While I do enjoy the thrill of discovery that comes from hours of playing with a spreadsheet on a Saturday night (Why no, I didn’t get invited to a lot of parties in college, now that you mention it), it’s just about time to wrap up our investigation of Miles Valuation, at least for now. But before I move on, there are a few final things I’d like to talk about. If you like, picture me reclining in my wing-backed chair and drawing gentle breaths from my pipe.
No discussion of points valuation is done until we talk about the transferable points programs: American Express Membership Rewards, Chase Ultimate Rewards, and Starwood Preferred Guest. These are some of the most valuable points out there, because they give you that precious, precious flexibility that the legacy airline programs lack. If you’ve got 100,000 AAdvantage miles, and you want to snag a seat on a Delta plane, well, friend, you might as well be trying to get an award ticket on Air North Korea. But if you’ve got 100,000 Starwood points, then you can pick from one of 31 airline transfer partners – it’s a Baskin-Robbins of flying options!
However, it’s tough to come up with an objective measure for flexibility. Intuitively, I know that I’d rather have 1,000 Ultimate Rewards points than 1,000 United MileagePlus miles, but I couldn’t say how much that would be worth to me. The flexible points may give you options, but options are difficult things to price. Two mathematician/economists figured out how to price financial options back in 1973, and they won the Nobel Prize for it. While I’m no slouch math-wise, as Dirty Harry said, “A man’s got to know his limitations.” Let’s keep this simple.
I’m going to use the maximum possible value I could get by transferring the flexible points to one of their partners. For example, Ultimate Rewards can be transferred to United Airlines, British Airways, or Korean Air. Of those, the most valuable option (that I’ve calculated) is a transfer to United, so I’ll assign Ultimate Rewards a value of 2.94 cents. American Express Membership Rewards, which has definitely seen better days (cue sad trombone), gets a value per point of 1.67 cents – the value of a British Airways Avios point. At least the value of a MR point does increase when AmEx runs one of their periodic transfer bonuses.
That brings us to the Big Kahuna of Points Programs, Starwood Preferred Guest. Not only do you have a rainbow of airline transfer options with Starwood, you also get a 25% bonus – so if you transfer 20,000 SPG points to, say, American Airlines, then Starwood will actually send 25,000 miles to your AAdvantage account. So I’m giving SPG points a whopping value of 3.7 cents apiece – that’s a transfer to US Airways, plus a 25% bonus. It’s worth remembering that periodically, US Airways runs a 50% bonus on incoming transfers from hotel programs, making a SPG->US Air transfer come out to an amazing 5.55 cents per mile!
And now for a peek into the future. I’ll conclude with some observations on Fixed-Value Reward Programs. The very words send a shudder down the spines of points hustlers like me; it sometimes seems that the Days of Wine and Roses are coming to an end. The “value” airlines, like Southwest and JetBlue, have already moved to fixed-value reward programs, where the number of points you need to redeem for a free ticket is directly proportional to the price of said ticket. It’s only a matter of time until the Biggies make the switch as well – there are swirling rumors Delta will cross the Revenue Rubicon sometime this year. While that may not be that big of a deal to 95% of the flying population, it has the potential to be absolutely horrible to aspirational ticket folks. Simple math explains why: a business class ticket may cost twice as much as an Economy ticket in miles, but it can be five times as expensive in cashola. For first class, the discrepancy is even greater.
All I can do is summon my inner Knute Rockne and conclude with a few inspirational words. The airline industry is constantly trying to increase its revenue, and nothing they’ve come up with in the past forty years has been as wildly successful as frequent flyer programs, not even the recent fees bonanza. They face a real challenge when they look to tinker with their FF programs; one misstep could mean balance-sheet disaster for them. The programs are constantly changing, constantly evolving, but individual “hackers” like us have one eternal advantage: nimbleness. Every time a program makes a change, they expose a new opportunity. Our tactics may need to change from year to year, but we can maneuver a lot faster than they can. It’s a dogfight between a squadron of F-22’s and a zeppelin. I like our chances.
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