Value of points

Discussion in 'General Discussion | Miles/Points' started by TUMD, Apr 24, 2014.  |  Print Topic

  1. TUMD

    TUMD Silver Member

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    I know that everyone values thing differently (1st class vs. domestic flights vs. etc.), but how are most points values calculated? I see a lot of values thrown out there for different points and miles but I'm not sure what the different ways are that people are getting these. Does anyone have their own examples?
     
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  2. okrogius

    okrogius Silver Member

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    At a fundamental level this is all about what you're getting for however many points.

    Some programs have a specific fixed redemption value (such as 1c/point). This may be southwest miles, or it may be thank you points. In this case it's a clear valuation (at least assuming you have some purchases to make in the corresponding program).

    Some programs fixed value redemption programs (e.g. 25k for a domestic round trip, 25k for a hotel night). Let's say you'll buy a ticket somewhere on a given date whether you can use miles or not for an award flight. In this case your point valuation is a simple division of actual $ cost by the number of points redemption costs.

    There are a few complexities:
    -Some redemptions are for items that have a very high cost (e.g. business/first class tickets) and it's possible you wouldn't be looking at those if you didn't have the miles (and ability to buy distressed inventory for pennies on the dollar using such miles). In which case you can decide whether you want to value by the actual price, or (the more prevalent view) the imaginary cost of what you might spend on such a ticket should it be available for that price point.
    -Consider how easy it is to get the miles/points. If you can consistently and easily procure points/miles at a cost lower than the redemption value, why would you value them any higher than the procurement cost? (Of course the "consistently and easily procure" is a relative term.)
    -Value of fixed redemption inherently is tied to magic redemption cost. You can easily argue that some miles (the last few needed to get an award) are more valuable than others (say the first few which might be orphaned and never used).
    -There is risk holding miles rather than cash. There are rules on redemptions and ability to redeem are limited (multiple ways to get a good redemption might be a reason to value point/mile currency higher). Miles depreciate quickly, so again your value might go down substantially as you accumulate a large balance (should the program give you a month or two advance notice prior to devaluation - what can you effectively redeem?).
     
    Last edited: Apr 24, 2014
  3. pointshogger

    pointshogger Silver Member

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    A short explanation between economy and first class would be: if you only want to use points to fly, regardless of the class, just to get from one point to another, then getting an economy ticket is probably more worth it because then you can save your points for another flight.

    If you plan on paying for a first class flight anyway, then you'll get more value with your points by redeeming them on first class. Generally because a first class flight might only be double the number of points required for an economy flight, but the price for the ticket could be 3-4 times more.

    Ultimately, I would go case by case on whether it is more worth it to redeem on economy, first class or just paying for the flight, depending on what's available to match your schedule.
     
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  4. gregm

    gregm Gold Member

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    And just to add my 2 cents, the monetary value calculation is one thing. How we all value our points and miles varies across the spectrum! For myself, when I use miles or points for awards, my one rule is that, to me, the usage of the miles/points should never out-price the value of the product, with the one exception being J airline tix. For example, I'll pass on an award night for 25,000 MR points if the actual cost is low. I won't use 100,000 SkyMiles for a domestic Y RT that's $500 if I paid.
     
  5. iolaire
    Original Member

    iolaire Gold Member

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    I don't really care, but what I can say is I'm paying for less flights and flying in higher classes than prior to getting involved with points - and I'm charging MUCH more on a CC than in the past.

    Since I don't mileage run or buy things for points, there is little cost to acquiring points so the value is not important.
     
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  6. eponymous_coward
    Original Member

    eponymous_coward Gold Member

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    ... except you are forgoing cash back you could be getting from a credit card (possibly 2%+). That is an opportunity cost.
     
  7. iolaire
    Original Member

    iolaire Gold Member

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    Yes, and that is more important if you naturally spend a lot. I'd roughly guess that I spend $50k/year so the forgotten cash is minuscule compared to sign up bonuses in points.
     
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  8. satman40

    satman40 Gold Member

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    Point are of a different value with each person.

    Last minute flights, and upperclass International works for me, a cheap flight is a waste of points many times.
     
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  9. servo

    servo Silver Member

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    I've talked about this in the past - I don't really place a hard value on a certain point/mile currency. As others have said, what you place as a value personally will vary significantly based on your travel goals, your financial means to buy tickets without points, and even your geographic location. I prefer to use generalities when determining what programs to concentrate on, but then from there I use this formula to determine the value I received at redemption time: (redemption cpm) - (earned miles cpm which is calculated with each purchase; can get tricky if not managed properly).

    For example - I can use AA miles to go from SFO-MIA in economy @12.5k each way. I earned 200k AA miles by paying an effective rate of the annual fee minus the statement credit on 2 cards (($450-200)*2). The going cash rate for that same economy flight is $480. This is a very simplistic example. Finding your effective acquisition cost when you're doing MS makes it more complicated, unless you're concentrating spend on only a few cards and sticking primarily to bonus categories. I'm in the process of creating a document

    So, ($480/25000) = 1.92 cpm minus ($500/200000) = .25cpm = VALUE of 1.67 cpm. In my opinion, that's a fantastic redemption. Anything over .01 means you created a better value than what you bought the miles for, and obviously you'd want to maximize that as much as you can.

    Data nerds and OCD completists will insist that you need to add other variables, such as opportunity cost of taking points over cash, or taking that flight over another points/mile currency that isn't as well regarded/valuable, among other things. To me, that isn't necessary if all you're trying to determine is "did I spend my points in a way that shows a profit from acquisition to redemption"? I also disagree with adding the variable of whether you would have even chosen to fly in first/business on a Int'l flight on a cash redemption. Nobody has provided a sound explanation of why that matters to the majority of people in this game. If you had the financial means to lay cash prices all the time for F on Int'l flights, why are you messing with miles and points acquisition in the first place, and why would you care about your redemption value, even if you earned BIS miles?
     
  10. Photonerd71

    Photonerd71 Silver Member

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    I don't know or give a damn. I bank miles/points until I have enough to fly/stay where I want to go and then I cash then in for the flight/hotel. Some folks obsess over getting a certain cost per mile/point and won't use them until they hit that goal.....me... I earn and burn them. With so many ways to earn miles/points I don't even worry about it.

    Sent using a small piece of fruit.
     
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  11. Steve Leach

    Steve Leach New Member

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    Understand that all these airlines are experts at creating complex strings of perceived value, whilst maximising their profits and providing as little service as possible. Don't get sucked in! Lounges (in the Americas) are typically pretty useless, compared to the rest of the world (that have showers, hot food buffets, fast internet, free alcoholic drinks, sleeping beds or alcoves etc.). Don't pay more in cc interest, or other schemes, to chase points. Save your money and buy a day pass, if you're that keen.
     
  12. traveltoomuch

    traveltoomuch Silver Member

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    For those who might be earning using credit cards, it's still helpful to have a value in mind, if only to justify not choosing a good cash back card. If you're only getting 1 mile per $ (e.g. what most airline cards give in non-bonused categories), it may be good to make sure you value those miles at $.02 each or more, since you could otherwise be getting the $.02 back in cash.
     
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  13. traveltoomuch

    traveltoomuch Silver Member

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    Ah, but could you still get the sign-up bonuses on some mileage cards while directing most of your spending to a cash back card? Then you get the bonuses and the cash.

    More generally, it makes some sense to separate the "what cards do I get for the bonuses" decisions from "where do I put spending" decisions. A card with a great signup bonus might not be good for ongoing spending.
     
    Last edited: May 11, 2014
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  14. satman40

    satman40 Gold Member

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    The miles will always be a good deal,

    The average person will never accumulate enough to be of any value, nor will they have enough time off work to use the miles, mist of us have too much junk collecting dust,

    The Banks and the Airlines know that, we spend more than we make and work for the banks.

    Tenn Earnie Ford had a song, I can not die I owe my soul to the company store.
     
    Last edited: May 11, 2014

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