Reward Miles and Points Valuation
Trying to decide how to top off the extra 5,000 miles I needed to attain a companion pass I tried to do some evaluation of valuations. I looked around to see different ways to transfer miles to Southwest that will count toward the companion pass. I have some Ultimate Reward points from Chase, which transfer to Southwest at a 1 to 1 ratio, but do not count toward the Companion Pass. However, transfers from Hyatt to Southwest do count, but the transfers from Hyatt to Southwest are at a rate of 10,000 Hyatt points to 4,800 Southwest points. I would transfer 10,000 Chase Ultimate Rewards to Hyatt and then get 4,800 points. How could I even consider such? Afterall Chase Ultimate Rewards are worth 2 cents per mile and with this valuation I would be getting only 48% of the possible value. A poor value proposition by any standards. This got me thinking, what is a point worth to me?
Ultimately I did not decide to go this route, but it did make me further examine valuations that I have seen on other blogs. The most baffling valuation to me comes from Starwood Preferred Guest points and their SPG AMEX card with a 25,000 point bonus. It seems like many bloggers push its benefits and some say that it’s worth 2 cents per point. Making the sign up bonus worth at least $500. I have not signed up for this card, because it does not seem very valuable to me. Many people argue that you take the retail price of a room and divide it by the number of points needed and you come up with value. Thus, if you spend the night in a room that is normally $900 per night and you spend 30,000 points you are getting 3 cents per mile of value! I wholeheartedly disagree with this kind of valuation and reject the premise entirely. Simple economics suggests that something is only worth what someone would pay for it. I would never actually pay $900 to stay at any hotel so believing I got $900 worth of value from 30,000 points is a bit silly. What is my opportunity cost of using these points? Are there other options that would offer more nights? I would be much happier staying 5 nights in a 5,000 point per night room that usually costs $100 per night even though my value is 2 cents per point, I am much happier.
Another favorite move of bloggers is to overvalue a first class award ticket. I understand the desire to have bigger seats and more leg room on a plane. I would also love to fly first class if anyone is interested in proving to me why it is worth doing. However, I have read many accounts of trips stating, “I used 125,000 miles to fly first class roundtrip on a flight that would have cost $7,500 I maximized value by getting 6 cents per mile!” Certainly telling your friends that you took a $7,500 flight for free is remarkable. Again, this kind of valuation ignores the opportunity cost. Let’s assume that instead you could book an international flight in coach for 50,000 points, but that flight only costs $1,500 normally this is only 3 cents per mile, which is pedestrian compared to the first class flight. My first thought is that a plane is for transportation. The goal is to get from point A to point B, if I want to sit in a comfortable chair I would just stay home. I would never pay the $6,000 fare difference to ride first class so why would I sacrifice 75,000 more points? What is my opportunity cost of doing this? Instead of one first class flight I could (assuming award availability) invite a friend along and pay their way and still have 25,000 points to spare. Many people use Chase Ultimate Rewards to top off their travel, but these 25,000 Ultimate Reward points are minimally worth $250 as a statement credit. Which sounds like the better scenario, flying alone across the ocean or flying with a friend and arriving with $250 of free money to start?
When it’s all said and done only you can decide what is important to you. I like to get more value out of my miles by purchasing more happiness and creating more memories. Sure, I would probably love 1 night at the W. in Washington, D.C., but if I could get a week’s worth of hotel stays instead I am doing that.