How To Value Your Airline Miles And Hotel Points – An Introduction To Valuation

by Jason on April 4, 2012

in Ultimate Rewards,Valuation

Value is a funny word. What do you VALUE? And exactly HOW do you go about assigning value? This can be a tricky process and very misleading if you’re not careful. Like most things in life, airline miles and hotel points can be assigned an objective AND a subjective value. That means you can usually calculate an EXACT objective value and you can also estimate a subjective value. The objective value is something all of us can easily agree on. But the subjective value is usually very specific to YOU.

A Basic Example of Points Valuation

Let’s start with a very simple example. Lately, I’m loving Chase Ultimate Rewards, so I’ll use their points system as an example. When you sign up for the Chase Ink Bold business card OR the Chase Sapphire Preferred personal card, you get a 50,000 point bonus after you reach the minimum spending threshold. So once you have those 50,000 points in your Chase Ultimate Rewards account, how much are those points worth?

The Objective Value of Your Points
To calculate the objective value of your points, you’ll need to determine a baseline. In other words, how much value could most people get with the same 50,000 points in their account too. For Ultimate Rewards, that’s an easy one to figure out since Chase allows you to use your points as cash to book hotels, flights, and rental cars via their online travel booking engine. For Chase, each of your points is worth $0.0125 (or 1.25 cents each) for booking travel.

So the objective value of 50,000 Ultimate Rewards points is $625 travel cash.

That means virtually ANYONE who gets a new Chase Bank credit card with a 50,000 point Ultimate Rewards bonus is basically getting a $625 travel voucher every time they get those 50,000 points.

And technically, since the Chase Sapphire Preferred gives a 7% annual dividend, we’re looking at 53,500 total points (that’s 50,000 x 7%) since Chase does in fact give a 7% bonus on the 50,000 point bonus. Pretty sweet, eh? So, really you’re looking at $668.75 in travel value. Chances are really really high that you will in fact use that $668.75 while you’re a Chase cardholder so getting that bonus is basically the same as getting $668.75 in free money.

The Subjective Value of Your Points
Now here’s where things get tricky. Calculating the subjective value of points can be ultra-confusing since everyone books travel differently and values travel experiences differently. But learning how to master this process of maximizing the TOTAL VALUE of your points is the real key to getting to the next level in travel points expertise.

Let’s say that instead of using those 50,000 points to get Chase’s $0.0125 per point cash value in travel booking, you decide to use those points for something bigger, something better! How about a business class flight? Or a luxury hotel room? Now we’re talking!

Since Chase is a 1:1 transfer partner of the United Mileage program, you could transfer your Ultimate Rewards points directly into your United MileagePlus account for no charge.

Here’s a screenshot I just took from inside my United account:

United one way business class ticket sfo nrt 60000 points

As you can see, I’ve loaded up an example of a booking I could make for a nonstop one-way flight from San Francisco (SFO) to Tokyo (NRT) in business class on United Airlines for 60,000 miles plus $77.50 in taxes and services fees. Look in the middle of that screen grab and you’ll see the full price I would have to pay to book that same exact ticket WITHOUT using miles — a whopping $3,919.70 for the same business class ticket. My total savings with my 60,000 Chase points is 3919.70 minus 77.50 which equals a total of $3,842.20 in savings.

That means my 60,000 Chase points could be valued at $3,842.20 total or $0.064 (about 6.5 cents) each. That’s MUCH higher than the Chase Ultimate Rewards value of $0.0125 cents per point.

Now, here’s one thing to keep in mind. A lot of people would never actually pay $3,842.20 for this one-way flight from SFO to NRT so saying that you’re getting almost $4,000 of travel value could be a bit misleading. In other words, it’s hard to say that 60,000 United miles “saved you” about four thousand bucks when you would never have actually spent that amount in the first place. More likely, you would have booked the economy class ticket at the $1,145.70 price (see the image) or something close to that.

Then again, some people definitely would pay $3800 or even more for business class tickets because they value them so much and they fly business class routinely, have plenty of cash, etc etc.

Obviously, we could even look at alternate routes, different airlines, discounted seats, status upgrades, and so many other factors. That’s why finding the TRUE VALUE of points and miles is pretty much impossible.

How You Value Points And Miles Depends on You

At the end of the day, valuation is a subjective thing and very hard to pin down. But there are a few critical lessons to be learned here…

1. It’s always best to stretch-out your points and miles for GREAT awards.
Sure, you could easily cash in your points by turning them into the most accessible award out there, but why do that when you can save, combine, and maximize your points for much higher value bookings. Regardless of how you value a one-way business class ticket to Japan, I’m sure we can all agree that the value is much greater than simply “throwing away” points and miles for a quick fix, an easy discount, or something else.

2. Focus on what YOU value to get the most bang for every point and every mile.
You can get top category rooms at the Park Hyatt Maldives for about 20,000-25,000 points. That’s worth a direct cash value of $1200 per night or more. That’s some MAJOR value. But if you’re not at all interested in going to the Maldives, then that value doesn’t translate for you.

3. Make sure you’re capitalizing on the points and miles you’re regularly earning.
Recently, a friend of mine asked me about my Chase Sapphire Preferred card. I explained all the great benefits of Ultimate Rewards cards and he got really excited. He then told me he had the Chase Southwest Visa and really loved earning points with it since he mostly flies Southwest. After I explained that the Sapphire Preferred card would allow him to CHOOSE whether to apply his credit card spending points to Southwest OR one of the many other transfer partners, he suddenly realized he was missing out on an opportunity. This is a classic example. Try to focus your regular earning strategy (credit card spending especially) on the best points & miles earning cards currently on the market.

Valuation will never be cut-and-dry. But that’s what makes the “Have Points Will Travel” lifestyle so much fun.

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{ 2 comments… read them below or add one }

Ron April 5, 2012 at 9:43 pm

Hi, Congrats on running a nice blog. I wish to point out a mistake in your points calculation.
“Look in the middle of that screen grab and you’ll see the full price I would have to pay to book that same exact ticket WITHOUT using miles — a whopping $3,919.70 for the same business class ticket. My total savings with my 60,000 Chase points is 3919.70 minus 77.50 which equals a total of $3,842.20 in savings.” >>> 60K miles and $77.50 is only for Economy Award Ticket and not Business class (I can prove from United Website). Hence the 1 point = 1.9 cents.


Jason April 6, 2012 at 2:27 am

@Ron – Thanks! Yes, but look carefully… I’m pricing this as a *one way* flight. Business class flights start at 60k each way for United MileagePlus awards.


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