Let me start by saying this, which renders this whole exercise futile — there really isn’t a way to fairly value miles and points for everyone. So before I respond to Gary’s post, let me share my thought process on valuing miles and points.
First, points are only worth what you’d otherwise pay for a product, and not the retail cost. All the time you hear people bragging that they used 120,000 miles to book a first class ticket that would have cost $24,000. That’s great, but would you actually have paid $24,000 for the ticket? If not then that’s not really a fair valuation, is it? In my previous post I listed the cost of paid stays at many aspirational properties at which I would redeem Hilton points. I listed the revenue cost purely to point out the “aspirational” properties you can stay at with Hilton points. At no point did I say “hey look, you can use 36,250 Hilton points to stay at a hotel that would cost $725. Therefore a Hilton point is worth two cents.” My point was simply that there are some amazing hotels you can redeem points at, and I should have focused more on what I’d otherwise be willing to pay for those stays.
Second, when valuing points you have to view them as a commodity of sorts. I say “of sorts” because at the end of the day points can’t be traded or sold, and for that matter don’t even belong to the consumer, but rather the company that’s issuing them. I made a series of posts a few months ago valuing airline, hotel, and credit card points. I didn’t suggest they should be everyone’s valuations, though I thought they were fair, objective valuations. My point is this — if you ask someone that’s homeless whether they’d prefer $10 or 10,000 Starpoints, they’d probably go with the former. Does that mean Starpoints are suddenly objectively “worth” less than 0.1 cents per point?
All the time people give me scenarios and ask if they should use points or pay cash for a redemption. “Hey, I can book a ticket for either 25,000 miles or $500 — what should I do?” Well, that depends. Do you have 2.5 million miles in your mileage account and $250 in your bank account, or do you have 25,000 miles in your mileage account and $2.5 million in your bank account? That would kind of impact the answer, and that’s why it’s important to think of points on some ways as a currency when valuing them. In the previous post someone had pointed out that 145,000 Hilton points are worth a lot more than 144,000 Hilton points, since it gets you over the threshold for an AXON award. And that’s a great point.
I do mattress runs to maintain hotel status and earn points, and with every stay I crunch the numbers. If it doesn’t make sense I don’t do it. But at the end of the day there’s a cost to me of earning those points, so when I redeem points I always crunch the numbers. For example, I love Park Hyatt hotels, and the most expensive ones are 22,000 Gold Passport points per night. I value Hyatt points at 1.6 cents each. That means I’m “paying” $352 per night worth of points for a redemption at a Park Hyatt. As crazy as it might be, I’ve paid $300 per night for a hotel before when I could have used points, simply because it wasn’t a good value and the numbers didn’t work out. But to me it makes sense, and I’ll expand on that below in response to Gary’s post.
The fact is, this analysis is only useful to those that eat, sleep, and drink miles. For many people miles are a “free” reward. If they sign-up for a credit card and the sign-up bonus gets them a roundtrip between Los Angeles and San Francisco that would have cost them $120, they’re on cloud nine. I’ve had friends sign-up for cards with 50,000 mile sign-up bonuses, and they’re ecstatic that they can get two free coach roundtrips to New York. When I tell them they could instead get a one-way ticket in business class to Europe they say “business class, what’s that? Europe, what’s that?” So for people that don’t “invest” in their points portfolio, a good award redemption is just whatever makes you happy.
Now, let’s talk Gary’s most recent post:
I may be able to get 1.6 cents of ‘value’ for a Hilton point at the Conrad Koh Samui. But unless I was actually going to spend $800 per night to stay there, I haven’t ‘saved’ myself $800 and therefore my Hilton points spent on the room weren’t really ‘worth’ $800 (or 1.6 cents a point).
Instead, the value of a loyalty program point, expressed in dollars (cents), is the amount at which you are indifferent between holding points and holding cash.
It isn’t that I can’t do better. I can and I do. The reason I spend 5 nights at the Conrad Koh Samui paying 200,000 points is because I calculated my stay ‘cost me’ $1000 or $200 per night. I was willing to spend $200 a night to stay there, I wasn’t going to spend $800 to do so.
And I completely agree, and maybe this is where we differ. In my post where I valued hotel points I said the following:
To provide a really rough explanation of my thought process, my points valuation is somewhat based on the assumption that one values a free night at a top hotel around $300-350. Ultimately I’m all about the “aspirational” award, so I think one important aspect in valuing points is comparing how many points are needed for a redemption at a top hotel. The “base” value of $300 goes up for me when hotels honor elite benefits on award stays (free breakfast, internet, room upgrades, etc.), count them towards elite status, etc., which can add a lot of value to a stay.
And maybe this is where Gary and I differ. Gary says he essentially “spent” $200 per night worth of points to stay at the Conrad Koh Samui. If that’s truly how much Gary values the stay than I can understand that. In each of the examples I provided in the previous post, I would be willing to spend at least $300 to stay at the likes of the Conrad Koh Samui, Hong Kong, Tokyo, Maldives, Tokyo, etc. The same goes for Park Hyatt’s top hotels, and the same goes for St. Regis’ top hotels. That’s how much I value a stay at that caliber of hotel in an outrageously expensive city, especially after I factor in the elite benefits I get, including free breakfast and free internet, which can easily otherwise cost $50-100 per day depending on the hotel.
So I have three questions for Gary based on that:
- Do you really only value a free night at a top tier hotel in an expensive city at $200?
- If so, is that the case at Hyatt and Starwood as well?
- What do you value Hyatt Gold Passport points at?
If Gary only values a night at a top hotel at $200, then Hyatt Gold Passport points are worth less than a penny each (since a free night is 22,000 points). And I can’t imagine that’s the case, since he planned to stock up on Hyatt points during the Daily Getaways promotion when they were selling them for a cent each.
That just seems low for a true five star hotel with breakfast, internet, etc., especially since many hotels have 15-25% taxes and “service charges,” where there are further savings when using points.
And to answer Gary’s question:
How much have you spent this year on the Starwood American Express and how much have you spent on a Hilton credit card? That’s called revealed preference.
$299 on the Starwood American Express at Le Meridien San Francisco, and $25 for a Starbucks reload on the Hilton Reserve Citi card, as I just got it last week. I actually haven’t at all been motivated to put any spend on the Starwood American Express lately. I love the card for the annual free nights/points it gives me, but my spend goes onto cards that offer me bonus points for dining, travel, gas, and groceries, which is 99% of my expenses. The rest of my spend goes onto whichever card I’m trying to meet the minimum spend on.
One last point I disagree with Gary on is that he seems to suggest it’s unfair to value points based on the best possible redemptions. I think it’s perfectly reasonable to value points based on the best possible redemptions for your travel patterns, based on the value you place on what the points will get you.
What I’m trying to say is that I could make the argument that Starpoints are worth a penny each. The St. Regis Bangkok is a category six hotel, which costs 20,000 Starpoints per night or $150 plus 8,000 Starpoints. But it would be ridiculous to value Starpoints based on that. Instead you should value the points based on the value you would place on the hotels you would most likely redeem them for. Let’s be clear, I’m not just basing my value of Hilton points on one or two aspirational properties. There are over a hundred category 7 hotels, and most of them look very nice, and look like a great use of points. But I do think it’s reasonable for me to value points that way. Valuing them based on a mediocre value seems pointless, since hopefully you’d never actually redeem points for that.
It’s like saying that it’s unreasonable to base valuations of miles on the ability to redeem for premium cabin travel. I suspect 90%+ of people use their miles for “non-aspirational” flights, but that doesn’t stop me from valuing American miles based on the ability to redeem for Cathay Pacific, Etihad, and Qantas first class, for example.
But I guess what this really comes down to is the difference in how Gary and I value luxury hotels. I don’t care which of the three chains it is, I typically value their top category hotels in an expensive city at around $300, especially when breakfast and internet are included. That just seems like a fair value to me, since during peak season that’s probably what you’d pay for a three star hotel in an expensive city. Gary seems to value them at around $200. I guess that’s what accounts for our ~0.25 cent per point spread.
All that being said, I still bow down to Gary and his infinite wisdom!