Mile and point valuations
In the 30 months that this blog has been running, I've wondered (almost every day) about the value of hotel rewards points and airline miles. Not philosophically, but the value in actual Rupees or Dollars for each point / mile. I'm usually sitting on a smallish pile of points and miles, and though I redeem both of them reasonably often, the question is, am I getting enough value out of them. In fact, the bigger question is, should I exit the points and miles hobby if I'm not getting sufficient value out of the points and miles themselves.
However, it is good to know the value of a point or a mile at the time of its impending use, for the following reasons:
Etihad A330 business class seat
So I renewed my research efforts again, but this time I restricted myself to JP miles. I then applied what I thought was some detailed methodology (though in reality, it is just simple math), and even consulted a valuations expert on my approach. I won't bother you with the details (except to let you know that I've written a 7 page memo to myself, so that I don't forget how I went the valuation in the first place).
Let me illustrate with a simple example. Both the ITC Grand Central and the ITC Maratha are category 3 hotels, needing 7000 Starpoints for an award night. If I needed a room for tomorrow night, chances are that both hotels will have a similar level of pricing for a revenue booking. However, 6 months out (July 2016), the ITC Maratha sells for Rs 11,200++ a night whereas the ITC Grand Central sells for Rs 6,900++ a night. Right there, you have two different values for a Starpoint, and one may not be able to research each and every hotel and every airline sector separately, with point / mile values changing for each of them.
I always look forward to breakfast at Hornby's Pavilion at the ITC Grand Central Mumbai
At the same time, one has to consider the costs of (or efforts involved in) earning those 7000 Starpoints. For instance, earning Starpoints is just a little a bit easier for a Platinum member, when compared to a base category member.
There's also the earn-to-burn ratio that requires consideration. By earn-to-burn, I refer to the number of nights' of paid stay (or revenue flight tickets) that is needed to be able to earn an award night (or flight). JP miles required for redemption have been largely streamlined at around 1:11 or 1:12. However in the case of hotels, this added dimension of earn-to-burn ratio is not fixed. And in my book, the earn-to-burn ratio is a far better indicator of the value of benefits, especially if your main mode of earning points is by staying (as opposed to signup bonuses and the like).
With Air India Flying Returns, valuations are difficult because they (can) sell revenue tickets at unbelievably low fare buckets...benefits of being state-funded, I guess! Because of this, I have to use a different method for valuing AI Flying Returns miles, which will take more time.
I expect the valuations of points and miles to be generally consistent, unless there are significant changes to the program itself, overall costs of flights / hotel rooms, or category changes (in the case of hotels).
Starting now, I plan to publish these valuations periodically, so that readers are able to put a value to their stock of miles and points. I will also try and explain my reasons for changes from the previous valuation. I do hope readers find it useful.
While I'm an accounting major, I'm not a valuations expert. Neither do I claim to be the absolute fount of all points and miles knowledge. The valuations may not be perfect, but I'm hoping to refine them as we go along.
So if you think I'm missing something or should be considering another parameter or factor, please feel free to write in.
The second question is often automatically answered with an emphatic NO. With so many people being involved in or writing about the hobby and its benefits, there cannot be something so fundamentally wrong that I should quit the hobby. If that is the case, then to the first question - am I getting enough value from the points and miles that I've earned?
Why value points and miles in the first place?
I can't blame you if you're questioning my obsession with valuing points and miles. There's really no point in knowing how much value you're sitting on, in terms of unused points and miles, since the value of a point or mile keeps varying, on account of a variety of factors. I've explained these under The Variables below.However, it is good to know the value of a point or a mile at the time of its impending use, for the following reasons:
- to decide the more efficient approach between an award and a paid ticket/stay,
- to know what is the value of an exchange, in a transfer opportunity between programs,
- to decide if it is worth purchasing points/miles, to use towards an award,
- to decide between two or more programs, when there's a choice, to use points/miles.
In the past...
I've often pondered over the valuation conundrum, and I even wrote a few times about
As you can see, the last time I dealt with the subject was in February 2014, after which I was thoroughly addled, and hence decided not to visit this subject...until now.
The trigger
I was recently researching an award booking (both on Jet Airways and on partner airlines) for myself, and after much work, booked a partner airline award on Etihad business class for 44,000 JP miles, whose revenue equivalent was US$ 2,100 (or Rs 136,500).
That meant, that each of those JP miles had actually earned me a benefit of over Rs 3 per mile, which is astounding value in any setting. Put differently, I could buy JP miles from JP at Rs 1.25 per mile, and yet come out saving a fair bit!
Alternatively, I could have chosen another airline that offered me a revenue ticket (plus a mileage earning opportunity) for a third of that price, at Rs 40,000 (which meant a value of less than Rs 1 per JP mile) but had two inconvenient stops. And that's just part of the variables that go into valuing miles and points.
Alternatively, I could have chosen another airline that offered me a revenue ticket (plus a mileage earning opportunity) for a third of that price, at Rs 40,000 (which meant a value of less than Rs 1 per JP mile) but had two inconvenient stops. And that's just part of the variables that go into valuing miles and points.
So I renewed my research efforts again, but this time I restricted myself to JP miles. I then applied what I thought was some detailed methodology (though in reality, it is just simple math), and even consulted a valuations expert on my approach. I won't bother you with the details (except to let you know that I've written a 7 page memo to myself, so that I don't forget how I went the valuation in the first place).
Next, I expanded this principle, but in much simpler terms, to hotel loyalty programs. I focussed on five of the most popular ones: Starwood, Marriott, Hyatt, IHG and Hilton.
The variables
As I've said in the past, the value of a mile / point varies due to a lot of factors, including:- timing of the award,
- timing of the purchase,
- the user's elite level,
- inclination to spend miles / points over cash or vice versa,
- relative cash values of the award (which themselves can change due to many factors),
- flexibility required,
- length of stay in the case of hotels (possible 5th night free)
- options available (eg, different destinations),
- other cash costs that need to be incurred nonetheless, and
- class of service.
Let me illustrate with a simple example. Both the ITC Grand Central and the ITC Maratha are category 3 hotels, needing 7000 Starpoints for an award night. If I needed a room for tomorrow night, chances are that both hotels will have a similar level of pricing for a revenue booking. However, 6 months out (July 2016), the ITC Maratha sells for Rs 11,200++ a night whereas the ITC Grand Central sells for Rs 6,900++ a night. Right there, you have two different values for a Starpoint, and one may not be able to research each and every hotel and every airline sector separately, with point / mile values changing for each of them.
At the same time, one has to consider the costs of (or efforts involved in) earning those 7000 Starpoints. For instance, earning Starpoints is just a little a bit easier for a Platinum member, when compared to a base category member.
I even thought long and hard if the ideal valuation should be higher or lower (than whatever attributed value there is). Logic suggests that the higher the value of a point / mile, the greater is the value of the stash you're sitting on, but as I've said earlier, that's irrelevant. On the other hand, one could argue that a lower valuation means you're giving up on less value of points / miles, to get an award that is cash-priced more. Sounds out of whack, but still annoys me!
There's also the earn-to-burn ratio that requires consideration. By earn-to-burn, I refer to the number of nights' of paid stay (or revenue flight tickets) that is needed to be able to earn an award night (or flight). JP miles required for redemption have been largely streamlined at around 1:11 or 1:12. However in the case of hotels, this added dimension of earn-to-burn ratio is not fixed. And in my book, the earn-to-burn ratio is a far better indicator of the value of benefits, especially if your main mode of earning points is by staying (as opposed to signup bonuses and the like).
The principle
Because the principal way a hotel point or airline mile can (should?) be used is for awards within the program itself, the ideal value of a point or mile would be the value obtained by using it within the program. Therefore, I finally settled on a rather straightforward approach, but better that than nothing. It was this:
Put differently, the value of a point or a mile is that at which you're indifferent to using points / miles or paying cash for a hotel stay or a flight.
Now, that is truly simple, and maybe too simple. After all, there are many variables. However, the objective was to establish an typical valuation, rather than a perfect, ideal or even a minimum value. More importantly, the typical valuation helps to decide whether or not it is worth retaining those points for a future or different use (and book a paid stay/flight instead).
A mile (or point) is worth the value you get out of using it, had you paid cash instead.
Put differently, the value of a point or a mile is that at which you're indifferent to using points / miles or paying cash for a hotel stay or a flight.
Now, that is truly simple, and maybe too simple. After all, there are many variables. However, the objective was to establish an typical valuation, rather than a perfect, ideal or even a minimum value. More importantly, the typical valuation helps to decide whether or not it is worth retaining those points for a future or different use (and book a paid stay/flight instead).
The outcome
I've been able to come up with a value for the following loyalty programs:
- Citibank Premier Miles
- Jet Airways JP miles
- SPG Starpoints
- Marriott Rewards points
- Hyatt Gold Passport points
- IHG Rewards Club points
- Hilton HHonors points
With Air India Flying Returns, valuations are difficult because they (can) sell revenue tickets at unbelievably low fare buckets...benefits of being state-funded, I guess! Because of this, I have to use a different method for valuing AI Flying Returns miles, which will take more time.
I expect the valuations of points and miles to be generally consistent, unless there are significant changes to the program itself, overall costs of flights / hotel rooms, or category changes (in the case of hotels).
Starting now, I plan to publish these valuations periodically, so that readers are able to put a value to their stock of miles and points. I will also try and explain my reasons for changes from the previous valuation. I do hope readers find it useful.
While I'm an accounting major, I'm not a valuations expert. Neither do I claim to be the absolute fount of all points and miles knowledge. The valuations may not be perfect, but I'm hoping to refine them as we go along.
So if you think I'm missing something or should be considering another parameter or factor, please feel free to write in.
Comments
Post a Comment