I am relatively new to Flyer Talk and from what I have read, there is mathematical way to figure out what a "good deal" is when redeeming points for rewards. I just have not totally understood it so far... any help?

I have credit cards points I can use for many rewards, including travel

I have hotel points I can use, but that's for use only at Mariott properties

How do I know if redeeming points is a smart thing, to get maximum value for points that I have earned?

I am fortunate that I can use $$ to pay for tickets if necessary, so I don't have to use points and can wait for the best value.. I just don't know how to calculate that value.. please help.....

Each person has a different definition of what a good deal actually is.

For revenue tickets (where you're paying cash and earning miles), most people calculate cents per elite qualification mile, while others use cents per redeemable (award) mile. Elite qualification miles (EQMs) cannot be used for awards, but they do count towards elite status. Personally, I think a good deal is under 5 cents per EQM, but others are more ambitious and looks for fares under 3 cents per EQM or even lower.

For award tickets, you can find the price of the same revenue ticket and then count how many cents you are "earning" per mile that you spend on the award (or hotel night). Let's say you spend 25K miles on a plane ticket IAH-ANC that normally runs $1000, so you are getting 4 cents per redeemable mile. You will also have to pay the taxes even when using miles, so watch out for those in your calculations. The best redemptions tend to be on first class tickets though. It is important to note that some people dislike this calculation because they would never buy the cash ticket in the first place and are only doing so because they can get it for "free" using miles.

This question could bring you some pretty complex answers and formulas. Some FTers are very analytical.

I'm simple-minded, and, like you, I use Marriott and AA as my main programs.

Bottom line: a "good deal" is a redemption that pleases you. And that will largely depend on your goals and travel patterns.

With AA: I tend to use my AA miles for international travel in business class. My wife and I usually take one major international vacation per year, and we find business class seats so much more comfortable for these long flights. With AA, I'm trying to redeem at more than 2 cents per mile (the higher the redemption value, the better). The cost of the ticket divided by the number of miles needed to obtain that ticket gives you the cost per mile. For simplicity, I'll use the ticket cost that I see on aa.com or a search engine such as kayak.com. (Some will disagree with that, and say that tickets can be purchased in other, less expensive ways. And if you are able to do that, the cost per mile will differ.)

My job requires that I plan my vacations more than 3 months in advance. So I am usually setting up these major vacations well in advance. As an example, early this year we traveled to South America. A round trip J class ticket to my destination in S. America on AA "costs" 100,000 miles. It was priced at $5500 on aa.com at the time I made my reservation. That's 5.5 cents per mile. (Just remember that I might have been able to buy that ticket for less through other sources, or it might have gotten less expensive as my travel date got closer, so 5.5 cents per mile may be an overvaluation.)

Europe would be another example. Check the cost of a business class seat from the USA to Europe on kayak.com, then divide by the number of miles needed. The last time I searched, round trip business class seats to Europe from my base in Southern California were running between $3500-4000. At 100,000 AA miles for a J class ticket, that's 3.5 to 4 cents per mile.

So I consider a J class ticket to an international destination to be a "good deal." When flying domestically within the USA, I usually pay with cash and sit in coach.

Marriott: the game with Marriott is somewhat different. And it has recently gotten a bit more difficult. Again, if you look at my travel goals (one major international vacation each year), I think you will see that I prefer to redeem my Marriott reward points at international destinations. You generally get better value (in terms of points per night) with longer stays (5-7 nights). So I tend to redeem in places where I will have plenty to see and do for 5-7 days, which means destinations such as Paris, Rome, London, etc. Example: this year we stayed at the Marriott Plaza in Buenos Aires.

The best value when redeeming with Marriott is to use a Marriott travel package. That requires lots of hotel points. Travel packages bundle a hotel stay with additional airline miles that you can send to your favorite frequent flyer program. Unfortunately, Marriott and AA are ending their association as of June 30, 2010. Since I use AA as my main air carrier, this makes it harder, because I will no longer be able to redeem a Marriott travel package and get additional AA miles after that date.

Finally, back to simple things. I'm the one who makes all of our vacation plans. We're usually away for about 3 weeks on these trips, so there is a lot of planning. If my wife is happy with what I have set up, and if she enjoys the vacation, then I also think that I've gotten good value for my miles/points.

I have one more suggestion for you. Although I like Marriott, they do not have hotels in some locations I want to visit. You may want to consider adding a second hotel program. I use Starwood to fill in the gaps. Most of my Starwood points come from the Starwood AmEx credit card.

Marriott points don't only need to be used at Marriott properties. You can also trade them in for miles. Using travel pakcages, you get miles plus reward certificates you can use at Marriott hotels.

There is value in flexibility too. In that regard, I really like starwood points. They can be used for hotel stays, which is a great value, and also can be exchanged to a number of different airlines.

As for the value of points, it's tough to say. I wouldn't use a starwood point for less than 2.5 cents per point. At the same time, I have 50k CO miles that are sitting there gathering dust that I got pursuant to a promo. I don't accumulate CO miles to the point where I'd ever get a great reward and starwood are a terrible value transferring to CO. So, if I find something good to do with those that I need, I wouldn't necessarily hold out for 2.5 cents per mile.

One hidden cost of using miles is that when you do, you typically don't earn miles on the award. So, for example say you redeem 40k USAir miles for a domestic cross country trip trip during a double mile promotion. If it was a $700 ticket, maybe it seems like you've gotten decent value. But, when you consider that you've not only used 40,000 miles, but also foregone the opportunity to earn 10,000 EQM, just to use miles that could have been used on a star alliance partner at a rate far better than 2 cpm, it starts to look like a bad deal. That's just an example of what goes into it.

But all that said, there're so many variables. A few months ago, I cashed in 240k US miles to fly 4 people to Maui in coach over the holidays. The cash price of the tickets would have been about $3900. That's a ratio that would horrify many people on FT, when you consider those miles could have been used on a star alliance partner for some pretty spectacular trips in J or F, and we forego about 25k EQM miles by doing it as a reward. But all that said, I had a reward hotel cert that I needed to use and there was availability and I have a cert to use for a significant discount on a rental car. So, it's a trip that's close to free and that we wouldn't have done without using the miles. Even at far less than 2 cpm, it made sense for us at this time. Everyone's calculus on this differs.

Everyone has their own way of valuing miles. I'm sure that some here would see a $25K fare for JFK-NRT and redeem 80,000 miles just to say they got 31 cents/mile of value out of an award. Ignoring the fact that they never really would have spend $25K on the ticket and wasted 80K miles.

I have a lower threshold - I've been earning miles faster than I can use them for over a decade now - 1M+ in Marriott, 600K at Starwood, so I use them for almost any vacation the family takes (no, not stupid things like $99 cat 5 rooms), so I tend to redeem at a lower value (10K/night vs. $250 is typical).

Every situation is unique - your balance, earning rate, outlook on future valuation, etc., all factor in.

On your basic question, "how to calculate that value" - for the above scenario, I'm spending 10,000 points instead of spending $280 or so (with taxes, fees, etc.) so the points are worth (280.00/10000=) 2.8 cents each

My formula is simple:

1 cent/point = bad deal
2 cents/point = great deal

This assumes one point per dollar spent. So--for instance--I don't feel so bad about TYP giving me max 1 cent/point if I get 3-5 points per dollar spent on my credit card. (Unfortunately these deals are getting harder to find.)

Also I wouldn't use this calculation to buy tickets that wouldn't normally buy (such as overpriced FC tickets). A waste of miles is the same thing as a waste of money IMO.

There are much simpler approaches, but here is a comprehensive approach.

Step 1: Consider what programs you use and hypothetical examples of how you might use points in those programs.

E.g.,
Round-the-world airline awards
International First Class Airfare
Domestic Business Travel
Flight upgrades
Last-minute travel
Instances when you want refundable tickets
Unusually Expensive Flight Routes (e.g., to exotic islands)
Transfer miles to another program (e.g., AA to Hilton)
Week Long Stays at Resorts
Regular Hotel Stays in High-end properties
Regular Hotel Stays in Low-end properties
Gifts or trades of any of the above for friends and family

Step 2: Ask yourself, which of the awards am I likely to use? E.g., do I want to travel internationally? Do I want to fly in business class? How likely am I to be able to use an award when I want it? (This last question is tricky -- it requires lots of experience, research and some assumptions about the prospects of future devaluation of your program points).

So you narrow the list of potential awards to what you think you might realistically use.

Step 3: Ask yourself "For realistic scenarios, what would I be willing to pay in cash for those items v. what do they cost in miles or points"?

Step 4: Take What you are willing to pay and divide it by the number of miles required. That gives you an (initial) nominal CPM; typically this is $.01 to $.03 for most programs.

Step 5: Adjust the nominal CPM downward for the following factors:
a) Chances of miles being devalued, expired or disintegrated before use.
b) Chances that you might never use the miles (e.g., due to death).
C) Miles don't earn interest and can't be invested or used for collateral like money can.
d) Purchases made with miles aren't tax-deductible even if used for business or charity.
e) Miles awards don't earn miles.
g) Awards in many programs don't get elite upgrade even if you have status (e.g., hotel rooms typically do get upgrades, but airline seats typically don't).
h) When you pay with cash you get points on your credit card
i) Hassle of finding award routes
j) FEES, FEES, FEES associated with awards in some programs

Remember, to factor in that the award you want might not be available, especially if you need to redeem the award for multiple people.

Step 6: Adjust the nominal CPM upward for the following:

a) Changes and cancellations to an award airline ticket are often less expensive than changes to a regular ticket.

Step 6: So, you come up with your set of real CPMs typically ($.005 to $.025).

Then, on a trip-by-trip basis, you ask yourself:
a) What would it cost me if I used points?
b) What would this trip cost me in cash if I didn't use points?


Step 7: You continually revise your numbers as you get new data based upon your experiences, experiences of others and hypothetical scenario testing.

In practice, you will come up with many interesting applications, such as:

"Wow, this is a great deal on an award redemption, but I think I am going to just stay at a friend's house instead."

"Wow, I am not spending my miles fast enough, I need to lower my CPM thresholds"

"Hmm, what is the added value for me of staying at the Mariott for this trip versus a random 4-star hotel in the vicinity that I would get on Priceline?"

"Wow, I need to fly international first class on an award ticket, I am going to plan a trip with that as one of my goals"

I redeemed a F award to Europe for my parents. The awards cost 270,000 miles, the equivalent tickets priced at $34K. There is no way I'd buy that ticket with money, so did I really get $.126/mile? Maybe. It's a great gift to my parents that is only available because of miles, so it's priceless in a way and of little equivalent value in another.

The ultimate value of miles is being able to do things otherwise unable to do.

Couldn't have said it better myself. I'd never have paid for the F cabin, but I had always wanted to ride there once.

Now if the original poster's main goal is simply to save money on travel s/he'd do anyway, you just figure out what each mile cost you (from 'free' for business travel you'd have done anyway, to cents-per-mile for mileage runs), multiply by the number of miles needed for a given trip, and see how that compares to the cash price.

You really have to take into consideration that you would have earned miles if you had bought that ticket at the price you find on AA.com. A trip from the US to South American might have given you around 10,000 miles in your AAdvantage account, so you might be really giving up 110,000 miles, not just 100,000 miles for your ticket. Of course, the number of miles earned depends on elite status, promotions, etc. Nonetheless, dividing $5,500 by 110,000 miles works to to 5.0 cents per mile instead of 5.5 centers per mile. Although it gets difficult to quantify, you are also giving up elite qualifying miles that could qualify you for elite status for next year, life-time miles that could qualify you for retirement years, miles that might give you a year end bonus, etc. The complete calculation depends heavily on individual circumstances.

Thanks to all for the replies.... I do appreciate learning from you all.

There's one more factor that hasn't been mentioned here: Some flights are better deals when purchased with cash, others when purchased with miles. That's why you want to have both cash and miles available. For example, I just purchased tickets for 4 family members on Delta, roundtrip Saipan to Manila in coach for 20,000 miles each. The same flights purchased with cash are about $1000 each, and the alternate flight on Continental is about $700 each. If I didn't have miles, I'd have to spend a lot of cash.

On the other hand, sometimes the price of a ticket is so low that it would be ridiculous to waste 20,000 or 25,000 miles on it. A good example would be a flight from SFO to LAX, which can be purchased for less than $200.

Miles are good for flights with long stays, for example, sending one of the kids away for a semester at school far away. Most lower priced tickets have maximum stay restrictions while with miles the tickets are good for a year. If you play the "free stopover" on international routes correctly, you can often get an extra trip by stopping at home and then "continuing" to another destination later.

I can almost always get more than 2 cents per mile on tickets I would have purchased anyway, so I use that as a basic rule of thumb. Very often you can get more value than that, but considering the limitations, time value, etc. I think this is pretty close, at least IME.

If you are so inclined, there's a way to program a formula into a spreadsheet to compare flights.

P = the price of the ticket
M = the miles you would earn from flying on a paid ticket
F = the frequent flyer miles that would be required to purchase the ticket
V = the value you place on each frequent flyer mile

The "adjusted cost" of a paid ticket is P - (M*V)
The "dollar equivalent" of a mileage ticket is: F*V

For example, a flight from NRT to SFO is 5124 miles, as a platinum a total of 20498 miles earned on the round-trip, next week the cost is about $1000.

So, adjusted cost, using 2 cents for mile value, adjusted value is 1000 - (.02*20498) or 1000 - 409.96, or $590.04.

With miles (assuming low award available) it would be 60,000 * .02 or $1200.

So, if you value the miles at 2 cents, even in the unlikely event that you can find a low award, you should buy this ticket with cash. This is true even without considering the value of making progress toward your elite qualification.

You can program your spreadsheet and just plug in the values to make comparisons. It probably seems like a crazy thing to most people, but I find it helpful.

ajnaro is of course correct. Now, here's another thing to take into consideration. Miles/points are a depreciating asset. These programs are not static, and do undergo periodic devaluations. So, if you are sitting on a large enough pile of miles to redeem for an award, are you better off to use and burn those miles now or keep them for a rainy day (and risk devaluation)? I'm in the "earn and burn" camp. Once I have enough miles/points for an award, I start planning my next trip....

There's also a risk of the airline going bankrupt completely and having the miles completely lose their value. I have a friend that saved his miles for a long time for a trip to Hawaii, but the airline folded and he ended up with nothing. If you don't plan to use the miles, what is the point?

On the other hand, I like to carry enough of a balance so that I can take advantage of a trip that is a better deal with miles. Some trips are very expensive, but can be had with a low level frequent flyer award ticket. If your account is zeroed out, you don't have the option to buy with miles when you need to.