Monday, June 28, 2010

Questioning the Value of Articles That Purport to Tell You the Value of Miles & Points

We recently saw a lengthy blog article discussing the “value” of frequent-flyer miles and hotel points. In general, the author postulated that miles/points were mostly worth 1 to 2 cents per mile/point. And that may be realistic for the redemption of points (allow me to just call them all “points” from now on).

Every so often, a travel writer/blogger has to take on the topic of value of miles. Print magazines, credit-card websites, travel blogs – every one needs a point-value article every so often. And all of them miss what we think is a very important consideration – what is the value based on the cost to acquire the point? Two examples:

The writer mentioned above suggests that Delta SkyMiles are worth 1 cent each. But if my cost to acquire 35,000 miles (as I did with a recent credit-card promotion) is, let’s say, an $85 annual fee (my card was actually fee-free the first year), then those points would be worth 2.4 cents each.

In the article, Hilton HHonors points are valued at .7 cents each. But virtually all our Hilton points are acquired through Hilton American Express card spending, and we only use that credit card for the purchase categories (gas, groceries, a few others) where we receive 6 points per dollar spent. Thus, we would value our Hilton points at 4.2 cents each.

Of course, all the equations and comparisons are meaningless. Because each individual situation and every person is so different. Do I want to use my miles for upgrades? Do I want a basic 25,000-mile ticket to see grandma next summer? Are my points acquired through hotel stays or by credit-card spending? What are my travel patterns? (Maybe I take more driving vacations, and thus lodging/hotels are more valuable than air miles.)

Finally, outside of accruing miles by flying or points from hotel stays, the other most-frequent method of accumulating points is via credit-card spending. And if that’s your case, maybe a cash-back credit card makes a whole lot more sense than an airline or hotel card. If you pay your credit-card balances in full every month, there’s no reason you shouldn’t be using some form of reward credit card for all your spending. And there are dozens of cash-back cards – 1% reward is considered the minimum, and by reading some of our older posts you shouldn’t have any problem getting significantly better than that.

We haven’t kept up with all the credit-card news lately, but, for example, we do know that:
1) Capital One offers cards with 1% rewards (and no foreign-transaction fees).
2) We have a Schwab card (which has been apparently discontinued, but could return) that offers 2% cash-back on all purchases.
3) Even the emasculated Chase Freedom card offers up to 5% cash back on certain categories of spending during certain months of the year (as does the Discover card).
4) The Merrill+ visa offers airline tickets (booked through them) for 25,000 points for tickets “up to $500 in value,” which would therefore be as much as 2 points value (and maybe even a bit more, as you can earn actual butt-in-seat frequent-flyer miles on the Merrill reward ticket).

So in general we give our usual thumbs-down to any attempt to calculate the “value” of miles – we wouldn’t want you to follow blindly even our suggestions. What’s important is the intangible value of your points. Do they allow you to travel more often? To see more varied places in the world? To save money for non-travel spending?

Take advantage of every opportunity to earn miles/points/cash-back, but spend less time worrying if the value of your points is less than someone else’s.