Hotels.com exemplifies the importance of redeemable intervals

Affiliate bloggers (and Secretaries of Transportation) love assigning a dollar value to miles and points, which makes it easy for them to compare the value of signup bonuses across currencies and manipulate their valuations when a particularly large referral bonus comes along.

There are naturally people for whom this approach makes sense, like mileage brokers who sell award tickets and hotel stays to folks who don’t know or care where they come from: selling a hotel stay that might cost $10,000 in cash for $5,000 can be a good deal for all involved if you only paid $1,000 for the points.

But this approach has never made any sense to me, since miles and points aren’t fungible. I can’t opportunistically earn 20,000 American miles, 20,000 Delta miles, and 20,000 Spirit miles and redeem them for a 60,000-mile United flight. If the United flight is the one I need to take, my other three currencies aren’t worth 2 cents each, or even one cent each: they’re worthless.

This is one reason I work to keep many of my balances as low as possible. I only have 797 Mileage Plus miles in my United account, and have no intention of earning more any time soon (despite having flown United last month and flying them again next week!). If any potential use does come up, I can transfer the precise number of United miles I need from Ultimate Rewards, and then draw my balance back down into the 3 digits, just where I want it to be.

There’s no better way to illustrate this than with the example of Hotels.com.

Stamps, rewards, and the importance of thinking in tens

To refresh readers’ memory, Hotels.com has an extremely simple rewards program: when you book a night through them, you receive a “reward stamp.” Collect 10 stamps, and you receive a “reward night.” You can then redeem reward nights at virtually all the properties on their platform for the average nightly rate you paid for your 10 reward stamps.

Importantly, however, if the stay you’re trying to book costs more than the value of your reward nights, you can simply pay the difference in cash to “top up” the value of the night. This makes the risk of breakage single-tailed: you can lose some of the value when booking a room cheaper than the value of your reward night, but you’re not penalized for booking a room that’s more expensive (although you won’t earn a stamp on those “top-up” nights).

There are therefore two ways of thinking about the value proposition of the Hotels.com rewards program:

• it offers a 10% rebate on each paid night you book through the platform;

• after the 10th night you book through the platform, you receive a voucher worth up to the average value of your last 10 nights.

Regardless of the approach, the value of the voucher doesn’t change. What changes is the value assigned to each night you book through Hotels.com. If you take the first approach, then when you book through Hotels.com you can mentally multiply the cost of your stay by 90% to reflect the 10% rebate the program offers. If you take the second approach, the first 9 nights you book through Hotels.com generate no value whatsoever — only the 10th night you stay generates any value at all.

I prefer the second approach, because focusing on redemption thresholds makes it easier to compare the relative value earned by booking through different channels, as a recent experience illustrates.

Last month we visited the Midwest for a week to see some friends and family, and the best price I found was, as usual, at a centrally located Hyatt Place downtown. The lowest rate I could find was $136.85 per night, plus tax, which is irrelevant regardless of the booking channel.

Where the booking channel comes in is that $958 spent on a paid Hyatt rate would earn me 4,790 base World of Hyatt points, and 958 bonus points as an Explorist member, for a total of 5,748 points.

Now look at this through the same two lenses as above. On the one hand, since I redeem World of Hyatt points I’ve transferred from Ultimate Rewards fairly regularly, the points I’d earn on this stay could be valued at a minimum of $71.85 — the value of the same Ultimate Rewards points when redeemed for paid airfare.

Through the second, redemption-focused perspective, 5,748 World of Hyatt points are essentially worthless, since 5,000 points is just barely enough to book a Category 1 property, and only during off-peak and standard pricing periods! That story would be completely different if I had an upcoming high-value Hyatt stay and insufficient points to book it. In fact, I have plenty of Hyatt points and free night certificates, so the additional points would simply sit in my account growing stale.

That may well have still been my best option. After all, 7 Hotels.com reward stamps are just as worthless as 5,000 World of Hyatt points. What changed the calculus is that I already had 4 Hotels.com reward stamps in my account that had been rolled over all the way from 2019! That meant “crediting” my Hyatt Place stay to Hotels.com would put me over the redemption threshold and earn me a reward night, in my case worth $141.88, which I promptly redeemed with a small top-up for a night on our upcoming trip to the UK.

Sharp-eyed readers will have noticed one small but potentially critical error I committed: I was sitting on 4 existing reward stamps and then credited another 7 nights to Hotels.com — leaving me with a worthless “leftover” reward stamp! It may have been strictly superior to credit 6 nights to Hotels.com (securing my reward night) and the cheapest of the 7 nights to World of Hyatt (to save future Ultimate Rewards points). I say “may” have been because I didn’t bother checking the rates for individual nights, and it may have turned out the one-night rate was substantially higher than the longer-term stay rate I ultimately booked, erasing the value of the additional World of Hyatt points.

Two additional considerations: cashback portals and the Hotels.com credit card

Just as I set aside taxes and fees above, since as far as I know they are not included in the earning calculation with any loyalty program, I also skipped over cashback portals, which typically offer 1-4% cashback on hotel bookings (including Hotels.com bookings), although with periodic outsized offers, like the current 9% cashback rate at IHG properties offered by TopCashBack. Since those offers are for cashback, and have relatively low cashout requirements, you should always check where your total rewards (loyalty program + cashback + credit card earnings) offer you the most redeemable value.

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Finally, it’s worth mentioning the no-annual-fee Hotels.com credit card. The card has a paltry signup bonus (three $125 reward nights after spending $5,000, which can’t be stacked but can be topped up), but the earning structure does offer one interesting opportunity: for every $500 spent on the card, you receive one Hotels.com reward stamp. As mentioned above, each reward stamp has an assigned value which is averaged into the value of your reward night. Hotels.com assigns these credit card reward stamps the value of $110, so if you put exactly $5,000 on the card (for example, to meet the signup bonus), you’d end up with a fourth reward night worth exactly $110.

If you squint at it just right, that means someone trying to sell you this card could in principle convince you the card has a $485 signup bonus and earns 2.2% on ongoing spend (a $110 reward night for every $5000 in purchases). But that’s not the interesting opportunity offered by the card. Instead, since you earn a $110 reward stamp every time you spend $500 on the card, it’s ideal for topping up your reward stamp balance when your existing stamps have a relatively high average value (and you don’t have upcoming Hotels.com stays booked).

To give a simple example, if you have 9 reward stamps with an average value of $250 each, manufacturing $500 in spend on the Hotels.com credit card doesn’t yield $11 in rewards (2.2%). Instead, it yields a reward night worth $236 ($2250 plus $110 divided by 10).

I wouldn’t say this “supercharges” the Hotels.com rewards program. What it does do is reduce the downside risk of orphaned reward stamps, so at the margin makes it more appealing to book hotels based on price through Hotels.com, knowing that every time you accumulate 6 or 7 reward stamps through stays you can easily calculate the final value of the resulting reward night you manufacture with the credit card.

And if, like me, you have no interest in active participation in loyalty programs like Marriott or IHG, but notice that their properties are occasionally attractive in terms of price, location, or amenities, especially outside of big cities, it may be worth taking a look.

Conclusion

I tailored this post to Hotels.com rewards but hopefully I’ve made clear the point is universal, and not just for people who keep their balances as low as possible like me. If you’re saving up points for a week-long stay at the Conrad Maldives Rangali Island you might well need 600,000 points and a free night certificate, for example. But you don’t need 610,000 points and a free night certificate — only the points you redeem have value, the 10,000 leftover points are just gonna sit there, getting stale.