By The Pointer
Let’s say you’re in a restaurant in Egypt, and you’ve just finished a dinner for two at a local restaurant. After dinner, the waiter brings you a bill for 250 Egyptian pounds. How would you react? Would you worry that you’re being ripped off? Would you breathe a sigh of relief for a reasonably priced meal? Most of us wouldn’t know how to react initially. We’d turn that bill into something that makes sense to us. Based on the value of the Egyptian pound when this article was written, that restaurant bill would be equivalent to $13.96. That’s a good price for a multi-course dinner for two. You just needed a reference point to determine the value of what you were getting. We can do something similar with miles and points.
It’s easier with some types of points than with others. Fixed-value points are very easy to value. For example, a Discover It mile is always worth $0.01. On the plus side, that’s simple to understand. On the minus side, no one ever says, “I scored a $900 flight for only 20,000 Discover It miles.” If that flight was really $900, then that person paid 90,000 Discover It miles for it. That’s the same price that everyone pays, every time because the value of Discover It miles is fixed.
Non-fixed value points are harder to value…or someone came up with a terrible name for them. In many ways, they behave like free floating currencies around the world. Some currencies allow you to buy lots of things, and are produced by well-managed governments so they hold their value over time. The U.S. dollar or the Euro might be like American Express Membership Rewards or Chase Ultimate Rewards points. Meanwhile, other currencies have limited uses with frequently changing prices (hyperinflation) so you can’t count on them holding their value. Currencies like the Venezuelan bolivar might be like Alitalia Milemiglia miles. Alitalia may be going out of business soon. Oh, you have 100,000 Alitalia miles, but our program expires tomorrow, "Too bad!"
Points are like currency in many ways
Let’s break down some of the ways that the value of miles and points is affected by the same supply and demand forces that affect currency:
- Overprinting: Just as governments in tough circumstances might print money to pay for the things they want to purchase, airlines often “print” extra miles and points through things like larger credit card sign up bonuses. For instance, if lots of consumers had tons of United Airlines miles and there are only so many available seats to spend those miles on, then either the seats will disappear very quickly (shortage) or prices will be raised (devaluation). The most valuable programs manage the number of miles/points that they put in circulation to avoid frequent shortages or devaluations.
- Trustworthy source: Most people would probably have reservations about opening a hotel in Syria today. After all, how can you do business if you’re not sure whether there will be an attack that destroys the building you invested in, or whether the 100,000 Syrian pounds someone pays to reserve a room today will have the same value in 3 months when the customer checks in. I avoid stockpiling miles in programs with a history of unpredictable behavior. As mentioned earlier, Alitalia may go out of business soon. Delta makes lots of unannounced changes to their prices, and they have no award chart. Trust in a program adds to its value.
- Access to what you want to buy: When I traveled to Cambodia several years ago, people generally preferred that I pay them in U.S. dollars rather than Cambodian riels. Holding U.S. dollars allowed me to pay for goods and services in the United States as well as a number of other countries like Cambodia. Panama and Ecuador even use the U.S. dollar as their official currency. This is somewhat akin to airlines with lots of partners. I’m not too keen to stockpile airBaltic PINS. They don’t give me access to what I want to buy. I don’t live in Latvia, and they don’t have any airline partners.
- Flexibility: The analogy gets a little tougher here, but bear with me. If Argentina wants to borrow money from a bank, they won’t be paying off that debt in Argentinian pesos. The bank would worry that Argentina will just print lots of Argentinian pesos to pay them back, and the currency they’re getting back will be worthless. Instead, Argentina will probably have to pay the debt back in U.S. dollars or Euros because the bank trusts those currencies to behave more predictably over time. These trustworthy currencies are called reserve currencies. Transferable points programs have multiple uses just like reserve currencies. If you have 1,000 American Express Membership Rewards points, you can turn them into a $10 statement credit, 1,000 Delta Skymiles, 1,000 Air Canada Aeroplan miles, or tons of other uses. The flexibility of AmEx Membership Rewards means you don’t carry the risks of stockpiling miles with any one of their partners (eg. Delta).
How can this help Rob and Elena (or me)?
With that background, let’s get back to Rob and Elena. They have a couple of options to get to France, and they don’t know which one is the better deal:
Figuring out a value starts with opportunity cost. In other words, what would Rob and Elena have done if they didn’t have access to miles. I discussed this with them. They said they would have paid cash for the flights, and they still would have required direct flights. Let’s take a quick look back at the prices for those direct flights:
It would be tempting to say that the Air Tahiti Nui flights are worth $952 while the Air France flights are worth $2,040. However, Rob and Elena would never have paid over $2,000 for the Air France flights when a similar itinerary is available for more than $1,000 less. Whether they use miles to fly with Air France or Air Tahiti Nui, they’ll be “saving” $952. Given that fact, the miles are worth:
Value of American Airlines miles = ($952 - $84.11)/60,000 = 1.45 cents per mile
Value of Air France miles = ($952 – $204.44)/54,000 = 1.38 cents per mile
What we know so far is that for this redemption, each American Airlines miles is more valuable than each Air France mile, but both packages deliver the same overall value in the end: $942 worth of flying (or $1,904 for the two of them). OK, we’ve determined the value that we’re getting from these miles, and we’d prefer to use American Airlines miles if both types of miles were just as easy to earn. Earning these miles will be the next topic we’ll tackle in the series.
Are there published values for each type of mile or point?
Sort of. With currencies, there are global markets where professionals frequently trade each currency so you can look up the latest “market” value. In other words, we can answer the question, “What would others pay for this?” Miles and points from loyalty programs can’t be traded so the process isn’t as straightforward. However, a number of different websites have their own estimates based on their own personal redemption experience and the program rules.
You’ll find one universal truth in these valuations that I tend to agree with: transferable points (eg. American Express Membership Rewards, Chase Ultimate Rewards, Citi ThankYou Points and Marriott Rewards) are the most valuable points. You get a ton of flexibility because you can turn them into cash or into points in lots of other programs.
The way I tend to use these valuation tables is to determine if I’m getting a “good” value for my miles. For example, if we use American Airlines miles to book Rob and Elena’s flights, we’re getting 1.45 cents/mile in value. That’s a reasonable value based on most of the valuation sources above (Frequent Miler: 1.4 cents/mile, The Points Guy: 1.4 cents/mile, One Mile At A Time: 1.3 cents/mile). However, the value they'd get using Air France Flying Blue miles also looks pretty reasonable reasonable. They get 1.38 cents/mile in value when the experts put their worth around 1.3 cents/mile (The Points Guy: 1.2 cents/mile, One Mile At A Time: 1.3 cents/mile, Frequent Miler: N/A). So how do we figure out which type of miles to use?
Deciding which type of miles to earn
Rob and Elena know that both American Airlines AAdvantage miles and Air France Flying Blue miles can get them to Paris and back to LA, and both programs offer decent value for the miles they'd be using. At first, this seems like a tie. However, I'd strongly recommend that they focus on earning American Airlines miles for their trip.
The main reason is something we discussed early on in "Different Types of Points and Their Best Uses": predictability. Air France uses dynamic award pricing. If Rob & Elena earn 54,000 Flying Blue miles over the next few months, they can't be confident that the price will still be 54,000 miles when they're able to make a booking. Air France can move that price up or down at any time if they want. American Airlines has a region-based program with fixed prices. They publish their price in an award chart, and they have a good reputation for giving their members advanced notice of price changes. Rob and Elena can be more confident that this AA price will still be available for the next few months. In this case, the winner is American Airlines AAdvantage miles.
The Flying for Free Series Table of Contents
Step 1: Overview and Setting a Goal
Step 2, Part 1: Different Types of Points and Their Best Uses
Step 2, Part 2: How Alliances & Partnerships Work
Step 2, Part 3: Determining Loyalty Programs to Consider
Step 2, Part 4: Confirming Availability and Cost
Step 2, Part 5: Valuing Points to Make a Final Selection
Step 3, Part 1: The Best Ways to Earn Miles & Points
Step 3, Part 2: Earning Miles & Points with Credit Cards
Step 4: Making the Booking