Why The Points Guy Systematically Overstates The Value Of Miles

Last month I updated how much I value each frequent flyer currency at and in doing so I laid out how I think about valuing miles. I also compared the most recent values I gave to miles against those from both The Points Guy and One Mile at a Time websites so that you can compare.

The Points Guy site has announced a new way they value miles and they’ve updated their valuations for Delta, United and American Airlines so far.

They look at a bunch of data comparing what miles buy you in terms of airfare at each of those three airlines to come up with a value. It’s an interesting big data project. Reader Nick asks me to go into detail on what I think they get right and wrong,

Longtime reader (since 2014/2015, not sure if that’s long or not actually) of your blog. I also have been reading TPG since the early days and OMAAT as well. Would love for you to do a piece commenting on TPGs “New” valuation. Thoughts on what they get right, and what they get wrong. I realize I am biased as a loyal UA 1K, but their valuation of AA seems wildly high to me. Also there seem to be some major flaws with their new weighting logic, but I’ll let you be the judge of that since you’re the expert.

And hey, maybe you actually agree with them…still would like to hear your thoughts.

How TPG Updates Their Mileage Valuations

First, here are the values they come up with.

  • American moves up from 1.4 to 1.68 cents (I value AAdvantage miles at 1.3 cents)
  • Delta moves up from 1.1 to 1.48 cents (I value Delta miles at 1 cent)
  • United moves down from 1.3 to 1.13 cents (I value United miles at 1.3 cents)

They took “the lowest cash and award prices for a seven-day, Thursday to Thursday round-trip itinerary..for each week and on each route over the three-month period.”

They excluded basic economy fares (redemption tickets on airlines other than Delta are always more flexible, but this means comparing to higher fares and getting a higher points value). They weighted their data 20% business class, 80% economy. And they look at roundtrip itineraries versus one way (with American and Delta this would seem to bias towards higher valuations since roundtrip awards can cost fewer miles).

It appears they looked only at using United miles for United flights and Delta miles for Delta flights, since they note that they did not consider award availability as part of this exercise but that all flight options were available on points at some price. I’m not sure how you can claim to value miles without considering using them on partners.

It’s an interesting exercise using 3 months of data, and they haven’t released the full detail of their findings, which routes for each airline, which prices? That makes it a bit difficult to evaluate. But I think it’s pretty clear that their approach is systematically overstating the value of miles.

They’re Answering The Wrong Question

This exercise isn’t answering the question “what are miles worth?” they are answering the question “how much airfare will miles buy?” They are related, but the second question is only one piece of data you need in order to answer the first.

That’s because even if you can get $14.80 in airfare for 1000 Delta mile you’re still going to prefer $14.80 cash over 1000 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
  • Even in an era of elevated inflation, there’s far greater transparency over how much things are going to cost in money than in miles
  • You can 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 is one way to start an answer to how much are miles worth, it is not the answer. It’s the maximum possible number you can get to, but then you need to take discounts against current buying power for currency risk (devaluation) and time (discount to present value when you’ll redeem in the future).

Any valuation also has to recognize how contingent it is. For instance the value of a mile depends on how many miles you already have. If you have 23,000 miles and earn 2000 more to put you over the top for a 25,000 mile award, those last 2000 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.)

Finally, something that the TPG analysis overlooks completely is that when they compare the cost of a paid ticket with the number of miles an award costs, the award also gives up earning miles. They should be backing out the mileage-earning foregone from their valuation or that’s another way they systematically overvalue miles. If a mile were worth 1 cent, a general member gives up 5% by redeeming and a top tier elite gives up 11%, which needs to be backed out.

If they simply presented “here’s how much airfare your miles can buy right now” this would be an interesting exercise, enlightening even. However it purports to prove more than it does, and in doing so may lead readers astray overvaluing their miles in comparison to money.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Pingbacks

  1. […] Flueck is suggesting a valuation of Marriott points of around 80 basis points. I value Marriott points at around 60 basis points. I suspect that much of the difference in how David Flueck and I value Marriott points comes to down looking at the all-in room rates you can redeem points against will systematically overvalue those points. […]

  2. […] The methodology doesn’t show what they say it says. The Points Guy isn’t comparing what rooms used to cost in points with what they cost today. They are comparing what hotels cost today in cash versus what they cost today in points, coming up with an average value in points against a room rate, and comparing that against what they used to think the average value of a Marriott point was – which isn’t based on the same sort of methodology to begin with (it’s something that they’ve only done for their valuations of United, Delta, and American miles). […]

  3. […] They 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. And they overvalue points even answering the wrong question, such as valuing Southwest points at 1.5 cents apiece even though Southwest has a revenue-based program where each point gets you about 1.2 cents apiece in base fare, or perhaps a smidge over 1.35 cents apiece in ticket cost when you factor the taxes saved as well. […]

Comments

  1. When u r inferior u go after your competitors. The Point Guys run an honest site. There’s a good reason that unlike your site they don’t attract so many right wing Trump racists.

  2. My only metric is how many miles and what does it take to acquire them for one particular trip.
    The programs we participate in cost 100,000 , 140,000,150,000 or 180,000 miles for the same class/destination if booked at the right time. We pursue these miles according to opportunity.
    I believe a sensible person would not rule out any potential source of information so I will very occasionally read something from TPG. I do prefer Gary who has presented significantly helpful information along with entertainment. Thanks, Gary!

  3. I fired the points guy years ago. They don’t even try to be transparent about suggestions that completely support their profit structure. If they can’t sell cards, they can’t operate so whatever it takes to sell a card is fine even if they have to inflate values, outright lie about the facts and making up rumors. Sadly, even my chase banker relies on their propaganda so they are a force, but one day it will all back up on them.

  4. I have to wonder about people who write in simply to insult the operator of a free blog. There seems to be a lot more of this lately. What’s the point? What do you get out of it? Are you being paid? Working out mental illness issues? I have followed the other blogs from time to time, but I find more useful information here, so from the natural order of things I follow this bog more consistently. I wouldn’t bother if I wasn’t learning something. I wouldn’t be learning it for free if no one was advertising credit cards.

  5. Pakmiller,

    I agree. Suddenly, every comment has to met with the “ist” label. Allen seems to have multiple mental issues and needs to seek help.

  6. @ DCS — People understand what you are saying (it is very simple), but fact is 1 Euro is worth more than 1 US dollar in the same way that 1 Hyatt point is more valuable than 1 IHG point. That is 100% fact, so stop stating otherwise.

  7. Their way of calculating valuations makes absolutely no sense at all. American is arguably the worst out of the big 3 and has the most devalued frequent flyer program so I don’t understand why they’d value their miles so high. Conversely I find United’s MileagePlus to be far more valuable with far better availability than either Delta or American (plus offering a better passenger experience than both), so personally I’d value MileagePlus miles very high.

    The Points Guy has been on a steady decline in recent years regarding the quality and opinions of their articles. I’m certain that this extremely biased way of calculating miles valuations will only add fuel to the fire.

  8. @Allen The mail reason you don’t see a bunch of nut jobs (of any political persuasion) commenting on ThePointsGuy site is simple: they don’t allow comments.

  9. @Gene – B.S. People do not understand what I am saying and all you need to do is just scan through reams of posts that have expounded on the incomparably high values, first of the starpoint, then after SPG went belly up — in large part, IME, because of its flawed loyalty program model where earning starpoints on the SPG AMEX without ever setting foot in a Starwood hotel and redeeming them for airline tickets became the thing to do — the Hyatt point inherited the mantle, based on the same confusion.

    Your analogy of the Euro and the USD proves that you are just as confused. 1 Euro is “worth” more than 1 USD because you are not doing a hard currency conversion. The correspondence is not 1:1, so you are comparing apples and oranges. I guess you also believe that US ₵100.00 cents are worth more the US $1.00, after all, 100 is bigger 1!

    G’day.

  10. @ DCS

    IMHO – a valiant effort in your explanation, even if fallen on closed minds and deaf ears.

    The confusion in comments herein is pervasive.

  11. One thing I totally agree with here, is the fact, that almost nobody backs out the opportunity cost of using miles/points vs. Spending cash (which via Cap1, etc, may not even require any cash). I’ve had a few times when the points value looked reasonable, but then I realized I could EARN 30-40% of the points back if I “paid for it”, at often bargain prices, and banked them for later. I’ve sometimes earned half the point value back by paying vs. redeeming… no one ever looks at this.

  12. One thing that Cap1 gets right. There ISN’T an opportunity cost to redeeming the 2% for cash credit. It’s actually a multiplier instead…. $100 +2% credit card rewards + EARNING the points/miles for the stay vs. Redeeming miles/points and losing their earning potential… $100 -lost points/miles you would have earned from $100 and bonuses/promos, and no credit card rewards. OR, just go buy the gift cards you need to pay at Kroger and get the fuel points…hint, hint…

    I Don’t rely on the Cap1 much at all for things, but this is something no one seems to figure in. Plus the fact, I’m NEVER going to cash in 100’s of k worth of miles for 1st class champagne , when I can travel all year for those miles and milk lowly status for extra leg room and free bags.

  13. Thanks for the analysis, Gary. If you want to keep the focus away from motives and more towards the mechanics of the valuation, consider changing the headline to start with “How” vs “Why.”

  14. “The mail reason you don’t see a bunch of nut jobs (of any political persuasion) commenting on ThePointsGuy site is simple: they don’t allow comments.”

    And we still wonder why they eliminated the comments. Was it so advertisers and tie-ins wouldn’t be embarrassed by the quackadoodle commenters?

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