The Value of a Point
Jul 1, 2003 | 12:50 pm
#16
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Join Date: May 1998
Location: Reno, NV (RNO)
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Statistician:
MKE-MR is correct. There are two groups of people... One is for those that have few enough miles that they need to place a value on what they have in order to evaluate a decision of whether to pay for a trip they intend to make with miles or $$. Those people should probably evaluate using the "what they would have otherwise paid" rule, which I believe is somewhere around 1.25 cents for breakeven. The other group is for those who accumulate so many miles so fast that they can spend them all on whatever they please. For those people, there is no point in attributing a value because they should go wherever they want and always fly first class. Those folks have earned that situation by spending the time on the aircraft to earn those volumes of points, so it becomes more of a scenario of being a truly elite customer instead of obtaining a currency to be evaluated.</font>
MKE-MR is correct. There are two groups of people... One is for those that have few enough miles that they need to place a value on what they have in order to evaluate a decision of whether to pay for a trip they intend to make with miles or $$. Those people should probably evaluate using the "what they would have otherwise paid" rule, which I believe is somewhere around 1.25 cents for breakeven. The other group is for those who accumulate so many miles so fast that they can spend them all on whatever they please. For those people, there is no point in attributing a value because they should go wherever they want and always fly first class. Those folks have earned that situation by spending the time on the aircraft to earn those volumes of points, so it becomes more of a scenario of being a truly elite customer instead of obtaining a currency to be evaluated.</font>
Most of the people who don't travel regularly and have relatively few miles are the ones who don't assign a particular value to their miles. These folks target an award level, redeem when they get there, and pay little/no attention to what the cash cost of that travel might be. Thus, you see people redeeming miles for coach tickets to Orlando or on the US Airways Shuttle from DC to NYC, tickets that could usually be purchased for well under $200 each.
I have more than enough miles (around 3 million) yet don't fly first class on all my award trips. Yes, I am going FC to Hawaii in October on award tickets. But I flew on a coach award ticket to Bismarck last August. For shorter flights, I feel you get better value redeeming for the coach awards.
For what it's worth, I value my miles at about 1.32 cents each. That doesn't mean I don't get more "value" for them; I frequently do. That figure represents my hurdle rate, i.e., if I can buy a ticket for less than that I will rather than use miles for an award.
Jul 1, 2003 | 2:06 pm
#17
Original Poster
Join Date: Jun 2003
Location: Ann Arbor, MI, USA
Posts: 6
Might as well go back to the concept that it's all individual and that the critical point is "how much you would have otherwise personally been willing to pay for the same trip". That's the simplest way to evaluate, and it varies from person to person.
Factors that go into this include your current personal financial situation, your current point balance, your rate of incoming points, how close you are to the next status level, your willingness to take funky flights to spend less $$ or earn more points, the premium you're personally willing to pay for FC or BC seats, etc.
In my case, I used to travel a lot for business, but recently got out of consulting and mostly travel for vacations and holidays a few times a year. I have a few hundred thousand miles, but am not earning many now. I'm doing ok financially, but not so well that I wouldn't rather spend the points when I can get a "good deal". I started this discussion to try to define the threshold for a "good deal", and I think I'm comfortable that for me, that's somewhere around $0.0125.
I suspect that the majority of people out there would evaluate their threshold somewhere in the 1 - 1.5 cent range when pushed to not evaluate their FC seats at the airlines' rates. The exceptions are:
1 People who fly so infrequently that they're better off using the points as soon as they have enough (MileKing's scenario). For these people, point value is not very relevant.
2 People who earn points so fast on business travel that they can't spend them on their demand for personal travel fast enough. For these people, point value is not relevant. This was the case I was tring to make that MileKing disagreed with, but I think it's still true if your point balance and earning rate exceed your personal demand by enough.
3 People who's point balance and earning rate are out of proportion to their financial balance and earning rate. For these people, point value may still be relevant, but not evaluated at the same exchange rate. For example, if you have 500,000 miles and you get fired, you're likely to spend your points on any necessary personal travel where the cash alternative isn't super-cheap (say, a rate of 0.6 cents/point) until you can get a new job.
I guess point #3 may also explain the variation among people who aren't at extremes either (those that would evaluate between 1 cent and 1.5 cents). My point balance is a bit high for my financial standing, so I might be willing to take a flight at 1.15 cents at the moment.
MileKing wants 1.32 even though he has 3 million miles, so clearly he's loaded financially.
Kidding.
Factors that go into this include your current personal financial situation, your current point balance, your rate of incoming points, how close you are to the next status level, your willingness to take funky flights to spend less $$ or earn more points, the premium you're personally willing to pay for FC or BC seats, etc.
In my case, I used to travel a lot for business, but recently got out of consulting and mostly travel for vacations and holidays a few times a year. I have a few hundred thousand miles, but am not earning many now. I'm doing ok financially, but not so well that I wouldn't rather spend the points when I can get a "good deal". I started this discussion to try to define the threshold for a "good deal", and I think I'm comfortable that for me, that's somewhere around $0.0125.
I suspect that the majority of people out there would evaluate their threshold somewhere in the 1 - 1.5 cent range when pushed to not evaluate their FC seats at the airlines' rates. The exceptions are:
1 People who fly so infrequently that they're better off using the points as soon as they have enough (MileKing's scenario). For these people, point value is not very relevant.
2 People who earn points so fast on business travel that they can't spend them on their demand for personal travel fast enough. For these people, point value is not relevant. This was the case I was tring to make that MileKing disagreed with, but I think it's still true if your point balance and earning rate exceed your personal demand by enough.
3 People who's point balance and earning rate are out of proportion to their financial balance and earning rate. For these people, point value may still be relevant, but not evaluated at the same exchange rate. For example, if you have 500,000 miles and you get fired, you're likely to spend your points on any necessary personal travel where the cash alternative isn't super-cheap (say, a rate of 0.6 cents/point) until you can get a new job.
I guess point #3 may also explain the variation among people who aren't at extremes either (those that would evaluate between 1 cent and 1.5 cents). My point balance is a bit high for my financial standing, so I might be willing to take a flight at 1.15 cents at the moment.
MileKing wants 1.32 even though he has 3 million miles, so clearly he's loaded financially.
Kidding.
Jul 2, 2003 | 10:27 am
#19
Original Poster
Join Date: Jun 2003
Location: Ann Arbor, MI, USA
Posts: 6
Sergio - My point is that if you are actually able to book that flight to Hawaii for 30,000 points, you got a great deal because you're right that at 1.25 cents per mile, that would be fantastic. I have found (at least with NWA) that unless I booked it during a full moon immediately after midnight 12 months in advance, I couldn't get the flight. For NWA, that means doubling their 35,000 rate to 70,000 to get the "rulebuster" award. That works out to $875, which seems like a reasonable break-even point to me.
This is before taking into account the additional costs that I pasted earlier from PGARY's website. If you account for the opportunity cost of miles you could have earned and subtract any transaction fees from your savings, the breakeven for 70,000 is more like $950.
If other airlines are more generous in how available they make their seats and/or have lower point costs to book flights, then it definitely makes sense to evaluate your points differently on those airlines. If you cna regularly book flights NYC to Hawaii for 30,000 points, then those points are worth more, and I'd like to start flying that airline. If it's hard to get those seats, though, then I'd evaluate the points at 1.25 cents and be very excited about the deal I got if I went to Hawaii fo 30,000 points in the same manner that I would be excited if I got a $300 fare.
This is before taking into account the additional costs that I pasted earlier from PGARY's website. If you account for the opportunity cost of miles you could have earned and subtract any transaction fees from your savings, the breakeven for 70,000 is more like $950.
If other airlines are more generous in how available they make their seats and/or have lower point costs to book flights, then it definitely makes sense to evaluate your points differently on those airlines. If you cna regularly book flights NYC to Hawaii for 30,000 points, then those points are worth more, and I'd like to start flying that airline. If it's hard to get those seats, though, then I'd evaluate the points at 1.25 cents and be very excited about the deal I got if I went to Hawaii fo 30,000 points in the same manner that I would be excited if I got a $300 fare.