Hotels Compete Via Loyalty Programs, But Are They Worth It?

With the summer travel season upon us, hotel companies are vying for travelers' dollars by amping up their loyalty rewards programs, even trying to one-up each other in their offerings.

InterContinental Hotels Group came out this week with its latest Priority Club Rewards deal: a "Points & Cash" program that allows members to redeem night stays with a combination of cash and reduced point levels. And just last week, Hilton Hotels announced it would be giving away complimentary Live Nation concert tickets to Hilton "HHonors" members who register and stay at a Hilton hotel before Sept. 30.

While most hotel companies increase their loyalty program offerings in time for summer, this year's deals seem to be coming more frequently as hotels scramble for market share during the recession. For example, when Starwood Hotels announced a deal in January for a preferred-guest program that allows people to use points to bid on special events, including suite tickets to the American Idols tour, IHG countered the next quarter with all-access passes to the MLB All Star game. And Marriott International matched Hilton's no-blackout-date policy in first quarter.

While it may seem obvious that struggling hotel companies would do just about anything to get and keep guests, how much do loyalty reward programs actually help?

"The investments are to drive incremental business at the hotels, and the returns go to the hotel owners," said Joe Rhodes, vice president of customer loyalty at Hilton. "A high percentage of those travelers, if you didn't have a frequent traveler program, they'll stay somewhere else. In some respects it's a retention program."

Loyalty points are held as a liability on a company's balance sheet; if club members don't redeem their points, the company ends up writing down the debt. But the company can avoid having to write down the debt by keeping a reserve fund to pay for unredeemed points, as IHG does, according to a company spokesman.