Hotel Points: Is The Recession a Time to Cash In?

We hear plenty of news everyday that times are still tough; unemployment is high, we're making virtually no return on money in the bank, and our homes are worth pre-bubble prices.  Most experts would say it's time to be thrifty, but doesn't all this stress make you want to take even more vacations than you otherwise would?

To more easily justify a vacation during these tough times you may consider cashing in those points you've accumulated when times were good.  Afterall, it's a free vacation, right?  Sure, but if you're like me, you want to get the most bang for your buck and that might mean you should stash those points for better days and pay for your stays with your favorite points-generating credit card.

The main reason is that to maximize your points, you want to earn low and redeem high.  In other words, you want to earn the most points you can with the least money out of your pocket, and conversely you want to redeem those points when they have the highest dollar value.  Hotel companies likely want you to do just the opposite and use those points today when the economy is still trying to recover.  Giving you a free room in exchange for points today has a lower opportunity cost since the nightly rate they'd collect by giving it to a paying guest is probably lower than it will be when the economy is stronger.  Plus, having you in a room today helps their published occupancy rates.

Take a quick trip down memory lane and it's easy to see why you should fight the urge and pay cash for hotel stays today.  Think back to the 2006 or 2007 and the rates you were paying for the same hotel you're looking to visit today and you'll probably recall that nightly rates are lower today.  You might also be hard-pressed to recall the promotions that are out there today offering double or even quadruple points.  So today, paying out of pocket for a room means you'll earn points faster and you'll have a reserve of points to tap into when the implied value of those points if higher (e.g. room rates increase).


Let's look at an example: 

Hilton Fort Lauderdale Beach - 2007
Standard Room Cost: $249
Points Earnings Potential: 598 (std 2x points option)
Reward Stay Cost: 50,000 points
Implied Point Value:  $0.00498

Hilton Fort Lauderdale Beach - Today
Junior Suite Room Cost: $175 (Amex 20% off promotion)
Points Earnings Potential: 1,432 (std 2x points option, 4x points Sunday promo)
Reward Stay Cost: 50,000 points
Implied Point Value:  $0.0035

Hilton Fort Lauderdale Beach - 1 Bedroom Suite

Using points today means cashing in an investment when it's gone done 30% in value (implied point value of $0.0035 vs. $0.00498).  It also means missing out on 1,400 new points vs. the 598 points you'd earn in better times when hotels don't need to offer so many incentives.

Of course there will be some exceptions and this ignores promotions with hotel-branded credit cards and any potential changes hotel companies make to their point redemption levels.  However, keep it in mind.  My general rule is that I don't consider using points unless the hotel is more than $200 per night.  Even then, you have to look at the total points the hotel would require for a room.  You'll more than likely have a trip in the future that coincides with a busier travel time (e.g. school vacation week, college spring break, three-day weekends, etc) when your hotel stay could potentially run you $300 to $400/night!

So, next time you get an email from your hotel loyalty program or credit card reminding you to use those points you've accumulated or if you see a point redemption promotion that makes your mouth water, remember there's strategic marketing behind it.  The hotel gets high occupancy rates to share with investors and you get less money for your well-deserved points.  You can still get that much needed vacation... just pay for it and keep those points flowing into your account!