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The problem with point valuations

Many websites and travel blogs publish miles and points “valuations” for a myriad of frequent flyer programs, hotel loyalty programs and transferable points programs. These valuations feel authoritative, but are these values realistic? How should you value credit card rewards?

How most valuation methodologies work

Many outlets that publish “valuations” of various frequent flyer miles, hotel points and transferable points currencies and you might wonder how these websites arrive at their numbers.

Typically, when creating a point valuation for an airline frequent flyer or hotel loyalty program, the valuation will be based on a sampling of bookings. As an example, for an airline, when an award is available, the price in points will be compared to the price that the airline is charging for the same flight. Hotel point valuations work similarly. Some valuation methodologies will take into account taxes and fees and the most thorough valuation methodologies will discount the point values to account for the fact that many airlines and hotels don’t award status or points for bookings made with points.

The creators of valuation methodologies may make some assumptions about your willingness to travel on alternate dates or weigh their valuations toward or against certain types of redemptions, but I know of no published valuations that weigh redemptions against the next-best alternative in cash. Valuations of transferable points currencies like Chase Ultimate Rewards and Citi ThankYou Points typically are based around some sort of weighting of cash-back options and point transfer options.

But no one is asking the most important question, “What would you otherwise have paid, in cash, if you didn’t use points?” Your miles are only worth what you would pay for the next-best alternative.

The next-best alternative is different for everyone

Your miles are worth what you would pay for the next best alternative, not for the retail cost of the flight or hotel room.

If I have a pile of Delta SkyMiles, and want to fly to Miami on September 3rd, how much value I get out of the 19,500 SkyMiles cost of the trip is dependent on what alternative I would otherwise take. If I would otherwise take the Spirit flight, my SkyMiles are displacing $57 of spending. If I would otherwise book a direct flight on Delta, my SkyMiles are displacing $249 of spending.

The hidden costs of points that can’t be cashed

Most valuation methodologies don’t take into account the many hidden costs of miles and points. 

One invisible cost is the cost of schedule inconvenience. Maybe the ticket that is available with miles is only available early in the morning or late at night. Maybe the hotel that is available for booking with points is located 3 miles away from your ultimate destination, rather than across the street. This may range from a minor inconvenience to incurring additional transportation costs, needing to take an extra day off work, or even forcing the cost of an extra night in a hotel in order to make the mileage redemption work.

Another frequently forgotten cost is the cost of breakage. If I sign up for a credit card and earn 60,000 United MileagePlus miles, and then use 40,000 for a trip, but never redeem the other 20,000 miles, I have only gotten 67% of the value of the welcome bonus.

Finally, there is the problem of devaluations. Airlines and hotel programs regularly devalue points currencies, so if you are hoarding a stash of miles, the chances are good that it will be worth a lot less a few years from now. Airlines introduce new award charts all the time. Hotel chains shift hotels into more expensive categories. Programs ditch fixed-price redemptions in favor of revenue-based redemptions. Having a lot of points gives you a lot of flexibility, but once you accumulate more points than you will use in the medium-term, it’s time to look at other reward options. 

How we treat welcome bonuses on this site

A big part of this site is proceeding the value of credit cards and travel rewards in the simplest way possible. It would be easiest to develop valuations, make an assertion that a card’s points are worth a certain dollar amount, but that isn’t consistent with believing that valuations methodologies are flawed and that people can get different values from the same numbers of points.

How do we solve this? If points can’t be redeemed for cash somehow, we simply show the number of points in our credit card content. Here are the general guidelines we follow:

If points can be easily redeemed for cash-equivalent awards, we will cite that amount.60,000 Ultimate Rewards Points – Worth $600 in cash back
If points can be used to pay for travel through a portal or can be redeemed to offset a large category of purchases, we will cite that dollar amount.60,000 Ultimate Rewards Points – Worth $750 toward travel when redeemed through Chase Ultimate Rewards or using Pay Yourself Back
75,000 Venture X Points – Worth $750 when redeemed as statement credits offsetting travel purchases
If points cannot be redeemed for cash, we will not publish a dollar amount.80.000 Delta SkyMiles, redeemable for flights on Delta and its partners

Bottom line

At the end of the day, if your rewards points cannot be redeemed for a cash-equivalent award, how you value miles is likely a qualitative judgment. How much value you get from frequent flyer miles and hotel points will depend on your willingness to hunt for value in the programs and whether you would otherwise just jump on a cheap ticket on a low-cost carrier to get you to your destination.

About the author

  • Aaron Hurd

    Aaron Hurd is a credit card, travel rewards, and loyalty program expert. Over the past 15 years, he has authored over a thousand expert contributions published by leading outlets including WSJ, TIME, Newsweek, Forbes, NerdWallet, The Points Guy, Bankrate, CNET, and many others. He has also served in consulting roles for many of these same outlets, designing content strategy, hiring teams of teams of editors and contributors, developing thought-leadership pieces, and ghost-editing for senior editors. Aaron is well-known in the miles and points community and regularly presents about travel rewards at conferences like the Chicago Seminars and Minnebar. Aaron has enjoyed the game of optimizing credit card rewards since getting his first credit card shortly after he turned 18. He started learning about credit cards and travel rewards from the (now defunct) FatWallet Finance forums and FlyerTalk. He holds more than 40 open credit cards and has first-hand experience with almost every major credit card product.

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