Hilton HHonors - HHonors devaluation: Does it make business sense for hilton?

As per my understanding, people accumulate HHonors via 3 major routes (I am sure there are hundreds of other routes):

(1) By staying in Hotels
(2) By using credit cards
(3) By buying Hilton Grand Vacation club properties (points) and then converting them into Hhonors at 1 to 25 ratio. This is somewhat captive market.

Assuming that some loyal customers (such as diamonds and golds) will take their business elsewhere as a direct result of this devaluation, could this still make business sense for Hilton? For example, if the annual cost to Hilton for providing "free rooms" (or other free stuff such as cruises) via HHonor redemptions is $100 Million, they will save $10 to $20 million annually as a result of this devaluation. If the loss of revenue is less than this gain, then it makes perfect business sense. Could Hilton be smart enough to use data-driven "business intelligence" modeling to come up with the new "devaluation" scheme?

I hope this thread does not get merged with the other thread on hilton devaluation as I intend this to generate a different level of discussion.

.... Could Hilton be smart enough to use data-driven "business intelligence" modeling to come up with the new "devaluation" scheme?

I hope this thread does not get merged with the other thread on hilton devaluation as I intend this to generate a different level of discussion.




You have a worthy goal ; but what purpose is such a discussion.

Hilton have revised their loyalty plan so our choices are to live with it or move our loyalty to another chain and wait for them to review their plan.

You have a worthy goal ; but what purpose is such a discussion.

Hilton have revised their loyalty plan so our choices are to live with it or move our loyalty to another chain and wait for them to review their plan.

Based on your post, most of the threads here on flyertalk should not exist as there is not a clear purpose behind most of them. Seems like you do not care to discuss the devaluation, but there are 219 posts on this other thread (with over 10K views) where flyertalkers are just discussing this:

http://www.flyertalk.com/forum/hilton-hhonors/1008167-consequence-hhonors-devaluation-commitments-take-our-business-elsewhere.html

It is fun to do "academic" exercises once in a while :-).

While the changes are what they are and we all have to make our own decisions (discussed in other threads), it might be amusing to speculate what the people at Hilton were thinking when they cooked this up at a time when travel is down and new hotels (conceived during the glory years) are a glut on the market. I had a thought, though. Due to decreased demand, many hotels are slashing rates. Could this be a way to rush everyone to cash in rates at (effectively) reduced value before the changes take effect? It might get a lot of accrued points off their books.

As per my understanding, people accumulate HHonors via 3 major routes (I am sure there are hundreds of other routes):

(1) By staying in Hotels
(2) By using credit cards
(3) By buying Hilton Grand Vacation club properties (points) and then converting them into Hhonors at 1 to 25 ratio. This is somewhat captive market.

Assuming that some loyal customers (such as diamonds and golds) will take their business elsewhere as a direct result of this devaluation, could this still make business sense for Hilton? For example, if the annual cost to Hilton for providing "free rooms" (or other free stuff such as cruises) via HHonor redemptions is $100 Million, they will save $10 to $20 million annually as a result of this devaluation. If the loss of revenue is less than this gain, then it makes perfect business sense. Could Hilton be smart enough to use data-driven "business intelligence" modeling to come up with the new "devaluation" scheme?

I hope this thread does not get merged with the other thread on hilton devaluation as I intend this to generate a different level of discussion.

The problem is, it's likely that very few (if any) FlyerTalkers have access to the inside info on this; and even those who do, would be prohibited from sharing how such decisions are made or what data is used in making them on a public forum such as FT. So we can only speculate, really.

And, whenever questions like this are posed, the discussion quickly becomes self-serving and emotional, rather than objective, analytical and factual.

While the changes are what they are and we all have to make our own decisions (discussed in other threads), it might be amusing to speculate what the people at Hilton were thinking when they cooked this up at a time when travel is down and new hotels (conceived during the glory years) are a glut on the market. I had a thought, though. Due to decreased demand, many hotels are slashing rates. Could this be a way to rush everyone to cash in rates at (effectively) reduced value before the changes take effect? It might get a lot of accrued points off their books.

I can just about guarantee this was a large part of the motivation. Either by people cashing in like you say, or simply by devaluing they can say their liability is lowered, this was no doubt an "improve the balance sheet with a stroke of the pen" decision, as opposed to an actual business decision.

Blackstone may not be very optimstic they will make up their loss, and are looking to dress the balance sheet up to the nines for a sale at as good a price as they can get to rid themselves of the "problem." The direction of the marketplace and the competition show this to be a decision about something other than growing the business.

When I started staying at HH properties at an "elite" rate - which is really only in the last couple of years as I gave most of my business to Marriott - I was amazed as to how many bonus points one could accrue. Ostensibly, the earning rate is the same as Marriott (10 pts. / $), but the bonuses (double dip, HH Amex, My Way, special promotions etc.) could easily double or triple the base amount. They seemed to have turned up the bonus programs in '09 because of the decline in business travel. With that kind of "inflation" it is no wonder that they had to increase the redemption rates.

Its pretty straight-forward. They can reduce the amount of the liability on their books for outstanding points. By exactly what % I don't know but thats the economic impact to Hilton corporate.

This will probably please those hotels at the top end of their brands....and it will not please those at the bottom rung.

When I started staying at HH properties at an "elite" rate - which is really only in the last couple of years as I gave most of my business to Marriott - I was amazed as to how many bonus points one could accrue. Ostensibly, the earning rate is the same as Marriott (10 pts. / $), but the bonuses (double dip, HH Amex, My Way, special promotions etc.) could easily double or triple the base amount. They seemed to have turned up the bonus programs in '09 because of the decline in business travel. With that kind of "inflation" it is no wonder that they had to increase the redemption rates.

Right now at IHG with 10/$ + 50% (Plat) + the double pts promo + the fly anywhere promo of 15,000 pts every 5 nights (up to 60,000) + the PCR bonus pts rates (5,000 at CP's) + a whole bunch of other promotions, I can earn many more points faster at IHG than Hilton.

One question I have: how does Hilton (corporate) reimburse properties for award stays? Is it a fixed US$ amount per award room-night? A fixed local currency amount? A percentage of the property's most recent ARPU? Something else?

From the traveler's point of view, HHonors is a currency effectively based on the U.S. dollar. Since we earn them that way, I wonder if hotels are reimbursed similarly. If so, as the dollar weakens, it becomes more attractive to travelers to use HH points for stays but less attractive for the hotels to accept them. They'd rather have our cold hard Euros, yen, or whatever - not our HHonors points.

We've talked at length about how 2009 was a soft travel market, meaning that raw award demand probably isn't what drove the Category changes. I'm wondering if the weak dollar has something to do with it. The big 20-25% increase in points required nudges up the amount of money a property receives when we use points.

It occurred to me that this tactic can backfire on them when they negotiate what AE, etc. pays them for points. If the number of points needed for just about any reward stay goes up by, say, 20 or 30%, why should the entity buying points from Hilton want to pay what they did last year?

In fact, I've got an airline card coming up for renewal and plan to write to both the airline and the sponsoring bank that issued it and explain that I'm cancelling because the value of the airline's miles are continually sinking as they make it harder to get an unrestricted seat for desirable flights/classes.

It occurred to me that this tactic can backfire on them when they negotiate what AE, etc. pays them for points. If the number of points needed for just about any reward stay goes up by, say, 20 or 30%, why should the entity buying points from Hilton want to pay what they did last year?

In fact, I've got an airline card coming up for renewal and plan to write to both the airline and the sponsoring bank that issued it and explain that I'm cancelling because the value of the airline's miles are continually sinking as they make it harder to get an unrestricted seat for desirable flights/classes.

I think that's an indirect chain, though. AMEX cares about the price they pay for HHonors points in so much as offering them draws customers to their cards. If the devaluation does not impact the number of people applying/using their AMEX card, then I don't think AMEX is concerned.

If, however, this devaluation leads to people deciding to use/apply for a competing chain's card, then AMEX is most definitely interested in the price.

I don't think, however, that AMEX can really say too much since their presence has had at least some impact on this.

One question I have: how does Hilton (corporate) reimburse properties for award stays? Is it a fixed US$ amount per award room-night? A fixed local currency amount? A percentage of the property's most recent ARPU? Something else?

There is a thread on the first page that answers your question:

http://www.flyertalk.com/forum/hilton-hhonors/1009779-how-much-does-hilton-hhonors-pay-hotel.html

They seemed to have turned up the bonus programs in '09 because of the decline in business travel. With that kind of "inflation" it is no wonder that they had to increase the redemption rates.

This is anecdotal, but to my mind the bonuses have been steadily reduced the past few years. Maybe they're big in relation to Marriott (I rarely stay with them), but e.g., there were previously big "double base points" promotions lasting several months. And the "double dip" has been around for ages.

As for the business value proposition: if it made business sense for a hotel chain to increase redemption rates in this economy, I suspect we would see other hotels doing it. Instead, we see other hotels running huge bonuses, reducing redemption rates (SPG), giving away rooms to elites (SPG, Hyatt), or at the very least holding firm (Marriott). This tells me that the decision is about Blackstone's bottom line, and not Hilton's -- which is consistent with most of the other management decisions I've seen since the acquisition.

In fact, I've got an airline card coming up for renewal and plan to write to both the airline and the sponsoring bank that issued it and explain that I'm cancelling because the value of the airline's miles are continually sinking as they make it harder to get an unrestricted seat for desirable flights/classes. I am wondering how many people are starting to do this. I am wondering if the people running the miles/ points are starting to kill the golden goose. Even Randy has started to mention getting a cash back card sometimes.

As for the business value proposition: if it made business sense for a hotel chain to increase redemption rates in this economy, I suspect we would see other hotels doing it. Instead, we see other hotels running huge bonuses, reducing redemption rates (SPG), giving away rooms to elites (SPG, Hyatt), or at the very least holding firm (Marriott). This tells me that the decision is about Blackstone's bottom line, and not Hilton's -- which is consistent with most of the other management decisions I've seen since the acquisition.
SPG gets a lof of ancillary revenue, the higher end the hotel the higher the etc money is. IE parking, room service, resort fees etc.