I stayed at a rather horrible Candlewood Suites near LAX Airport this week using points and upon checkout the hotel handed me a receipt that was supposed to be internal – the reimbursement receipt for IHG Rewards Club.
Hotels pay a fee for all reservations that are made with a loyalty account attached and points credited but also receive an – often times low – reimbursement when a guest arrives with a points booking.
Reimbursements for points bookings are structured by the revenue class of the hotel but also depend highly on the occupancy of the property during the time of stay.
The revenue that hotels receive for rewards nights when the occupancy rate is not super high is usually not a lot but is usually tied to the ADR (Average Daily Rate) if the hotel is close to full.
You can access IHG Rewards Club here.
IHG hotels must make 5% of their room inventory available as awards. This is not tied to standard room availability. There could be standard rooms available for sale but no award rooms. This is a system that deviates from other chains such as World of Hyatt and Marriott Bonvoy where you can book pretty much any standard room that is for sale on the basic points rate and is often something that enrages a lot of members (myself included).
This weekend I had a last minute trip back from Las Vegas to Los Angeles and all decent hotels were suddenly sold out with the exception of this Candlewood Suites and it’s adjacent Holiday Inn Express. Since I had some laundry as well I figured why not just stay at the Candlewood. Turned out to be a big mistake as this is really a very shady property with lots of illicit activity going on there, eventually culminating in a visit by three police cruisers at 11pm and the officers taking care of business.
But I was surprised that despite the relatively high rate of US$211 plus tax that day the hotel would only get very little reimbursed when I saw the final folio:
So the hotel receives $30 for this stay from IHG despite being pretty busy that day. To be fair that’s still double than what I believe it’s worth especially considering the questionable safety situation that appears to be par for the course based on online reviews I’ve read since. Thankfully they have a secured garage.
Not taking into account the relatively high rate this week end the numbers seem to be about right as per IHG’s reimbursement table:
Based on this chart the minimum amount a hotel should receive for an award room is US$25 per night which is barely enough to cover operational costs for an occupied room at most hotels.
Incentive IHG Rewards Club does have a higher rate for hotels that accommodate a greater number of redemptions. Incentive rate kicks in after 1,000 award nights or total of 2% of annualized room inventory has been consumed as awards:
I doubt a lot of people use their points at this property but you never know, this weekend it made perfect sense to use 21,000 IHG points rather than wasting $200++ on a mediocre hotel. The upscale ones in the LA area being either sold out or triple the price.
Higher reimbursement due to high occupancy:
If the occupancy rate reaches 96% or higher, the hotel will get reimbursed the Average Daily Rate for award redemptions for the night. The hotel has to provide documentation to IHG to prove their claim for the higher bonus amount.
This is common among all chains and if you can remember a good 7 years ago there was a lawsuit filed by Starwood against Parker Hotels who operated the Parker Meridien New York & Palm Springs alleging the hotel management manipulated their occupancy rates to extract more money for their SPG stays.
There are some hotels such as in leisure destinations that traditionally have a very high rates of points redemptions every night and as such the programs need to keep their reimbursement system on a realistic level to allow the operator to run a profitable business.
With the implementation of dynamic pricing many programs redemption rates are now totally out of whack. I was surprised that you can still book hotels in the LAX area for ~ 20k IHG points. Try Marriott where you’ll see their lowest price is currently 40,000 points for the Sheraton/Marriott/Westin LAX and these aren’t luxurious properties BY FAR.
This particular IHG hotel received $30 for the award stay I booked at 21,000 points for one night. It was decent value for me given there was free parking, a laundry facility and (thankfully) working door locks.
Hotels often get reimbursed only peanuts for award stays yet they obviously still have to provide the guest will all amenities. In the case of IHG these amenities aren’t many but at other chains hotels have to include breakfast and even suite upgrades (to be fair I did get a suite on all three of the IHG award stays listed here as well).