than the $189 shown in the initial Nines hotel rate search. Two of the special offers are Starwood Preferred Guest bonuses. The first offer is for 1,000 bonus points per Starwood Hotel stay. Sign up for this.

SPG 1,000 bonus points per stay promotion

Rate Search #4: Third Night Free Special Offer Rate (This is the best deal Loyalty Traveler found)

Labor Day weekend rates: Friday, Sep  4; Saturday, Sep 5; Sunday, Sep 6.

Deluxe Room = $126 per night (33% savings over initial $189 rate)

Friday @$189 + Saturday @$189 + Sunday free = $378 for 3 nights.

Club Floor = $146 per night (33% savings over initial $189 rate)

Friday @$219 + Saturday @$219 + Sunday free = $438 for 3 nights.

Club Executive Suite = $1,900 for 3 nights = $634/night.

The unusual aspect of this 3^rd night free offer is the rate used for 3^rd night free is not inflated. Typically these offers use a nightly rate for the first two nights significantly higher than the lowest rate otherwise available. The Nines is offering a true 3^rd night free offer since there are few discount rates for one or two night stays.

Yesterday’s analysis of 3^rd free night rates at Hotel Ivy, Minneapolis, another Starwood Luxury Collection Hotel, was not the lowest rate for lower category rooms.

Remember: 3^rd Night Free rates are fully prepaid and nonrefundable. This rate is a significant savings, but also has significant risk of losing your entire deposit if you do not complete the hotel stay.

Starwood Hotels 3rd Night Free Offer

Rate Search #5: 50% off 2^nd night for a 2-night stay September 4-6.

Deluxe Room = $141.50 per night (25% savings over initial $189 rate).

Friday, Sep 4 $189 Saturday, Sep 5 $94 = $283 for 2-night stay

Club Floor Deluxe Room = $164 per night (25% savings over initial $219 rate)

Friday, Sep 4 $219; Saturday, Sep 5 $109 = $328 for 2-night stay

Loyalty traveler comment: I have stayed at the Nines with Club Floor privileges and the Club Lounge daily food and evening alcohol service is definitely worth the extra $22.50 per night.

Starwood Hotels 3rd Night Free rates for the Nines

Rate Search #5 – Live Life to the Nines Special Offer Rate includes two value-added amenities from the following list:

1. Complimentary Valet Parking 
2. Breakfast for two in Urban Farmer or from In-Room Dining
3. Welcome Amenity that includes chocolate dipped strawberries and your choice of a bottle of Champagne, Cabernet or Chardonnay
4. Dinner and a Movie (one on-demand movie of your choice and a $25 In-Room Dining credit)
5. 4:00pm Late Check-Out
6. Complimentary Room Upgrade (based upon availability)
7. 1,000 Starwood Preferred Guest® Starpoints 
8. Complimentary Morning Coffee Service
9. Signature Gift from the Nines (choose one): Bracelet, Cuff Links or Bathrobe 

The list includes some items that are one time and some items are daily. Since the rate being paid is higher on a daily basis, the guest should choose items with daily added value like complimentary parking and breakfast. I recall the Nines having the most luxurious towels of any hotel I stayed at this past year. I would definitely check out the bathrobe offer to determine if it is a nice quality robe.

$229 Deluxe Room (King Bed) for Friday Sep 4 on a one-night stay.

$309 Club Floor Deluxe King

Loyalty Traveler analysis of Live Life to the Nines Special Offer Rate:

The room rate is significantly higher than the 2 or 3 night special offers. This could be a good deal for a one-night stay. And the Deluxe King is available for Friday night.

Most of the value-added amenities are one time offers so this rate has the best value on a one night stay. There is diminishing value for this offer on consecutive night stays due to the much higher nightly room rate.

Club Lounge privileges come at a hefty $80 per night premium. There is only a $30 per night add-on fee for Club lounge privileges using Best Available Rate. This is a poor value special offer for the Club Lounge.

$229 Deluxe Room + Valet Parking ($25 value) + Breakfast for two in Urban Farmer ($30 value).

Or

$229 rate + 1,000 Starpoints ($35 value) + bathrobe ($50 value?) could be a decent deal for the extra $50 cost over the AAA rate for a one-night stay.

Remember: Sign up for the SPG offer for 1,000 bonus points per stay. The $229 rate could earn 2,000 bonus points with these two 1,000 point offers + 458 base points for hotel rate = 2,458 points ($86 value).

The Nines Over the Moon special offer rate

Rate Search # 6: Over the Moon 40^th anniversary of moon landing rate advertises a free space theme in-room movie , chocolates, and rates from $159.

$209 Deluxe room

$239 Club Floor Deluxe

The rates are much higher than $159 so this is a poor value for these dates.

Rate Search #7: Linger Longer with Complimentary Nights and Luxury Collection makes a UNICEF donation.

This rate is unavailable for Labor Day weekend.

Rate Search #8 – Better Tomorrows 50% off second night.

This special offer rate uses the same promotion code as Rate Search #5 and shows same rate.

Starwood Hotels Better Tomorrows 50% off 2nd night rate

Rate Search #9 – Taste of Luxury (rate code TASTE)

includes daily breakfast for two and deluxe room. For stays in October, November, and December a 4^th night is free. Rates start at $299 and minimum 3-night stay required.

$339 per night Deluxe Room

$399 per night Club Floor Deluxe room

Taste of Luxury special offer rate is a poor value for Labor Day

Rate Search #10 – Lavish in Love (rate code LUXROM)

Rate includes daily full breakfast room service, one bottle of champagne, and flowers.

$339 per night Deluxe Room

$399 per night Club Floor Deluxe room

This is a huge rate premium for breakfast and champagne. A poor value for Labor Day weekend.

Luxury Romance rate for the Nines is poor value

Conclusion: Loyalty Traveler is waiting for a website which includes special offer rates. Until then, rate analysis is a plug and chug endeavor for the frequent guest seeking the best room rate value.

Financial reports data from the first quarter of 2009 was used to show the average daily room rate changes and occupancy declines from 2008 to 2009. In the next couple of weeks the financial reports for April through June will be released by the major hotel corporations. Expect the data to show even more dramatic declines in rates and occupancy. After all, this recession is a whopper.

A discussion on FlyerTalk got me thinking about what the impact of the global recession across hotel market segments and different hotel chains. And are we truly travelers in a time of global recession for the hotel industry?

Smith Travel Research is the kind of company that has hotel rate and occupancy data compiled for a numbers geek like me. I like to periodically check their reports. Unfortunately, I did not see as many reports available online for free viewing as I remember finding last year. They are in the business of making money after all.

I am in the business of making money too when I can, but here is my preliminary research for a free layman’s guide to hotel pricing and the impact of the global recession on travel. 

In the next couple of weeks the major hotel chains will release 2009 Second Quarter financial data. The great thing about quarterly financial reports is public access to the hotel chain’s statistics for number of hotels, average room rates, and average occupancy.  

I have never worked in the field of hospitality and certainly never been in management so I have limited interest in hotel chains’ financial data. My interest is hotel properties, room rates, and occupancy rates that has direct relevance to the frequent guest.

And now for the numbers:

W Hotels are suffering big time in the USA which may account for why W San Diego and W Scottsdale are in financial trouble.

Luxury Collection/St. Regis average daily rate calculation:

2008 Average Daily Rate = $370.04

2009 Average Daily Rate = $296.56

The rate change is calculated by the equation ($370.04 – $296.56) / $370.04 = .199

The average daily rate dropped 19.9% year over year from the average room rate in Q12008 to Q1 2009.

Luxury Collection/St. Regis Occupancy Rates seem skewed to me because the decline in hotel occupancy is shown based on total rooms and not as a percentage decline in occupancy from the previous year.

For example: Luxury Collection/St. Regis Occupancy Rate numbers for International Hotels

2008 Average Occupancy Rate = 59.3%

2009 Average Occupancy rate = 48.4%

Starwood hotels reports this as a -10.9 variance. But the occupancy decrease is not actually 10.9% from 2008 to 2009.

My elementary math logic calculates this year-over-year occupancy drop as a higher percentage decline in that (59.3 – 48.4) / 59.3 = 18.4% fewer hotel guest rooms occupied in 2009 than 2008.

Regardless of how the calculation is done, the numbers all look pretty bad to me with regard to falling hotel occupancy from the first quarter 2008 to first quarter 2009.

Take the Travelodge brand and there are even strong signs of a dramatic decline in hotel room occupancy in the economy segment of hotels.

2008 Average Occupancy Rate = 45.2%

2009 Average Occupancy rate = 39.6%

Following Starwood Hotels method this is a -5.6 decline in 2009 from 2008.

Calculate this as a percentage decrease in occupied rooms from March 2008 to March 2009 and the rate decline is much more dramatic:

(45.2-39.6) / 45.2 = 12.4% occupancy decline in occupied rooms from 2008 to 2009 at Travelodge Hotels around the country. This occupancy decline is in the face of a 16% decline in average room rates.

Wyndham Hotels Group

Wyndham Hotels Group 2009 Q1 Financial Report

Small changes in average daily rate of $3 to $5 per night equate to a 5% to 8% rate drop for these economy and midscale chains in Wyndham Hotels Group. These year over year rate declines are on par with rate declines in Marriott and IHG chains. Starwood with its focus on upper upscale hotel market segment the room rate declines have been proportionately higher across the hotel chain.

Wyndham Hotels and Resorts actually saw an average daily rate increase from March 2008 to March 2009 and bucked the trend for the other hotel chains. Starwood, Marriott, and IHG all had the greatest percentage average room rate decline in its highest market segment brands. The Starwood Hotels brands of St. Regis/Luxury Collection (down 12% in US and over 25% internationally), W Hotels (about 19% globally), and Le Meridien (about 20% globally) showed double digit declines for average room rate. Marriott Hotels was down about 9% while its Ritz-Carlton luxury brand dropped room rates an average 10%. IHG held its rate average fairly well over the year compared to Starwood and Marriott.

Marriott Hotels

http://investor.shareholder.com/mar/releasedetail.cfm?ReleaseID=379246

Marriott International Average Daily Rates by Brand and Region – March 2009

InterContinental Hotels Group US Hotels Average Daily Rates by Brand – March 2009

http://www.ihgplc.com/files/results/results09Q1/downloads/slides09Q1.pdf

Hotel Room Occupancy dropped globally in 2009. There are no upsides to the occupancy numbers for hotels. From the USA and Americas and other regions of Europe, Africa/Middle East, and Asia/Pacific the hotel guest numbers have dropped from 5% to 10% in all areas across all hotel brands. Ritz-Carlton in the Americas suffered a 13% drop in occupancy over the year.

The upside for the frequent guest is the ability to secure a good upgrade at low cost or even complimentary.

First quarter 2009 numbers are data compiled in February and March this year just as the stock markets were taking massive hits in value losses. 

The major hotel chains went all out trying to stimulate loyalty promotion activity over the past few months. Rates continued to drop according to Smith Travel Research weekly data and occupancy also declined. The Q2 data should continue to paint a picture of lower rates for consumers. Unfortunately, my observation has been the lower revenue going into hotels has had the impact of fewer hotel staff working to handle customer needs.

Choice Hotels International US domestic data

Choice Hotels bucks the prevalent trend of declining room rates from March 2008 to March 2009 with Average Daily Rate year-over-year increases for five of the nine brands with data. These brands must be managed by Cornell CHR grads. All brands still had occupancy declines.

What I find interesting about Choice Hotels is the greatest average daily rate increases were in the extended stay brands of MainStay Suites and Suburban. These two brands also had the greatest decrease in occupancy.

Concluding thoughts:

The industry is crying over the downturn in the economy and the numbers clearly reflect a significant downturn in average daily room rates and hotel guests between March 2008 and March 2009.

My sentiment is the hotel industry was skipping and laughing all the way to the bank when room rates were increasing by double-digit amounts in some locations from 2003 to 2007; well above the historical average room rate increase of the past few decades.

As a leisure traveler I was motivated to start Loyalty Traveler as an informational resource to help people needing to find a way to get major urban hotels at a discount price.

Rates are dropping in 2009, but don’t cry to me about Argentina. I paid $165 a night for the Sheraton Libertador, Buenos Aires in 2007 and that was one of the cheapest options I found for the major hotel chains. And that was $100 per night cheaper than the average rate at the chain hotels in Washington, D.C. where I ended up using Priceline to get a room for just over $100 before flying to Buenos Aires. Moscow had average rates over $400 per night two years ago. Paris and New York had astronomical hotel rates in 2008.

All you hoteliers had me worried in 2007 that the leisure traveler would be completely priced out of the upscale hotel market. Well, now the economy has forced hotels to bring prices back to earth in 2009.

The numbers show there is a need for retrenchment on the side of the hotel industry. Times are tough as a manager and as an employee hoping to retain a job. 

My gut feeling, based on my labor economics background,  is hotels will need to let prices fall a bit more in 2009 and 2010. Cornell’s Center for Hospitality Research may be barking “Steady as You Go” to hold rates higher in spite of the global economic recession, however, as the voice of the reasoned and seasoned traveler, I have to shout back “Enough is enough.” The new economic mantra has to become “sustainable rates for a traveling public”.

Are there really enough people with sufficient spare capital to pay $400 per night for a W Hotel or InterContinental Hotel stay? If so, then hotel chains need to start building some multi-thousand capsule bedrooms at 100 square feet for the masses who want to visit Paris, New York, or Miami during their lifetime.

Did you really think 10+ percent rate increases were sustainable? How many people make 10% raises per year?  Hotels quickly priced out a large portion of the traveling population in just a couple of years.

The data I have compiled is a reality check. There are still some high average daily rates in several market segments that I do not see as sustainable in the long run for travelers. Business has cut back significantly leading to a drop in the upper high-end rates typically commanded during conferences and peak holiday seasons. I still think there is room on the low-end of upscale hotels for reducing rates more for leisure travelers.

The Economy Hotel market segment is where I predict the real damage will be felt this year and into 2010.  Economy hotel prices are already low in most market segments, yet the occupancy rate is still plummeting despite average rates under $50 per night in many locations.

I love new reports from Cornell University’s Center for Hospitality Research. The report just released, “Competitive Hotel Pricing in Uncertain Times”, is creating headlines across the hotel industry.

The short version of the 18 page report can simply be distilled to this axiom for hoteliers,

“Maintain higher rates than your competitors and you will have higher profits.”

The layperson may not understand all the data and mathematical analysis required to reach this conclusion for what likely amounted to years of research and I am sure research assistant number crunching. However, the layperson would likely intuitively reach the same conclusion that charging higher room rates than your competitors will result in higher profits for hotels.

Gotta love college.

Loyalty Traveler’s thoughts from the viewpoint of a hotel room consumer on the research paper “Competitive Hotel Pricing in Uncertain Times”.

The basic conclusion of the research paper is a hotel that has a lower average room rate than its competitor hotels in the same location and same market segment will have a higher occupancy rate, but lower profitability.

The research study of thousands of hotels between 2001 and 2007, the bad years and the good years for hotel occupancy, indicates hotels are more profitable when they charge rates 5 to 10% higher than the competitor hotel set in the same location and market segment. The research indicates this trend is valid across all hotel market segments from budget economy to luxury hotels.

As a frequent guest I find average room rates listed on sites like TripAdvisor, Expedia, and in the AAA TourBook virtually useless.

Real-time hotel room rate searches are the only numbers that matter. For this I go to Kayak.com and a hotel set I can with fair assurance justify placing in a location specific competitive set.

Luxury Hotel Rate Comparison from Kayak.com search for Saturday, July 11 San Francisco

St. Regis San Francisco $359 (+15.1% above average for set)

Four Seasons $325 (+4.2%) [Four Seasons rate is from Four Seasons website]

Mandarin Oriental $295 (-5.4%)

Ritz-Carlton $269 (-13.8% below average rate for set)

Average Price = $359 + $325 + $295 + $269 = $1,248 / 4 = $312 average price

Basically this data shows that in this competitive set the average price for a luxury hotel in downtown San Francisco for July 11 is $312. The St. Regis is following the no rate cut advice from Cornell with a nightly rate more than 15% higher than the average for this set.

From a consumer standpoint I would be going with Ritz-Carlton all the way and save $90 per night. Grab this hotel while it is a bargain rate.

One of my favorite lines from the Cornell CHR report is

“You’ve also got to be careful not to attract the wrong type of customers to your business, which you may do if you drop your rate dramatically.”

Looks like the St. Regis is trying to keep customers like me from infiltrating their lobby, but as a consumer I imagine I will be just as happy at the Ritz-Carlton. I like their rooms too.

San Francisco Fisherman’s Wharf offers a good competitive set to analyze. All the major hotel chains have a primary brand hotel within a couple blocks of each other. Here are their rates for Friday, July 10.

San Francisco Marriott Fisherman’s Wharf $169  (+9.7%)

Holiday Inn Fisherman’s Wharf $161 (+4.5%)

Hyatt at Fisherman’s Wharf $159 (+3.2%)

Radisson Fisherman’s Wharf $148 (-3.8%)

Hilton Fisherman’s Wharf $144 (-6.5%)

Sheraton Fisherman’s Wharf $143 (-7.1%)

Average rate for Fisherman’s Wharf competitive set = $924/6 = $154/night

The Cornell CHR report suggests that the Sheraton Fisherman’s Wharf is probably higher in occupancy than the Marriott, however, Marriott should be making more of a profit if these specific hotels follow the prevailing trends for the 15,000+ hotels in the Cornell study.

Loyalty Traveler’s primary thoughts on the Cornell CHR report conclusions

Hoteliers will likely try to follow Cornell’s CHR research advice. In a tough economic climate the ability to raise rates is limited by the actions of your competitors. Hotel rates have to be somewhat in line with competitors and the overall industry has seen declining rates this past year across all hotel market segments. This research should push management into trying to escalate rates in cooperation with competitors seeking better revenue in tough times.

The consequences for us as hotel room consumers is the pressure we may feel if hotels raise average room rates in a coordinated fashion and settle for less occupants. Rooms will ultimately cost more. Fewer frequent guests.

I assume many locations will have a hotel market competitive set similar to what I show for San Francisco Fisherman’s Wharf. The Cornell CHR research paper showed data on the distribution of hotel rates based on comparable competitive hotel sets.  I interpreted the data as meaning on average 2/3 of hotels are within 10% of the average rate for a hotel competitive set.

In my Fisherman’s Wharf hotel example this holds true in that the price range for hotels in the major chains falls within 10% plus or minus of the average for the set. Marriott is at the high end and Sheraton is at the low end, but they are all grouped around an average rate of $154 per night for my one night sample.

For hotel loyalty program travelers I think the good news is that given the tendency to set hotel rates comparable to hotel rates of the competitive set in the same hotel market segment (midscale, upscale, luxury) in any given location means the primary difference in value is not likely to be the hotel rate but rather the hotel loyalty program benefits received for your hotel stays.

In other words, hoteliers following the Cornell CHR advice will result in comparable hotel rates for comparable hotels in any given location regardless of the hotel chain you choose for loyalty. The loyalty traveler seeking to maximize hotel value should be more focused on the value-added benefits from loyalty membership that will accompany the hotel stay rather than the small differences in hotel rates.

Loyalty Traveler is making the argument that loyalty program promotions and benefits will generally be a more significant monetary value than the hotel rate differences over the course of many hotel stays and the variety of hotel rates among the different brands.

I know that right now I can take $1,000 in Starwood Hotels spending and get more than $1,000 in additional added value for a $2,000 hotel stay value. Added value comes from the points earned during the hotel stays, the complimentary room upgrades to better room categories, and the free weekend night promotion that earns a free night with every two hotel stays.

Rather than looking at the choice of a $140 hotel or $175 hotel, consider the benefits your loyalty program offers will provide. Generally you will find there are loyalty program promotions and special offers with value-added benefits that have a higher monetary value than the rate differences between comparable hotels in different chains.

Loyalty Traveler advice:

1.      Be an active hotel loyalty program member and sign up for promotions. Realize that while your preferred hotel chain may be 10% to 15% more than a competitor for any given hotel stay, the opportunity for earning 20% to 50% or more in value-added loyalty program benefits, bonus points, and credit towards free nights is often available with hotel stays at a major hotel brand.

2.      Earn Hotel Loyalty Program elite status.  When possible focus your hotel stays with one major chain and go for top elite status.  When you have developed a preferred market segment for your hotel stays (are you a Four Seasons kind of traveler or a Four Points by Sheraton hotel guest?) then your hotel loyalty program will generally add sufficient value to your hotel stays to negate price differences between hotel brands.

You may pay more for staying in a hotel chain brand due to your hotel loyalty program choice, but Cornell’s study indicates the higher room rates will generally be no more than 10% to 15% more than comparable hotels in any given location and market segment.  

When you travel around, the low-priced Hilton hotel in one city may seem preferable to the high-priced Hyatt hotel based solely on rate. In another city the Hyatt hotel may seem like the better deal when compared to the higher-priced Hilton hotel.  You can divide your loyalty and stay based solely on room rates. My Loyalty Traveler argument is you will receive value-added benefits and promotion bonuses by sticking to one hotel loyalty program that exceeds the extra cost paid for minor rate differences between hotel brands in different loyalty programs.

Hopefully over the course of the year in hotel stays in different places you will have some higher than average hotel rates and some lower than average hotel rates for your preferred hotel chain.

Spending time learning how to maximize your hotel loyalty benefits will provide more value than spending lots of time chasing the lowest hotel rates.

In other words, saving $200 on hotel rates is not really a savings if you bypass $400 in value-added hotel loyalty program benefits you would have received by paying a higher rate and maximizing the benefits of a major chain hotel loyalty program.

Hotel Competitor Sets

Be aware of the concept of competitor hotel sets in your hotel location to recognize which hotels are lower than the average cost within the market segment for your destination. This may be hard if you don’t know the area, but generally easier when focusing on major hotel chain brands. Use Kayak, Expedia, Travelocity, or Orbitz and sort hotels by Hotel Star ranking to see rate patterns for possible hotel competitive sets in a particular location.

How does a consumer define a Competitor Hotel Set?

Hotels in San Francisco know their hotel market segment competitors. St. Regis is competing with Ritz Carlton, Mandarin Oriental, and Four Seasons. Westin Market Street is competing with Marriott, Hilton, and Hyatt in San Francisco. Hotel management studies the room rates offered by its competitors and adjusts rates accordingly.

How does the consumer determine a hotel competitive market set?

The consumer is left with an inability to know the competitor set of comparable market segment hotels. TripAdvisor ranks hotels and they may be a way to find competitive hotels. Or is it?

One of the drawbacks I find in TripAdvisor is the popularity ranking of hotels has no regard to market segment.

TripAdvisor San Francisco Popularity Ranked Top 10 Hotels:

1.      Hotel Drisco – $317 – 4 star (AAA 3 diamond)

2.      Inn at Union Square – $265 – 3 star (AAA 3 diamond)

3.      Fairmont Heritage Place – $575 – 5 star (new hotel not listed in AAA)

4.      Omni San Francisco – $271 – 4 star (AAA 4 diamond)

5.      Orchard Hotel – $217 – 4 star (AAA 3 diamond)

6.      Chancellor Hotel on Union Square –  $204 – 3 star (AAA 3 diamond)

7.      The Donatello – $193 – 4 star (AAA 3 diamond)

8.      Ritz-Carlton – $440 – 5 star (AAA 5 diamond)

9.      White Swan Inn – $240 – 4 star (AAA 3 diamond)

10.  Mandarin Oriental – $481 – 5 star (AAA 4 diamond)

TripAdvisor popularity does not help the consumer with defining a hotel competitive set since the hotels are in different hotel rate market segments. 3 of the top 10 hotels displayed for San Francisco fall in the luxury hotel category with an average rate over $400 per night (although I did find the Ritz-Carlton at $250 per night for a 7 night stay in July including parking and breakfast).  The rest of the hotels appear to be in the upscale to upper upscale category.

None of these TripAdvisor Top 10 hotels are an upscale brand of the large hotel chain properties in Marriott, Starwood, Hyatt, IHG, or Hilton. The hotel list on TripAdvisor does not compare competitive set hotels. The Top 10 TripAdvisor hotels in popularity do not belong to points-based hotel chain loyalty programs. Ritz Carlton is affiliated with Marriott, but only for points redemption, and not for points accumulation.

Hotel Drisco is listed as AAA 3 diamond and has a $317 average rate according to TripAdvisor data. The same ranking is given to the Orchard Hotel with a nightly room rate $100 less. As a consumer having read the Cornell research I guess Hotel Drisco is making the profits while Orchard Hotel is bringing in the guests.

I know Orchard Hotel would likely get my search attention first for a booking based on these simple rate average comparisons.

Sort hotels by Star ranking to get a closer match for hotel rates in a local hotel competitive set. The Cornell research shows that hotel competitive sets tend to be within 10 to 15% above or below the average for the hotel set. Prevailing rates, hotel reviews, and star rankings improve the ability to analyze hotel rates for good deals within a particular hotel market segment in any given location.

And when that 5 star hotel shows up on Kayak.com at a rate $200 less than all the others, you will have a sign that the hotel is probably incorrectly categorized by the website.

Here are some of the interesting articles and reports I read this past week.

#1: Hotel Internet Security – Guess who is looking at your files!

The Center for Hospitality Research at Cornell University has published a study of internet security practices for hotel guests accessing internet connections in the USA. 

The CHR report findings are not comforting for hotel guests. 

“We concluded that hotels in the U.S. are generally ill-prepared to protect their guests from network security issues.” 

The report, “Hotel Network Security: A Study of the Computer Networks in U.S. Hotels” by Josh Ogle, Erica Wagner, Ph.D., and Mark Talbert is available for free download from the Center for Hospitality Research (registration required).  http://www.hotelschool.cornell.edu/research/chr/pubs/reports/2008.html

#2: Hotel Loyalty Programs Category Shift story from December 2006

This is an older story from December 2006, “Hotel Loyalty Programs Undergo Point Value Changes” on creditcards.com, however, the background overview of the shift in hotel category and points required for free night hotel room redemption with Hilton HHonors and Starwood Preferred Guest is a good reminder that hotel programs made dramatic adjustments upward when hotel travel was booming these past two years.  There continued to be substantial shifts upward in 2007 and 2008. 

I am interested to see how US hotels shift in redemption category for 2009 as the average daily rates for hotels in USA are currently at a substantially lower price level than any other region around the globe.  A downward adjustment is in order based on the numbers for average daily room rates at US hotels.

Will hotels in the USA see a major shift downward in category redemption levels? 

See my post last week to read more about category shift and global hotel rates, “Hotel Travel Going Down, Down, Down.  It’s the Economy, Stupid!”

#3: American Express leads in “credit card satisfaction” J.D. Power survey

This article about the 2008 JD Power survey on credit card satisfaction supports my post on hotel loyalty program affinity credit cards and the value of American Express over VISA and MasterCard.  My independent analysis last month, “Comparison of Hotel Loyalty Program Affinity Credit Cards,” showed the earning power of Hilton HHonors AmEx and Starwood Preferred Guest AmEx made these two cards the best value for hotel loyalty program affinity credit cards.

Link to J.D. Power 2008 Survey on Credit Card Satisfaction

#4: Airline and Hotel Social Networks – I know someone that knows someone who knows you.

Ron Callari discusses a European study that suggests the internet has shrunk our global affiliations from six degrees of separation down to three.  The travel industry is trying to take some control over the proliferation of social networking through its own internal hotel and airline social forums.  Somehow, I think FlyerTalk is still going to dominate for years to come.

#5: Hyatt Gainey Ranch, Scottsdale, Arizona offering 5,000 points for 3-night stay

Last April I spent time at the Hyatt Gainey Ranch and I absolutely loved their swimming pools.  The hotel is open air, green grass, colorful flowers, cacti, and swimming pools against a lake backdrop.  The remodeled rooms looked very similar to the San Francisco Hyatt Regency remodeled rooms and bathroom design.  Glass door showers instead of tubs.  This is the Hyatt property to stay at in the Phoenix area. 

Hyatt Promotion offer code is Scot5K for the 5,000 point bonus on a 3-night or longer stay through December 31, 2008.  Link to offer here.

#6: Hawaii Hotel Occupancy Still Dropping; Rates Slow to Drop

Hawaii continues to see a decline in hotel travel due to airline flight cuts and high airfares.  Supposedly there are great deals to be had if you look.

http://www.bizjournals.com/pacific/stories/2008/09/08/daily27.html

#7: Frequent travelers book directly with suppliers while infrequent travelers tend to use online travel agencies (OTA) like Expedia.com

Glenn Hausmann, editor-in-chief of Hotel Interactive has a good read on the battle between hotel companies and online travel agencies for consumers in the online world.

I am not a real doctor (PhD). I only have a Master of Science. That is why I work for consumers instead of pocketing the lucrative research paycheck from the hotel industry.

The doctor, Chris K. Anderson, Ph.D., at the Cornell Center for Hospitality Research has come out with a report advising hoteliers how to squeeze more pennies out of our consumer pockets. This time the research is aimed to maximize hotel profits from Priceline.

http://www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-14705.html

The report is available for free download upon registration with the center.

Loyalty Traveler has a few comments on the report.

Cornell Report Statistic:
60% of online hotel rooms are booked through hotel-branded websites (I assume this is what is meant by “supplier-managed” websites).

Loyalty Traveler view: Hotels have provided incentive for customer reservations through hotel-managed channels by offering exclusive loyalty program benefits. In other words, Hotel points and frequent guest member perks are only guaranteed when booking through hotel-managed websites. The hotel websites generally offer a better rate , although special offer rates are often hidden from view to the casual online reservationist of a hotel room.

Report Statistic: 40% of online hotel bookings are made through online travel agencies like Expedia, Travelocity, Orbitz, and Priceline.

Loyalty Traveler View: Expedia and Travelocity and Orbitz are convenient. Priceline and other opaque sites like Hotwire.com generally offer the best discounts on room rates. A traveler has to weigh the factor of cost with the uncertainty of hotel location and brand. A frequent guest member does not earn hotel points and the reservation is likely to be booked in lowest category hotel room on property.

Priceline Bidding data:
A graph shows the number of bids in the two weeks prior to the date of arrival for the sample hotel. Data shows about 50% of all Priceline bids occurred in the 2 days before arrival.

The minimum acceptable Priceline bid for the hotel, within a one week period, ranged from mostly $55/night to $65 per night with one outlier night at $235/night.

An interesting chart is Exhibit 8, which if I have interpreted correctly, indicates that about 1 in 25 Priceline winning bids represented a 90% discount on commonly published rates for the hotel. And about 5% only got a 20% discount on the going room rate.

The vast majority of bid winners receive less than a 50% discount on the regular room rates. About 60% of winning Priceline bids received a 28%-36% discount on the room rate. Technically, the Priceline slogan “Save Up to Half Off” appropriately represents the Priceline reality. The Cornell graph shows about 10% of bidders received between 67% and 90% off the regular room rate.

The last time I used Priceline was for a night in Washington D.C., June 2007. I ended up with the Marriott Key Bridge, Arlington, VA for about $100 and the lowest available room rate through the Marriott site was $329 for that night.

My initial analysis of the Priceline tool provided for hotel managers seems to indicate some trends for consumers.

Consumers may find the most favorable room rates booking Priceline the day before or day of arrival. Booking at 10 to 14 days in advance of arrival may also provide the best opportunity for higher discounts. The Cornell Priceline tool appears to encourage hotels to not discount Priceline inventory rooms as deeply between 2 and 10days before arrival as a means to maximize profits.

An interesting analysis would be to compare the Cornell Priceline data with consumer bidding data from www.biddingfortravel.com to see if there is useful consumer information to be gleamed from the comparison.

Anyone planning to make a hotel bid through Priceline.com or Hotwire.com should check out www.biddingfortravel.com to see what successful bids are pricing out and then try and use that data with the knowledge that 10-14 days before arrival may provide the best opportunity for deep discounts on Priceline. And if you are desperate and lucky, the day before and day of arrival Priceline bids may save you enough cash to buy gas and pay for hotel parking.

The PointsWizard blog on BoardingArea.com had a link to this article detailing strategies for successful Priceline bidding.

Yesterday’s post made reference to a report from Cornell University’s Center for Hospitality Research regarding hotels not cutting rates to lure travelers to hotels because the practice does not increase hotel profits. I was recalling an article I had read a couple years back regarding post 9-11 hotel rate studies in the US.

I received an email from the Cornell Center for Hospitality Research today that features a new research report from the same team of Linda Canina Ph.D. and Cathy A. Enz Ph.D.

The US hotels study I referenced is “Revenue Management in U.S. Hotels: 2001 – 2005″ and it can be linked to here: http://www.hotelschool.cornell.edu/research/chr/pubs/reports/abstract-14021.html

Well, today the news from the Center for Hospitality Research reconfirms this marketing practice of not discounting rooms in a just published study of 135 upscale hotels in Asia.

http://www.hotelschool.cornell.edu/research/chr/pubs/reports/2008.html

The gist of the paper, as far as hotel frequent guests are concerned, is hotels are advised not to reduce their room rates to attract more guests and raise revenue. Research shows that a slight room rate cut below the rates of comparable hotel competitors does not increase revenue. Now, we will need to see how the US hotels integrate this idea in their pricing structures.

For this area of northern California, since 2005, hotels have tended to stay away from the low rates more commonly seen between 2002 and 2004. The days of $69 rooms every weekend for the W Hotel-Newark disappeared soon after the 2005 report came out. The rates at the W Hotel-Newark are typically $109 as a low these days, with the possibility of a $99 AAA rate. Even though the really low rates were not that common in the airport and suburb hotels regionally, 2007 had some of the best deals for San Francisco city hotels for brief periods of time when business travel was low. Otherwise rates were sky high.

2008 is a wait and see for hotel rates. As far as the Cornell Red Bears strategy goes–Hotels need to remain bullish.

Unlike the Fed, don’t expect hotel rate cuts to come deep and fast in 2008.

Conrad Hotel Bangkok, Thailand

Since my article last month, “Money for Nothing (But MY MTV)” railing about the stock market outlook and recession, the R word has been bandied about the hotel trade journals and mainstream media. Budget hotels are all the buzz. New brands like Starwood’s aloft and Hyatt Place look like marketing coups. Upscale hotels are being downplayed in the media while luxury room rates keep rising in price.

My gut feeling is the economic downturn will be widespread and cut into business travel. Research from Cornell School of Hospitality after the 9-11 travel downturn argued for hotels to maintain profitability by not reducing the room rate, but rather by providing added value incentives. The same strategy is applied to the housing market when the cost of a house is not reduced from $350,000 to $320,000, but rather new appliances or such are thrown in for the asking price.

I expect hotel loyalty program competition will heat up in 2008 and the loyalty travelers will be recipients of some of the best incentives we have seen in years.

First off the block, Hilton Hotels HHonors loyalty program eliminates blackout dates for hotel reward redemption.

This is a substantial loyalty program change for Hilton HHonors.

The number one complaint on FlyerTalk over the years against the HHonors program was the inability to get reservations for hotel rooms using points. The no blackout dates change in reward rules will increase the hotel chain’s loyalty marketing competitiveness. And this is a huge benefit for loyalty travelers.

Why is “No Blackouts” such a big change?

I invested several years of loyalty with HHonors. In 2000, I completed the LatinPass mileage run for a 1,000,000 mile frequent flyer bonus. From the outset of planning itineraries of Central and South America flights, I intended to transfer my bonus miles into Hilton HHonors. I managed to transfer around 600,000 LatinPass miles into 1,200,000 HHonors points over the course of a few years.

Between 1999 and 2005 I redeemed about 2 million HHonors points for hotel room nights. During those years I usually needed to call the HHonors diamond desk to secure my hotel reservation. Booking single nights was generally an easy reservation process. The reservation problems usually surfaced when trying to redeem an HHonors 6-night GLON VIP reward.

I estimate I needed to use the Diamond desk to arrange my reservation directly with the hotel about 80% of the time. These free hotel nights would have been unavailable to me if I did not have diamond elite status with HHonors (diamond status requires 28 stays or 60 nights in a year).

Hilton HHonors was my hotel loyalty choice for several years as I traveled and burned HHonors points as quickly as I could. Concern that redemption inflation would devalue their worth over time proved accurate when 6-night GLON awards increased from 100,000 to 150,000 points.

The HHonors no blackout dates is a wonderful enhancement. All they need to do now is move away from the targeted guest model of loyalty program promotions to lure me back.

The upside I see from a looming recession in business travel will be more loyalty program incentives for the frequent guest. 2008 may bring a continuation of back-to-back lucrative bonus offers such as we are currently experiencing with Starwood and Hyatt’s fast-track elite offers.

Conrad Hotel pool, Bangkok, Thailand

Happy Birthday, this February 6 to Bob Marley, who lives on at age 63 in the hearts and minds of so many.

“Don’t you forget no way
Just who you are
and where you stand in the struggle”