Most miles and points valuations start from the same flawed premise: they measure how much travel a point can buy, then treat that number as if it were cash value. That massively overstates what points are actually worth, because points are less flexible than cash, carry devaluation risk, usually are not spent right away, and often replace travel you would not have bought at the published price in the first place.
In writing about how Citibank is devaluing points transfers to Choice Privileges and Preferred Hotels I Prefer, I mentioned valuing Choice points at roughly half a cent apiece and reader L3 took exception.
So it’s worth walking through how I think about valuing points – and why most people offering their values are doing it wrong, or are at least imprecise in what they’re saying – and why that matters. I don’t think I’ve explained this in about three years.
@Gary: One point: Your Choice point valuation should be 0.75c. Frequent Miler obtained a million-datapoint database from Gondola that established that. It is conclusive.
“Thanks to them, we now have access to results from ~980,000 domestic and international Choice Privileges award searches across almost 5,000 properties,”
The starting point here is to understand that there’s a difference between ‘how much travel a point buys’ and ‘how much travel a point is worth.’
When Frequent Miler uses Gondola data to look at what Choice Privileges points can get you, they are answering the question “how much travel will miles buy?” That is only related to, and a starting point for answering, “what are the miles worth?”
This matters because most sites systematically overstate the value of points because they are telling you ‘how much travel could a point potentially buy?’ and that’s not actually what that point is worth.
- The value of a mile is the amount at which you’re indifferent to holding miles vs. cash.
- But even if you can get $11 in airfare for 1,000 Delta miles you’re still going to prefer $11 cash over 1,000 miles if you had to choose. They aren’t equivalent.
You can buy whatever you want with the cash, but you’re restricted to spending Delta miles however Delta says you can.
And even coming out of pandemic inflation, there’s far greater transparency over how much things are going to cost in money than in miles.
You can even earn a rate of return on your money – outpacing inflation – while your miles are only going to become less valuable.
Answering the question how much airfare do miles buy, or what hotel stays they pay for, is one way to start an answer to how much are miles worth, but it is not the answer. It’s the maximum possible number you can get to, but then you need to take discounts against limitations on use, against inflation risk (devaluation), and for time (discount to present value when you’ll redeem in the future).
- Points that can only be used for travel aren’t worth as much as cash that can buy anything. You can spend cash on more than just what an airline says you can, and you can invest cash to earn a return. You should discount the value of miles for their lack of flexibility compared to cash.
- Points where there’s more devaluation risk than a dollar need to be discounted as well.
- And points that you aren’t going to spend right away, and don’t earn a rate of return in the meantime, need to be discounted for time too.
So you take a point that buys 3/4ths of a cent on average against what you really would have spent on the room (would you have booked that room for cash at that price) and you still need to reduce that by several factors to get the actual cash value of the point.
Furthermore, the value of a mile depends on how many miles you already have. If you have 23,000 miles and earn 2,000 more to put you over the top for a 25,000 mile award, those last 2,000 miles have much greater value at the margin that the ones you acquired earlier. (You’d be willing to spend more to accumulate them, since it’s those extra points that make the award possible.)
At the same time, if you have millions of miles then the next 2,000 miles are worth very little. You may never spend them! And if you do it may be far into the (devalued) future.
Plus, also remember than when comparing the cost of a paid ticket or a room with the number of miles that award costs, in most cases you’re gives up earning miles too, and that needs to be backed out from the valuation when comparing to a cash stay.
The bottom-line is that a point which might buy 3/4ths of a cent worth of travel is not worth 3/4ths of a cent unless it directly displaces the cash you would spend today at that exact amount – you would have booked that room, at that same rate (and not a more discounted rate), and even then you’re giving up some points-earning in the process.
More likely, though, you’re holding the points for future use if you aren’t buying them for an immediate redemption. And there’s devaluation risk, time-value discounting, and the simple fact that points aren’t as flexible as money.
The question you want to ask it, if a point will buy 3/4ths of a cent in travel, would you spend 3/ths of a cent to buy that point? I certainly wouldn’t. After this discounting, I get to ‘about half a cent’ about a 40% total discount for these factors might be even more appropriate.
One factor for award stay is also taxes. If no taxes, that increases their worth – especially if factoring in not earning on the award stay.
Or another factor is (usually) easier and cheaper changes/cancellations on air travel
1) How much a point can buy is overstated.
Many people end up with less than ideal travel dates and times to work with the awards that are available. So maybe 2×7500 AS miles pays for a USD700 AA ticket, but was that really the time you wanted? Was that really the connection you wanted? Was that really the date you wanted in the first place? Or did you make do with whatever was available.
A good example are awards that are more expensive on Friday PM and Sunday PM when people actually want to travel. It is cool you can get the award at 7500 miles on a Wednesday morning, except you would likely never have travelled then.
similarly, what about the Wednesday before Thanksgiving. Oh, nothing.
2) How do you value the EQM that you earn flying on awards with Alaska? That has to enter the equation.
So all the bloggers going into minutiae trying to get second digit accuracy on the value of miles but foregoing all the lack of flexibility is plain weird.
“Thanks to them” for the data – L3 might have a vested interest in the aggregator that provided the data
Headline promised “Why All The Published Numbers Are Too High” but fails to deliver.
The answer is simple: valuations are too high because high valuations make it easy to pimp credit cards (“I got $8 bazillion in value from this $795 card”).
And the easier it is to pimp those cards the easier it is to collect that sweet referral $$.
Sounds like you need to rejigger some of your published valuations then
@ Gary — Would you mind posting an updated table of your point valuations vs OMAAT, TPG, FM, etc?? Thanks!
@Kal – my published valuations expressly account for this, and it helps explain why mine tend to be lower than other sites
So how would you value each of the major airline miles and major hotel programs points?
One big value difference between banked cash or points is that there is no question what happens to your cash after you pass on to the wherever. Cash goes to your heirs of your estate or the beneficiaries of your trust. As for points, there are many questions, depending on the ‘terms and conditions’ (that few read completely), about what happens to them after death. As a result, they definitely have less value to an older person but also there is the thought that I better use them soon or lose them at death. As a result, I have not paid much cash for an airline flight or hotel room the last few years.
Woah, isn’t Gary calling himself out here? Like, all these hyperbolic posts of “this card is worth $2,500!” Clearly, the worst is TPG, which constantly shills for these big banks and way overvalues.
@Gene — What is the coordination behind all the various Boarding Area affiliated blogs? Like, does Gary have to re-post what the others are talking about; is there an editor-in-chief dishing out content?
@boilers said, “One factor for award stay is also taxes. If no taxes, that increases their worth – especially if factoring in not earning on the award stay.” Also, doesn’t it in some cases get parking fees and resort fees waived?
I do like GHA Discovery, I earn 7% (default is 4%) in their dollars on all spend (adjusted for exchange rates as necessary). And, the Discovery dollars get you exactly $US1 per D$1 against any stay. Just be carefule, once awarded the expiration of D$s cannot be extended, even with additional stays.
Given the amount of time you have to spend to getting value out of your AF, that should be counted into the cost. If you spend 5 hours, than the amount you think 5 hours of your time is worth should be added to that of your AF. If you still come out ahead, go for it.
For me, I am out of CSR and honestly with the Travel Bank changes to Amex Plat cards, i nuked the Amex Biz Plat from my wallet and am very close to nuking the personal Amex Plat. Its just not worth it anymore.
“…and often replace travel you would not have bought at the published price in the first place.”
This is the one I harp on the most. When people use points for a business class seat vs. a purchased economy or premium economy seat that would have served the purpose, the value of the points are lower than they “brag” about.
Thank you for this one Gary. I tried to argue a less thorough version of your rationale to FrequentMiler and boy did it make them mad. I agree entirely with your central point and with your rationale.
A thing is “worth” what two parties agree to exchange. I wouldn’t sell my Alaksa points for USD$0.025 and I wouldn’t pay more than USD$0.015 for Alaska points. But I try to redeem them for Business class travel between Eastern Canada and SE Asia. How anyone can get a valuation from those 3 true facts is beyond me.
All the points value arguments given are overly simplistic, although I tend to value points more closely to the how much travel can I purchase with them.
The point overlocked is that the value of the points at any given point in time depends on what my travel plans are at the moment. If I have 10K points with an airline, and I don’t foresee using them on travel with that airline, maybe the value is only 0.5 cents per point, and I would rather have $50 in cash instead.
However, if I am actively looking for international business class seats for leisure travel and I have 100K points that I can redeem at 2+ cents each, I would much prefer to have the points instead of $500 in cash. I value the points at that moment in time at how much travel in $ equivalent that they will purchase.
The argument that I would never spend the cash equivalent for a particular fare, and therefore the points are not worth that much, is also dumb. Getting 2+cents per point in value is the whole reason I collect the point in the first place. They allow me to travel in ways I would not prefer to spend cash on. I have been able to approach 10 cents per point on some redemptions, and I got way more than a simple 0.5 cents per point in value out of them
@1990 – look up what i say points are worth and compare to others, i think you will find (overall) my valuations are lower because of the reasons i explain in this post.
I don’t find the valuations on sites very useful for airline points. The key point is how much value they have for you, and AAs redemptions for QR and EY approach 5-6c. I likely would not have paid that much, but 4 cents is still good.
UA points can be useful, especially for redemptions on Lufthansa and ANA.
Delta Skypesos are only marginally useful for international except on rare occasions.
Free (or nearly so) cancellation and redeposit is why points are worth MORE than the amount of air travel they will buy.
@Gary Leff — I’m with you. I prefer your valuations. I respect you and your site more because of it. And, I can’t get enough of the banter on here. That alone will keep me coming back for more. Bah!
@Mike P — “that would have served the purpose” …yeah, if the purpose of travel is just A-to-B, with no legroom or any amenities, as opposed to having a meal and a bed for a long-haul red-eye.
“yeah, if the purpose of travel is just A-to-B…”
Which is 90% of what air travel is.
@ 1990 — My understanding is that individual blogs are independently written, edited, and published. BA provides all the tech support and collects a portion of the page view revenue. The remainder of the page view revenue and all credit card and other referral fees are retained entirely by the individual blogs. I could be wrong…
” That massively overstates what points are actually worth, because points are less flexible than cash, carry devaluation risk, usually are not spent right away,”
I agree completely. I was saying that we should answer the question as marginalists. At the point of choosing points vs. cash for an immediate transaction, the Gondola database is definitive. At the point of making a points-portfolio decision, the issues that you raise of liquidity, decay, etc. are essential to consider and almost invariably lead to a lower valuation than the first case.
Good piece.
@Ex-UAPLat: If someone “pimped” you a card with actual miles values worth far less than they claimed, why would you get a second card from them?
Most people here would learn that the promise was false and not trade with them again. As a result the pimpers would go bankrupt and honest brokers dominate the market.
many of the arguments in this post are fair enough, but not including or linking to an updated view of YOUR valuations (with whatever caveats) seems relevant. The most recent valuation i can see from you is from 2021? I cant believe you havent changed your mind on the value of anything since 2021 (including the US dollar!)
@Mike P :
” When people use points for a business class seat vs. a purchased economy or premium economy seat t”
Why can’t people value an upgrade to themself? They value everything else to themselves don’t they?
Good point on cash having optionality!
Personal proof point just happened. Pre approved for another platinum biz w 200k points and 895 fee. I can’t use any of the coupons bc of how many Amex and travel cards we already have.
I skipped that and did a Chase biz 75k points w no annual fee even though, technically Amex is a better value.