How Not To Work Out The “Value” You’re Getting From Your Points

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In the miles and points hobby most people focus quite strongly on the “value” that they get out of the various currencies they hold. It’s one of the better ways we have to work out if we’re getting a good deal, if we should be using our points or paying with cash or even if it’s a good idea to buy points in one of the frequent sales that appear.

Points valuations are a personal thing and will vary from person to person. I value points quite conservatively so you won’t see me assign a value of over 2 cents/point to any currency I hold but I know a few people who do just that. There’s nothing wrong with this – we all use our points in different ways and that’s going to affect our valuations – but sometimes it would appear that people forget (or misunderstand) the meaning of the word “value”.

a person pouring champagne into a glassThe cost of a Cathay Pacific First Class flight is not necessarily the same as the value

“Value” is a word that describes how much something is worth and not how much something costs.

That’s a very important differentiation and one that people often seem to forget.

Let me put it this way: If you see a stick being offered on eBay for $1,000 does that mean that this very ordinary stick is actually worth $1,000? If you could redeem 10,000 Amex Membership Rewards points for that same stick would you actually believe that you’re getting 10 cents/point of value from your points?

Probably not.

If you wouldn’t pay $1,000 for the stick on eBay it, by definition, is not worth $1,000 to you. If it’s not worth $1,000 to you then you wouldn’t be getting 10 cents/point of value out of your Amex points if you redeemed them for the same stick.

Hopefully that all sounds reasonably sensible so far…..but some people have trouble with the same concept when it comes to airfares or hotel rates.

Here’s an extract from a comments section I saw on another blog recently that illustrates the point I’m trying to make:

a screenshot of a social media post

The person making the highlighted comment appears to believe that he/she is getting 21 cents/point of value out of their Amex Membership Rewards balance because they redeemed those points for seats that cost $20,000 each.

I don’t believe that how it works.

Because ANA is pricing up its seats at $20,000 each doesn’t mean that he/she is getting $20,000 worth of value from the points. Is it a great redemption? Absolutely it is…it’s a fantastic way to use some Amex points and it’s always great to hear about people being able to use their points this way…but that still doesn’t mean that 21 cents/point of value was obtained on this redemption.

I’m not suggesting that the value of something is equal to what someone can afford – clearly that would be incorrect – but what I am trying to say is that just because something is marked up at a certain price doesn’t mean that that’s what it’s worth….and value is based on worth, not cost.

Here’s An Example From My Own Travels

I recently booked a one way Business Class award on the new Qantas Dreamliner flying between Melbourne and Sydney and the cost was 9,000 Avios and $13.95 in fees.

Qantas 787 Business ClassQantas 787 Dreamliner Business Class

Had I paid in cash, the same flight would have set me back approximately $635 meaning that my 9,000 Avios saved me around $621…but I’m not about to claim that I got 7 cents of value out of each Avios point.

Why? Because a 1 hour flight between Melbourne and Sydney isn’t worth $621 to me so I didn’t actually get $621 of value out of my redemption.

Why I’m Bringing This Up

Most points are worth less now than they were a few years ago and they’ll almost certainly be worth even less in years to come. As airlines increase the cost of award travel, add on yet more surcharges and restrict the availability of awards the value of miles/points will decrease….and it’s important to keep this in mind when considering the various offers that appear on a regular basis.

a plane flying in the skyUnderstanding the real value you’re getting from your balances is key to not overpaying in miles/points sales

If someone reads a comment like the one I’ve highlighted (or a similar one elsewhere) and gets the idea that points can be worth 21 cents each, then there’s a chance that they’ll end up over valuing a currency and therefore overpaying in one of the many “sales” that airlines and hotels offer on their points.

I really don’t want that to happen.

How I Value My Miles/Points

I’ve already given a detailed explanation of how I value American Airlines miles so, as I value most miles/points in a similar way, I’m not going to go into great detail here again…but here’s a brief summary:

  • I consider what sort of redemptions I’d like to book with my miles/points
  • I check out the cash cost of the flights/rooms that those redemptions would buy me
  • I consider the value I assign to the miles/points I would earn from making a cash booking over an award booking
  • I pull all those numbers together to get an approximate valuation.

When thinking about how much value I get from my redemptions I confess to using a very unscientific method – I consider how much the flight or room I’m booking is actually worth to me and I use that to work out the value I’ve received from the points/miles I’ve used. It may be unscientific but it’s reasonable.

As an example, the JAL First Class redemption I booked between Tokyo and London earlier this year set me back 70,000 AAdvantage miles (booked pre-devaluation) and $22.60 in taxes and, to me, a one-way First Class flight over that kind of distance is probably worth around $2,000.

a seat in an airplaneJAL 777-300ER First Class

That means that I feel like I got around 2.8 cents of value for every AAdvantage mile I spent.

I could have said that a one-way JAL First Class fare between Tokyo and London regularly costs over $16,000 and used that number for my calculation instead….

a screenshot of a screen

….but that would just give me an irrelevant number as the end result as it means absolutely nothing.

Bottom Line

I’m not here to tell people how to value their miles and points as that can be pretty subjective (as I mentioned earlier), but there are a right ways and wrong ways of considering how much value you’re getting out of your miles and points and basing that value purely on how much an airline or hotel wishes to charge you is, to my mind, incorrect.