What Are Points Really Worth?
Three weeks ago I kicked off a 4 part series that discusses four of the most hotly debated topics in the travel hacking community. This week I would like to discuss if there should be minimum redemptions for award travel.
My goal is to offer up both sides of the argument and then have a civil discussion about it in the comments section. The last three weeks have been amazing and I can not thank the readers who commented enough…you guys are great! We had comments that swung on both sides of the argument, everyone was respectful, and everyone brought great points to the table.
The Four Topics
The four hot button topics that we will be discussing over the next month are:
- Opportunity Cost.
- Is Award Travel Really Free?
- The Value of Credit Card Airline and Incidental Credits.
- Should There be a Minimum Redemption for Award Travel?
Should Points & Miles Have Minimum Redemption Valuations
You have seen the posts around the blogosphere putting a valuation on miles and points. If you get 50,000 of these miles that is worth $1000 in travel etc. We even do it here at Miles to Memories!
I have witnessed it in the comments sections of our Facebook group, on blog articles and on Flyertalk etc. where people are told they should use cash instead of points. They are told it would be a bad redemption to use points.
FrequentMiler and TPG have monthly valuations that tell you what each point are worth. They update them as things changes, as transfer partners are added, as the rules of redemptions are changed etc. The question is should we abide by these valuations?
The Common Thinking on Points Valuations
I would say the majority of people in our community believe that each point or mile has a minimum redemption valuation. There is a value each point or mile has that they are not willing to go below. They would rather use cash then use their points at that point.
The thinking is that each point should be maximized and only good redemptions should be used. Save the points and miles for first class cabins and luxury hotels. Spend your miles flying international in lie flat seats and pay cash for domestic travel.
There are blogs built around this concept. They want you to have redemption envy. Why use points and miles for that $250 domestic flight when you could be taking a shower while sipping Krug?
Maximizing any resource is a good idea and this is no different. Anything you have of value you should try to get the best return possible when using/redeeming it. But are we overvaluing our miles and points? Are they worth anything sitting on the bench?
I think that point valuations should be used as a tool to help you in the decision process when booking award travel. I don’t think these valuations should be used as religion though. Everyone should have their own personal valuations but I would argue that they should be more towards the bottom of the spectrum. Unless there is a promo going or some ridiculous deal I am going to use points pretty much every time. There are a few different reasons why I believe this is the best way to go.
Cash is King
Why am I going to use points almost every time? Because points are more easily accrued than cash is. Banks are willing to give out 100,000 point sign up bonuses worth $2000 in travel but they usually limit cash bonuses to $500 or under.
Why do you think that is? Because points are cheaper for them, they are less valuable than cash. That $500 costs them $500 where 50,000 or 100,000 costs them less than that. You may get $750 in value out of that 50,000 mile sign up but it cost the airline a fraction of that. Sure they potentially lost $750 in revenue but what did that really cost them?
I can rack up a million miles and points in no time from sign up bonuses and increased spend. Racking up the $20,000 that million points would be valued at would take a lot more effort.
Points Only Have Value If/When Used
If you sit around waiting on the perfect redemption you are losing value the longer you wait. Those miles and points are continuously depreciating in value. If you are not able to find a redemption worthy of the point’s valuation then they have no value at all. A resource is only valuable if you can use it to get something else.
In our Facebook group I see people asking what they can use some orphaned miles on or how can they easily keep them alive. That means those miles have been sitting there for 2-3 years collecting dust. If they are American Airlines miles, for example, imagine how much more valuable they were 2-3 years ago. If they had used them for a middle of the road redemption then it is probably better than using them on a higher end redemption now. Especially if they ended up spending cash instead of using the miles in the past. That money could have been earning them interest instead of their miles continuously losing value in their account.
You may read a blog article that says a certain card has a sign up worth $800 etc. That may entice you to sign up for the card but if you never use them then the sign up bonus wasn’t really worth anything.
I Have an Issue With the Valuation Process
One problem I have with the valuation process is putting a higher valuation on transferable currencies. Are transferable currencies like Membership Rewards and Ultimate rewards more desirable than an airlines miles? Absolutely! But are they worth more than the top transfer partner when you go to redeem them? No.
If the most valuable Ultimate Rewards partner is Hyatt, whose points are valued at 1.74 cents a piece by Frequent Milier, then how can UR points be valued at 1.82 cents? The difference is even greater according to TPG, at 1.8 cents vs 2.1 cents per point. The points being transferable makes them more desirable but it I don’t think it makes their monetary value increase.
If the best redemption of the group is Hyatt then the value peaks with the valuation of Hyatt. They are a more desirable currency than Hyatt points because you have more options but does that mean they have a higher minimum redemption? What if you transfer them to Southwest where you can’t get more than 1.6 or 1.7 cents per point…how are you supposed to get 2.1 cents per point that way? Where can you transfer your UR points to that you will be getting 2.1 cents per point on average on all redemptions? There is no such transfer since Hyatt is the most valued transfer partner.
Bad Redemptions are Almost Always Avoidable
My final point is that you can usually work around “bad redemptions” by being diversified. If the Hyatt room you are looking at is $200 a night but wants 20,000 Hyatt points that is a low value redemption. A better option is to use the Chase UR portal to book the room versus transferring them to Hyatt. That would only cost you 16,000 points, instead of 20,000, at 1.25 cents per point.
Using the UR portal at 1.25 cents per point would be a bad redemption to most, since UR points are valued at close to 2 cents a piece. But, it was a better option between transferring them and using the UR portal. You could go through the Citi ThankYou portal instead, if you value ThankYou points less. That would also cost you 16,000 points but may be easier to swallow for some. In another month you could use Flexperks points for the room at 1.5 cents per point, only needing 13,333 points.
I would have used the valuations during my decision making process but I still would redeem points with one of these options.
Another example I could offer from personal experience is from an upcoming flight to Atlanta I was researching. Delta wants 24,000 miles for a one way flight. The cash cost is $250. Most people would say pay cash for the flight.
I could transfer 24,000 MR points and book the flight or I could transfer 10,000 MR to Virgin Atlantic where the same flight is priced at 12,500 miles. With Amex’s 30% transfer bonus to Virgin Atlantic I could save 14,000 miles going that route.
I used the valuations to help make the best decision. But there is almost always a way to use points if you work at it hard enough.
While I don’t believe in “bad redemptions” so to speak I do think people should use valuations in their thought process. I think most points should be valued near there min value. So Chase Ultimate Reward points should be valued at 1.25 cents (1.5 cents if you have the CSR) because there is no reason to ever get less than that on a redemption since you have the UR portal etc.
If using the points gets you where you need to go then I say do it. Just make sure you are using the best option for that particular redemption. Using a portal instead of transferring to the hotel, or Virgin Atlantic miles to fly Delta are two examples of that.
Miles are much easier to accrue versus cash so I use them accordingly. But I know I am probably in the minority here. I am curious to hear your take on it. Let me know your thoughts in the comments section!
Thanks for being a part of this series and I hope to do some more series in the future! Let me know if you have any good ideas or would like something discussed further in the comments section 🙂