Friday, September 19, 2008

As Airlines Cut Back on VIP Perks, Hotels Are Stepping Them Up

elissa Tomlinson, a 32-year-old director of sales for a San Diego-based videogame accessory company, says she hasn't paid for a vacation in eight years.

In that time, she has traveled to Europe and Hawaii repeatedly, and just returned from a jaunt to California wine country. Each of the trips was earned through frequent-traveler rewards programs.

But like many travelers, Tomlinson has become disenchanted with her frequent-flier benefits as carriers have begun tightening redemption rules, charging to book an award and cutting capacity. While she once felt like a valued customer with the airline, she now looks to her favored hotel chain to fill that role.

In Depth: Luxury Hotels' VIP Perks

"I accumulate these points and I can't use them [with the airlines]. It's virtually impossible, but [at the hotel] I still feel like I'm getting something out of it," says Tomlinson, who is a Hilton "Diamond VIP." "There are little things--bottles of water, free breakfast, and upgraded rooms. I still feel like I'm important to them."

Hotels in the U.S. saw their occupancy rates dip 2.5% in the first six months of the year, according to Smith Travel Research. They're hardly facing the same crunch as airlines--which have responded to higher than expected fuel prices by charging for checked baggage and eliminating basic perks like free beverages and pillows. In some cases, the hotel industry has compensated for the airlines' scaling back, offering credits for baggage fees and a free night with a minimum stay.

The benefits get even better for those, like Tomlinson, who belong to the hotels' rewards programs.

What Loyalty Gets You

At Hilton properties, Tomlinson is treated to a number of perks, including free upgrades, complimentary breakfast and Internet access, bonus points and a guaranteed reservation 48 hours prior to arriving. While Tomlinson has reached the highest level of membership--awarded to those who accumulate 100,000 points or stay 28 times or 60 nights throughout the year--lower-tier members get access to an on-site health club and free nights with a certain number of points.

Upgrades and free nights are the hallmarks of rewards programs, but many hotels have added dozens of options in recent years, including the ability to trade points for merchandise, travel packages and even unique experiences like skydiving.

Adam Burke, managing director of Hilton Honors Worldwide, says that broadening members' choices is a way of "letting people tell you their preferences." Among Hilton's offerings are a helicopter ride above New York City (80,000 points), a three-day cruise to the Bahamas (365,000 points) and a $100 gift card to retailers like Macy's and Best Buy (50,000 points).

InterContinental, Starwood and Marriott have also adopted this approach. InterContinental allows its Priority Club members to exchange points for DVDs, golf gear, airline tickets and activities like skydiving and sailing.

Laila Rach, divisional dean at New York University's Tisch Center for Hospitality, Tourism and Sports Management, says that the more personalized options reflect a more demanding customer.

"What the consumer is saying today is, 'Show me your loyalty first before you ask for mine,'" says Rach.

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