Updated January 31st, 2020
The valuations provided on Pointsreckoning.com are the opinions of the site and its affiliated staff only. No guarantee is made that an individual will be able to redeem points in a manner that equals or exceeds our valuation estimates. No bank, credit issuer or other financial institution endorses, or has any input, on our valuation methods. We reserve the right to alter our valuation method at any time, without notice. All award currency estimates are in United States Dollars.
How We Value Airline Miles
At Points Reckoning we value points at what we call the “Average Consumer’s Redemption Value”, or ACRV. To us, this means that although some exceptionally lucrative redemption opportunities exist, the average, points and miles semi-savvy consumer is unlikely to realize them. Furthermore, we LIMIT AWARD SEARCHES TO WEB OPTIONS ONLY. This is important to keep in mind, as some carriers do offer better availability, especially on codeshare bookings, when speaking to a reservation agent.
With the above in mind, we take a standardized basket of hypothetical redemption’s, price them at the lowest cost cash alternative(CA) and divide by the amount of reward currency(RC) necessary to redeem. The average of these redemption’s is called the Points Reckoning Estimate(PRE). Furthermore, we reduce the PRE by 25% for non-transferable(or minimally transferable) currencies(the RF). This reduction is to compensate for the lack of miles earned on award redemption’s, the inflexibility of award travel when compared to cash, and the risk of future devaluation. The resultant ACRV is what we would pay for the point/mile if it were offered for sale.
All flights, both award and cash-alternatives are limited by maximum flight times and number of stops. To calculate maximum allowable flight time, we first look at the lenght of a nonstop flight and then multiply by a logarithmically declining number, from a multiplier of 3x at 0(hrs) to 1.65 at 20(hrs). The result of this calculation is rounded up to the nearest hour.
We choose to use the lowest price cash alternative because airline flights are semi-generic. This of course, is not to say all airline flights are the same. Hardly anyone would consider China Eastern and Cathay Pacific comparable carriers. However, we do believe that for the purposes of valuation, most airlines are similar enough, especially over competing routes.
Finally, we further break down our valuation as it pertains to travelers who typically travel domestically vs. those who primarily travel internationally.
Airline Example(for illustrative purposes only)
Assume we’re attempting to place a value on Delta Skymiles. Our research tell us that the lowest cost non-stop(or reasonable single-stop) business class one-way ticket from LAX to LHR costs $4,397.00. It does not matter that the lowest cost cash alternative is, or is not on Delta, since this would likely have a minimal impact on the cash purchaser’s decision, assuming the product was comparable. Let’s also assume that Delta is requiring 137,000 Skymiles + $5.60 in fees to book this flight as an award. The calculation would be ($4397.00-5.60)/137,000, for a redemption value of $0.032. We then reduce this by 25%(to .024). This would of course be repeated a number of times in an attempt to minimize the impact of extremely lucrative or extremely poor redemption values.
|PRE(Average Including Zeros)||Reduction Factor||ACRV|
How We Value Hotel Points
Unlike airline flights, hotels are not semi-generic. That is to say, one cannot simply pick a date and city and come up with a cash alternative price. Each property is unique and we must keep that mind when valuing points. This actually makes hotel calculations a bit easier. We simply have a standard basket of global cities, take the cash price of specific hotels less fees and divide by the amount of reward currency required to book. To keep everything standardized, we always use the lowest priced, advance purchase room with a king sized bed. Just like with airline miles, we do reduce the resultant figure. However, because hotel award availability is generally better than airlines, the reduction is only 10%. Again, this reduction is to compensate for the lack of points earned on award redemption’s, the inflexibility of award travel when compared to cash, and the risk of future devaluation.
Hotel Example(for illustrative purposes only)
If we were attempted to place a value on World of Hyatt points, we might look towards the Grand Hyatt New York. The average room rate(including taxes/fees, over a week long period) is $360.91. This room can also be booked for 20,000 points. Our value would then simply be 1.81¢. This would then be repeated a number of times in an effort to minimize the impact of extremely lucrative or extremely poor redemption values. Finally, we’d reduce this figure by 25%, to achieve and ACRV of 1.35¢.
How We Value Transferable Currencies
The formula we use to determine the value of a transferable point program is simple but sounds complicated. Here it goes. We first take the ACRVs of all transfer partners and adjust them based on their transfer ratios. For example, imagine an airline with a frequent flyer program who’s miles are worth 1.3¢ each. However, one can transfer their credit card points to this airline at a rate of 1:1.5. In other words, 1,000 credit card points nets 1,500 airline miles. In this case, the airline’s transfer adjusted value would be 1.95¢(1.3×1.5).
Next, we rank all transfer partners by this adjusted transfer ratio. We then multiply the partner’s adjusted ACRV by one divided by their rank, raised to the second power. This sounds confusing, but take a look at the chart below for an example
|Hypothetical Transfer Partner||Transfer Adjusted ACRV||Rank in Series||Multiplication Factor(1/rank2)||Rank Adjusted Value|
|Big Al’s Boat Rides||0.90¢||5||1/25||0.04¢|
|Millennial Resort Company||0.75¢||6||1/36||0.02¢|
|Global Bank’s Mega Transferable Points Value||2.07¢|
Finally, the sum of all transfer partner’s rank adjusted value is taken as the transferable currency’s value. The reasoning for using this formula is simple: the addition of low-value partners shouldn’t negatively effect values. In other words, let’s imagine a bank has a number of high-value transfer partners. Then, one day they add several very low, or no-value ones. Well, in a simple average, this would negatively effect their value. But in the real world, provided these low-value partners didn’t come at the expense of high-value ones, it shouldn’t make much difference.
Using the “rank-ordered-reduction” method above, the addition of a low-value partner will have little or no effect on value.