I’ve published not only how much I think miles are worth in each airline, hotel, and credit card program, but also how I arrive at my valuation – what factors determine the value of a mile.
I haven’t updated these valuations formally in recent times. I saw that The Points Guy updated valuations for April. When I do my own valuations I show how mine compare to others who take on a similar task, both TPG and One Mile at a Time. I find my valuations tend to be lower than TPG’s overall.
I was curious how they’d be shifting the value of miles in the current COVID-19 environment. Largely they haven’t. Their valuations appear largely stable with where they were a year ago, except for some variance based on news in specific programs since then. Could that really be right?
And I started thinking about the factors that should be influencing how you value miles in today’s environment, compared to a couple of months ago.
- Discount for time. You’re not likely to spend miles today for near-term travel. And if you’re not redeeming miles now, then you should be taking a discount for time alone if nothing else. (That’s true even in a near-zero interest rate environment.) However there are certainly opportunities to redeem miles and points now for travel off into the future (say, in the December – February timeframe) and even get superior value doing so.
- Discount for risk. Will your frequent flyer program ‘make it’ or will you take a partial or total haircut in bankruptcy? I’ve argued (I think persuasively) that while smaller loyalty programs could go out of business with their attached airlines or hotels, the largest programs especially in the U.S. but even in Europe and Asia should safe. Still, there should be some modest discount taken due to increased uncertainty.
- Redemptions will become easier and less costly. With empty airline seats and empty hotel rooms, redemptions should be easier to get for awhile and that means spending fewer points (on average) for the awards you want, and having an easier time finding availability. That mitigates in favor of miles being worth more.
- There will be inflation down the line. Expect airline and hotel loyalty programs to start making the mileage printing machines go brrrr as people begin to travel again. They can incentivize butts in seats and heads in beds using their loyalty programs, both to get more people traveling but also to influence share shift, bookings away from competitors. That’s great in the short run, but once planes fill back up and hotels do too there will be too many points chasing too few redemptions and that’s why we get devaluations. In the longer term we’ll see a decline in value of points earned today.
These broad factors need to be taken into account when estimating the change in value of a mileage currency, and they’re likely to apply differently to each program based on, among other things, the tendency to print miles and the financial stability of the program in uncertain times.
That means I need to be thinking on my valuations and how much they need to change, recognizing that there are forces pushing the value both up and down at the same time.