You lose more when Citi cuts Prestige’s 4th night free benefit – and the economics behind it

After a few months’ silence with its premium travel card Citi Prestige, Citi finally rolls out the revision of the premium card’s benefit.

A major change is that after 2019.09.01, Citi will allow customers to use its lucrative benefit of fourth-night-free two times per year. Current cardholders can use Citi Prestige card to book (almost) any hotel in the world, and receive a statement credit of the average daily rate if the stay is four-day long or more. Citi states that most of the cardmembers facilitate the benefit only once or twice a year so the change won’t affect the majority of the cardholders.

Is this the end of the change? Unfortunately not.

We found that in Citi’s website for the change of benefits, there is a footnote reads like this:

  • Booking through the Citi Prestige Concierge (only available through 08/31/19).

So Citi clearly states that customers can only facilitate the benefit via Citi Prestige Concierge before 2019.08.31, although this is not mentioned in their communication email. In addition, Citi also states that the benefit can no longer be facilitated by business travelers.

Why is this so bad?

I personally facilitate the Citi Prestige 4th night free benefit a lot, but only with Citi Prestige Concierge. I found the concierge team by Aspire Lifestyles extremely friendly, and is willing to maximize my gain via this benefit.

For example, before the Marriott-SPG merger, I asked the concierge team to book a 4-night stay at the St Regis Bora Bora with a not-well-known rate SPG50. The SPG50 rate allows SPG members to spend 1,000 SPG points and then get 50% off RACK rate for the hotel stay. RACK rate is the rate you see at hotel front desks or behind your room door and is generally much higher than the actual rate you pay. However for suites or luxury properties, the rate is much closer to the retail rate offered. I ended up in paying 3,000 Euros, tax included, for four nights in an overwater-villa with my parents, while the hotel was selling at 1600 Euros per night pre tax for the days we were there. The SPG50 rate can only be booked via calling SPG, and the Citi Prestige Concierge team managed to get me into a three-party phone meeting to settle my request. Given that we were in Bora Bora during the peak season, this benefit alone saved me more than 5000 Euros.

The Citi Prestige concierge also allowed me to facilitate corporate codes. They even proactively offered booking with SPG’s Luxury Privilege program, which is available only to some qualified travel agents, and combined the program with Prestige’s fourth-night-free benefit. For example, a booking with the benefits combined together at W Bangkok will cost only 400 dollars for 4 nights, as the property offers 4th night free as well with Luxury Privilege, and I got an additional 100 USD property credit.

In addition, a widely known fact was that the bookings via Citi prestige concierge are considered with eligible rates, meaning that we can get night/stay credits and points from those stays. This was really helpful as most of the major hotel loyalty programs have switched to number of nights stayed per year for re-qualifying requirement.

These will be all gone with the change in September 2019.

Citi’s online portal is widely considered as Online Travel Agent (OTA) third-party booking, which means that you now will only have access to public rates, which might be much higher and corporate rates, or are generally associated with poorer benefits. Some hotel chains, like Hyatt, provide member-only rates and there is no way for Citi to access them as well. Hotels can also ignore elite benefits when they handle the bookings from third party and decline to provide stay credits.

Also, as pointed by Lucky at One Mile at a Time, Citi will no longer have access to some of the most exclusive properties. Aman, for example, does not show up on any OTA website. So basically clients will be stuck with some mid-tier chain hotel but can not take advantage of the chain’s loyalty program.

So why is Citi doing this?

Simply put, Citi is losing money.

You might have read stories about how profitable OTAs are: generally the commission fee would be 20%~25%, based on the total price pre tax, and I believe this is how Citi initially thought they could handle the business. With a 20% commission fee, a 4-night stay will result in a commission of about 80% of the average daily cost, and then with the pipeline fee and the annual fee from the Prestige Card, Citi will be able to handle the cost of providing such benefits.

However this would no longer be true if other rates are considered.

I learned from a leaked source that the commission fee for a special-agent program for a major US hotel chain is 10% of the total rate. In this case, Citi needs to cover 60% of the average daily cost, or roughly 15% of the total rate of the hotel stay. For corporate rates, I am not even sure there are commission fees as they are for business travelers only.

In addition, since the Prestige program started, many business travelers started to heavily use the benefit as they can essentially get the free money from the reimbursement of the 4th night. I personally also did intentionally booked an extra 4th night when I only needed 3 because I would like to get some free points and night credit.

This was how Citi (possibly) lost money and decided to make such a change. The new term that business travels will be excluded as suggested that abusing from business travelers might be a major reason.

Our Verdict

As I said at the beginning, it is certainly disappointing to see such benefit going away. Now with the new restrictions (number and channel), I can hardly imagine a scenario where I will facilitate Citi Prestige’s 4th-night-free benefit after September, 2019.

This also led to a new topic: what went wrong? Citi of course started with the belief that the benefit will attract a lot of leisure traveller (as they are generally paying the expensive public rates of hotels, and those rates yield nice commission fees to agents). But it seems that something went wrong.

Maybe the banks should think more seriously when they design the benefits for their cards. American Express, honestly, does a terrific job in this by balancing benefit and cost.

Meanwhile, may the only thing we can do is to use the benefits as much as possible, before the good days are gone.

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