What Are Points Really Worth? The Four Great Debates, Part 4

My vote for 5th myth is whether miles/points are worth less than they were in the past. Seems counterintuitive but I bet there can be several arguments put forth to argue against that “fact”.

Yes, FM certainly does. I just had started my postings assuming TPG’s valuations as the benchmark.

The value of Starwood/Hilton/Hyatt/Marriott points are very close to what their rooms price out at. I do not see a premium assigned for their transferability to airlines, car rental agencies, special events, etc. because they mostly all offer them (like all transferable currencies offer transfer partners & travel/shopping/dining portals).

If point systems haven’t historically handed out premiums for transferability with other programs, why even start with MR, TU, & UR? Their points still only ultimately buy what they can buy.

I’ve enjoyed reading these posts and generally agree with you. As to value of points, there are many variables here. The biggest determining factor to me is how much you have in savings. Those who are rolling in $ can afford to cherry pick, most normal folks can’t. That’s my biggest issue with valuing UR points at 1.8 cents apiece or some other ridiculous number. For some, it makes sense, sure. Brian at TPG is obviously not hurting for money (no sarcasm), so yeah, he may want to hang on to his UR points for a first-class redemption down the road. We are a middle-class family, so my money situation is very different.
Another factor is how often one travels. If you are fairly certain that you will burn your points at a more favorable rate in a few months, then perhaps it’s best to pay cash right now. When we are talking years, it’s probably best to just go for that “bird in a hand.” It’s not an exact science, that’s for sure.

Good stuff and I’ve enjoyed reading the four parts. I am sorry there is no Part 5 to look forward to next week! Thank you for the articles!

While I definitely agree bloggers overestimate point/mile values (obviously to promote the cards), I disagree that flexible points are only worth what their transfer points are worth. If I valued Hyatt at 1.6c and UA at 1.5c, I would still put UR at something like 1.7. You value Hyatt more than any other UR partner, but wouldn’t you still rather have UR than Hyatt? You said yourself cash is king and would rather use points that cash; so if you normally use UR for hyatt but want to book a Star Alliance flight, wouldn’t you want the option of having United miles even if you value them less than Hyatt points?

Using TPG values (assuming they are the “gold standard”) for UR hotel partners, I find when I price out rooms that TPG’s stated values are relatively accurate and stable (i.e. a Category 4 standard Hyatt room usually prices out right around $270 or 15,000 points x .018). My purchasing power will never really be much more than a point’s stated value unless a promotion, invitation, or deal comes along. That can be one good reason to hold onto hotel points. Rather than spending 15,000 points on a standard hotel room now (and I am pretty certain this will be the same in 3 months), I could possibly use the same points along with a slight upcharge later towards a suite or boutique area within a hotel. That flies in the face of certain hotel point devaluation, but I have nevertheless been presented with opportunities for much better hotel values in the future and was glad I had “saved” my points.

I think airline miles, however, are less precise and predictable. They change dramatically and intraday. The time value of money principle tells us that money available at the present time is worth more than the same amount in the future due to its future earning capacity. This is one of the areas where I agree with you, Mark – that it can make better economic sense to use depreciating points now and hold onto your appreciating cash position as long as possible when buying airline tickets. There is too much uncertainty with airline pricing, and it can often times be safer to “lock-in” (with the potential to change later) a fair deal with miles now rather than risk a ridiculous future price/miles increase.

People who have a huge amount of points/miles and those who have minor accounts both seem to be extra careful with spending them. Perhaps those who have more… simply have more… because they are hoarding rather than spending. And those who have less are going to be very careful before letting any of their hard-earned points go unless they represent a very good value to them. It is those in the middle category who I think present a more balanced approach to spend vs. save and are more lenient with pulling the trigger on point usage.

We discussed Opportunity Cost in Week 1 and concluded they are phantom expenses that aid in decision making that should not be treated as actual accounting costs. There is an opportunity cost with selecting and using transferrable currencies. I could spend my CSR at 1.5 now in the Chase portal on a sure thing, for instance, vs transferring them later and potentially saving more than that on a room or flight.

By selecting a card like the CSR that offers a transferable currency (vs a co-branded card), I agree a premium should NOT be placed on its valuation for the transferability element. Having transfer partners went into my decision making in acquiring the card to begin with, and though it is certainly convenient and efficient to have multiple programs available within one platform, my actual benefit caps out at either 1.5 or the value assigned to each individual program. My net result would be the same as running each of the 11 programs separately on its own, albeit most people relegate their purchases to only a few of those when left to their own devices. Assigning a 46% increase in value for mainly portability reasons (2.2 – 1.5/1.5) is, at minimum, a gross exaggeration. Because of this, I asked TPG to defend their assigned 2.2 in their November valuation, but…no response.

Points are less valuable than cash to companies who issue them because the assumption is consumer breakage with points and Chase, for example, doesn’t have to pay up until URs are actually transferred to a partner. Their float is superior to paying for points/miles monthly with a co-branded card. Cardholders will typically hold onto points longer than redeeming a cash bonus. I mean, does anyone actually let Discover bank their quarterly 5% cash back, interest-free, for very long?!

Thought-provoking series, Mark – thanks for taking the initiative to break down the elements that others merely gloss over to the consumer’s detriment. I hope you will do a post soon on a 5th Great Myth – “Every Cardholder Should Start Their Portfolio with a CSR/CSP!” Best to you and your family this holiday season.

— Understanding of MR/UR/TY, round about redemption (booking DAL flights with VX miles) and cash booking and which airports to book from is usually a good approach.

— Business class from YVR and YYZ are usually much cheaper. And every couple of months we end up getting some pretty good fare sale from certain airports.

— Outside of signup bonuses, spending on airline specific cards usually is a low return strategy.

I agree in general, and actually was talking someone through the idea that “points not spent have 0 value”. The value of a point is how much you can use it for. If you have no use for a 5 cent/mi redemption in business class, because you travel with family and you’ll never earn enough miles to fly more than yourself in J, then the value of those points is whatever you can use them to fly your family for.

But I think where I disagree is whether transferable points can be worth more than the top partner. They can, for 2 reasons.

1. A points “valuation” should be an average of redemptions. I recently booked an AA flight last minute, and got about 4 cents/mi; also, the cash price for our economy flight to Hawaii next year is now cheaper, and the redemption is about 1.5 cents/mile. I would value AA miles at the average I could redeem them for (minus some amount for devaluation and availability risk). So if I value them at a hypothetical 1.8 cents/mile, it would be due to all the options involved.

2. Transferable points give you more chances to redeem for maximum value. If that Hawaii flight is 1.5 cents/mi on AA, but I can use fewer miles elsewhere and thus get 2 cents/mi, then I’d do that instead. Or, to think of it another way, I could use the same number of transferable points for a better redemption on another partner instead. So I am measuring the transferable currency not against some absolute value of the top partner, but against an average of the best possible redemptions through all partners. Make sense?

Cash is King – I totally agree. I earn points to spend points. Spending points allow me to spend my cash on experiences during the trip. I can always earn more points so I spend them. The only reason I would not spend the points is if I have another trip coming up very soon that I want them for. Points loose value to often to keep them – so I spend them.