Marriott Changing How Hotels Are Paid For Award Nights

Marriott Changing How Hotels Are Paid For Award Nights

Marriott Bonvoy is making some changes to how hotels are reimbursed when members redeem points for a stay. While this isn’t necessarily bad news, it will almost certainly impact the value of many award redemptions.

Marriott’s current award night reimbursement policy

I’m sure I’m not the only one who finds the economics of hotel loyalty programs to be fascinating. For the most part, the global hotel chains don’t actually own their individual hotels. Rather they typically just have management or franchise contracts for them, and they get a percent of the revenue.

This raises the question of how hotels get paid when you redeem points, since the individual hotels and loyalty programs are very different parties for these purposes. As a general rule of thumb, here’s how it currently works with Marriott Bonvoy:

  • When the hotel isn’t full, the loyalty program compensates the hotel at some reimbursement rate that’s slightly above the marginal cost of servicing a room, etc.
  • When the hotel is full (think 90-95%+ occupancy), the loyalty program compensates the hotel close to the average daily rate, in recognition of the fact that the room may have otherwise been sold for cash

This system leaves a lot of hotel owners unhappy. I can understand the concept behind the current system, but it doesn’t reflect the volume of points that members are redeeming.

Some hotels are very popular with those redeeming points. Let’s just theoretically say that a hotel is 80% full, and half of the guests are redeeming points (it’s not usually that high, but I’m just giving an example). Obviously the economics of that aren’t great for the hotel, since the hotel isn’t full enough to get the higher award reimbursement, but rather is getting paid very little for a lot of guests.

So while the hotel might be charging guests paying $400 cash per night, it could be that Marriott is just reimbursing the hotel at $80 per night (I’m making up these numbers, purely for illustrative purposes).

Marriott hotels have an incentive to be full

Marriott Bonvoy changing reimbursement for award nights

Marriott is planning to adjust how hotels are reimbursed for award nights. This is because of the dissatisfaction of some hotel owners, along with the desire to attract more hotel owners to join Marriott. As reported by View from the Wing, here’s what Marriott has told hotel owners:

Today’s reimbursement process is complex, depending heavily on historical performance, and may influence hotel teams to pursue occupancy targets at the expense of profit. Your input has been heavily used to target these known pain points to revise the reimbursement framework, and enable better hotels in creating and executing against an optimal pricing strategy.

By reducing overall reimbursement complexities, hotels will have a single percentage applied to daily Loyalty RevPAR for standard award redemptions, as opposed to the current process that applies a Base Rate as well as multiple percentages based on daily occupancy.

As in previous years, each hotel will be assigned to an annual Redemption Reimbursement Policy in October for the calendar year ahead based upon brand tier, as well as redemption volume, and/or penetration as of Trailing Twelve Months from June 2023.

Just to simplify this a bit, the idea is that going forward, hotels won’t be reimbursed very little if a hotel isn’t full, and a lot if the hotel is full. Rather, hotels will have a standardized award reimbursement rate, presumably based largely on their cash rates and other economic factors. Furthermore, redemption volume will factor into this, so the more guests that a hotel has redeeming points, the more the property will be reimbursed.

These changes will be good for hotels with low occupancy

What could this mean for Marriott Bonvoy members?

Changes to how hotels are reimbursed for award nights will almost certainly impact members. After all, the number of points charged for a stay doesn’t correlate to how much a stay would cost in cash, but rather it reflects Marriott’s internal reimbursement costs.

With that in mind, a few thoughts on Marriott’s memo:

  • It remains to be seen if Marriott plans to invest more money in reimbursing hotels for award nights, or if the company is simply reshuffling reimbursement, taking away some reimbursement from some properties, and giving more to others
  • When it comes to how hotels feel about award guests, this change should be positive for hotels that aren’t consistently full and see a lot of award guests (as they should get more reimbursement), while it will probably be negative for hotels that are consistently full (since they’re currently getting very high reimbursement)
  • Marriott Bonvoy no longer has award charts, or any caps on award pricing; I wouldn’t be surprised if this leads to a further devaluation
  • I imagine this will eliminate some of the sweet spot redemptions that exist with Marriott Bonvoy, at properties that charge a lot with cash, but are a good deal with points (due to not being full)

As much as I criticize Marriott Bonvoy, I have to give the program credit for having great award availability at aspirational properties, despite the program technically having blackout dates. For example, good luck redeeming points at Hilton’s top properties (like Waldorf Astoria properties in Amsterdam, Beverly Hills, Los Cabos, Maldives, etc.). Meanwhile Marriott’s properties generally have pretty good award availability.

These changes probably aren’t good for award rates in the Maldives

Bottom line

Marriott Bonvoy is changing how hotels are reimbursed for award nights. Historically it was all about the occupancy level at a hotel, with properties being reimbursed very little if a hotel isn’t full, and being reimbursed a lot if it is full. Going forward, reimbursement will be more consistent, and will reflect redemption volumes.

This will definitely impact award pricing at many Marriott Bonvoy properties over time, since this will change Marriott’s costs associated with redemptions at various hotels. Only time will tell how exactly this plays out, though, since we don’t know what the new reimbursement formula is.

What do you make of these Marriott Bonvoy award reimbursement changes?

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