If you regularly read View from the Wing or One Mile at a Time you know that Gary and Ben have been duking it out lately regarding the value of Hilton points.  Gary thinks Hilton points are worth about half a cent each whereas Ben thinks they’re worth about .8 cents each.  If you’re interested in catching up on the debate, follow these links for the blow by blow:

• Gary: Two Top Credit Cards Duke it Out: Citi Hilton Reserve Visa and the Starwood American Express
• Ben: Gary and I can’t agree on the value of Hilton points… here’s why I’m right!
• Gary: How Much is a Hilton HHonors Point Worth? (“Lucky Isn’t As Rich As He Thinks He Is” Edition)
• Ben: Valuing miles and points is a futile effort
• Gary: Once More Unto the Breach, Dear Friends… Hilton HHonors Points Are Not Worth 0.8 Cents Apiece

I find this debate interesting not because I’m looking for the right answer for what a Hilton point is worth, but because it highlights different ways of thinking about what points are worth. This is a very important topic because people need to know what points are worth.  The information is needed to help decide which cards to signup for (how much are the signup bonuses worth?), whether to buy points during special promotions, which cards to use for day to day spend, and whether an award is a good value. 

Ben and Gary have very different ways of thinking about the value of points.  For example, Ben says:

Points are only worth what you’d otherwise pay for a product, and not the retail cost.

Whereas Gary says:

[T]he value of a loyalty program point, expressed in dollars (cents), is the amount at which you are indifferent between holding points and holding cash.

I think that Ben is wrong, Gary is right, but neither is helpful.  Read on:

Ben is wrong

Ben’s argument sounds reasonable.  He argues that when you redeem points for an experience (flight, hotel, etc.), the points are worth whatever you would have been willing to pay for a similar experience.  So, if you spend 30,000 points for a hotel night in a city where you would have been willing to pay $300 for a similar experience, you can then say that your points were worth 1 cent each.  That much is true.  I agree with Ben there.  But that formula is looking at only how much the points are worth for a specific redemption.  It says nothing about the value of points sitting in your account. 

The value of a point is not the same as its redemption value. 

Take a coupon as an analogy.  Lets say you pay $1 to download a coupon from the internet and you redeem it for $100 off something you would have bought anyway.  In that case, the redemption value of the coupon was $100.  Does that mean that similar coupons are worth $100 each?  No!  Since the coupon is readily available for $1, its value is, at most, $1.  It can be worth $100 when redeemed, but not when it is sitting on a shelf. 

Gary is right

I’ll repeat Gary’s definition: “[T]he value of a loyalty program point, expressed in dollars (cents), is the amount at which you are indifferent between holding points and holding cash.”  I agree with this statement.  In simpler terms, points are worth the minimum amount you’d be willing to pay for them.  I know that’s not exactly what Gary said, but I’d argue that it’s close enough for this debate.  So, if we go back to the coupon analogy, you surely wouldn’t be willing to pay more than $1 for this coupon since it is readily available for a $1.  However, depending on what the coupon is for, you may not even be willing to pay that much.  How much is this fictional coupon worth?  It’s worth the amount you’re willing to pay: somewhere between zero and $1.

Neither is helpful

Ben gave us a way of estimating the value of points for specific redemptions, but said nothing about the acquisition value of points.  Ben’s definition actually is helpful when trying to decide whether a specific redemption is a good idea, but its not terribly helpful when trying to decide whether to acquire points in the first place.  Gary defined the value of points as (loosely) the amount you’d be willing to pay for them.  That’s great and I agree with it, but it doesn’t help!  If you know how much you’d be willing to pay for points, then you already know their value.  For people looking to bloggers for help, this doesn’t help.

Another solution

Instead of looking at how much you’d be willing to pay for points, how about looking at how much people already pay for points, all the time?  I’m not talking about the price that loyalty programs charge for buying their points – that’s almost always an over-inflated price.  Instead, I mean that when people use reward credit cards for earning points, they are actually paying for those points and we can estimate how much! 

Huh?  Aren’t points free when they come from credit card spend?

No!  When you use a point-earning credit card to make purchases, you are giving up the opportunity to use a cash-back credit card instead.  Arguably, the best cash-back credit cards give 2% cash back on all purchases.  So, by using a point-earning credit card, you are giving up 2% cash back and implicitly buying points.  For more explanation about this, please see “The Cost of Credit Card Points”.  I’m not saying that it is a bad value to use a point earning credit card.  Not at all!  I’m simply saying that there is a price to using one (the loss of 2% cash) and we can use that information to estimate the value of points.

Estimating Value

In my original post on this topic, “Fair Trading Prices for Points and Miles,” I explained these concepts, and I used some of the best points-earning credit cards available as a basis for estimating point values (American Express SPG, Chase Sapphire Preferred, American Express Premier Rewards Gold, and Hilton HHonors Surpass).  This approach worked well to estimate the value of airline miles, but fell short for estimating hotel points.  I revised the hotel estimates in the post “Fairer hotel trading prices”.  You can always find my latest estimates in the “Fair Trading Prices” page which can be found in the Resources menu at the top of every Frequent Miler post.

Fair Trading Prices Explained

Many people find the Fair Trading Prices charts confusing.  Why does the table value United miles at only 1.31 cents if we can easily get 2 cents or more value from the points?  The reason is that these charts ignore redemption value.  They are based entirely on an estimate of how much it usually costs to acquire the points.  Still confused?  Please read “Fair trading prices explained.”

Back to Hilton (or “Gary is right again”)

Gary estimates the value of Hilton points at half a cent each.  My Fair Trading Prices chart estimates the value at .48 cents – almost exactly the same as Gary’s estimate.  Gary’s estimate came from his experience with using Hilton points: he is sure he can always get half a cent or more value from the points.  My value comes from estimating the points that would be earned using the Hilton HHonors Surpass card for daily spend instead of a 2% cash back card.  It’s really just a cool coincidence that our numbers match.

Sorry Ben and Gary

Despite the title of this post, Ben and Gary have terrific and very helpful blogs.  If you don’t already read them, I highly recommend you do!

Related Posts and Pages

• Fair Trading Prices
• The Cost of Credit Card Points
• Fair Trading Prices for Points and Miles
• Fairer hotel trading prices
• Fair trading prices explained
• When is an award flight a good deal?
• When is an award night a good deal?

One of the posts that I’m most proud of is this one: Fair Trading Prices for Points and Miles.  In that post, I pointed out that if you’re thinking of buying points or miles (directly or indirectly), it is helpful to know the usual cost of acquiring them.  With airline miles, for example, people buy miles everyday by using miles-earning credit cards.  If you use a card that awards you with 1 mile per dollar, for example, then you are in effect buying miles for 2 cents each because you could have used a 2% cash back credit card.  With that idea in mind, I put together the Fair Trading Prices page to show the usual cost of acquiring points and miles.

It’s important to understand that Fair Trading Prices are not estimates of redemption value.  That is, when you redeem your points you may get more or less value than the Fair Trading Price.  Also, when one trading price is higher than another, it does not mean that the former has higher redemption value than the latter.  For example, the fact that the chart shows a higher Fair Trading Price for American Airlines miles than for United Airlines miles does not mean that American Airlines miles are more valuable for redemptions.  It just means that using credit cards to acquire American Airlines miles is more expensive than using credit cards (such as the Sapphire Preferred) to earn United Airlines miles.  The fact that many people prefer United Airlines miles over American Airlines miles just shows what a great deal it is to use the right card to acquire United miles.

The Big Fail

With respect to airline miles, I think the Fair Trading Price chart has worked out very well.  It’s great to have a benchmark to use before jumping into a scheme for buying miles.  It’s also a great benchmark to help decide whether to use miles or cash for purchasing airline tickets (See: When is an award flight a good deal?). 

The problem with the chart was with the hotel trading prices:

** Based on the blended point earning rate of the Hilton HHonors Surpass card from American Express

Marriott at 1.25 cents per point?  Priority Club at 1.15 cents per point?  Some of these “fair trading prices” were way too high!  I would never pay that much for these points because it would be difficult to redeem the points for that much value. The only hotel valuations that looked right to me were SPG at 1.95 cents per point and Hilton at .48 cents per point.  In both cases, I believe it is quite reasonable to buy points at those rates.

Why hotel points break the mold

With airline miles, I believe earning miles through credit card spend has become the norm rather than the exception.  With hotels, though, I believe that people tend to earn points through hotel stays rather than through credit card spend.  This isn’t universally true of course, and may not be true at all for you.  Instead, I just believe it to be the prevailing direction in which these things go.  As a result, basing hotel point prices on credit cards didn’t work as well as I had hoped.

Fixing the chart

It’s very difficult to come up with a straightforward way in which to estimate the cost of hotel points earned through hotel stays.  The new approach I took was to look at the two hotel chains for which credit card estimates did work (SPG and Hilton), and use those as benchmarks.  Here is an example:

Non elites staying at SPG properties earn 2 SPG points per dollar.  At most Marriott properties, though, non elites earn 10 points per dollar.  Therefore, the fair trading price of Marriott points is estimated to be 2/10 the fair trading price of SPG points.  1.95 X 2/10 = .39.  At most Hilton properties, non elites earn 15 points per dollar.  So, using this benchmark, Marriott points are worth 1.5 times (15/10) as much as Hilton points.  .48 X 1.5 = .72.  There is a big difference between the SPG benchmark result of .39 and the Hilton benchmark result of .72 so I think of these as the fair trading price range.  The mean, .56, is the new Fair Trading Price for Marriott points.

The new chart

Below is the new chart calculated as described above.  Note that I’ve added Wyndham and Best Western to the mix:

This chart will be updated in the future, as needed, on the Fair Trading Prices page that can be found in the Resources tab at the top of every Frequent Miler page.

Note that I’ve updated the page “When is an award night a good deal?” to reflect the updated hotel chart.

What do you think?  Will the new improved chart be useful? 

Stay informed:
Follow me on Twitter / Like me on Facebook / Join the Club

If you’re new to Frequent Miler, please start here

A better way to estimate the acquisition value (not the redemption value) of points and miles. 

Last year I introduced the idea of Fair Trading Prices for points and miles.  Fair Trading Prices are the prices people pay for points or miles using the best available common option. Often, for example, people effectively buy miles by putting spend on points earning credit cards. The values in the Fair Trading Prices chart are determined by assuming that when someone spends with a point/mile earning card, they are giving up 2 cents per dollar that they could have gotten by using a 2 percent cash back card. In other words, if you get 1 mile per dollar when using a credit card, you are effectively paying 2 cents for each mile.

The Fair Trading Price chart is a permanent page on the Frequent Miler site.  A link to Fair Trading Prices can be found at the top of every page (just below the banner).

Not redemption value

The Fair Trading Price is not an estimate of redemption value.  If the chart says that the fair trading price for American Airlines miles is 1.56 cents, for example, this does not mean that you will get 1.56 cents of value from your miles when you redeem them.  You may get much more value or you may get less.  However, if you are thinking about buying miles, acquiring miles via a shopping portal, or even putting spend on a miles earning credit card, the fair trading price is a good number to use to estimate the worth of those miles.

A coupon book analogy

A good analogy is the Entertainment coupon book sold by Entertainment.com for about $30 each.  The coupons in the book can potentially save you hundreds of dollars.  Just as likely, though, the coupons can sit on a shelf unused until they expire.  The coupon book’s redemption value depends on how you use it.  The book’s fair trading price, however is about $30 (yes, you can get them cheaper – remember, this is just an example). 

Now imagine that a store offered an Entertainment book as a bonus if you spend $100 in the store.  Would you think of this as a $200 rebate because you know the coupons will save you that much money?  Or, would you think of this as a $30 rebate?  I think $30 is the right answer.  But, is it a good deal for you?  Yes if you want the coupon book and actually use it to save more than $30.  No, if you are more likely to leave it on a shelf unused.

A real example

Recently Nordstrom offered 36 miles per dollar for purchases made through the British Airways shopping portal.  In certain circumstances, British Airways Avios miles can be quite valuable.  For example, a $300 short-haul flight can be had for 9000 miles round-trip.  In that case, the Avios’ redemption value is 3.33 cents per mile.  The current Fair Trading Price, though, for British Airways miles is 1.29 cents.  So, when estimating the value of Nordstrom’s 36X promotion, should you use the possible 3.33 cent redemption value or the 1.29 cent fair trading price?  I would argue that the fair trading price is the better answer.  In that case, Nordstrom’s promotion was like a 46% rebate (1.29 cents X 36).  Remember though, that just like a coupon book, this rebate is only a good deal for you if you really use the miles for valuable redemptions.

An estimate, not an answer

Since miles and points do not trade freely on an open market, it is impossible to come up with a perfect chart of fair trading prices.  So, consider the values in the chart as estimates based on the best information I have at hand.  The numbers in the chart will change over time as I learn more or as situations change.  And, I welcome input from readers and bloggers.  Even though there is no “right answer”, we can work together to make the answers better.

Stay informed:
Follow me on Twitter / Like me on Facebook

If you’re new to Frequent Miler, please start here

Suppose you are looking for a good deal for a flight and you find that you can either buy a ticket for $400 or redeem 25,000 miles for an award flight. Which should you do? The decision can be quite complicated. You need to know how much those 25,000 miles are worth to you. Plus, if you redeem miles, you won’t earn miles from either the purchase of tickets or the flight itself. And if you’re looking to earn elite status, you need to consider that you won’t earn elite qualifying miles from an award flight.

In order to try to wipe away most of that confusion, I’ve put together a three step guide to help you figure things out. The formulas are far from perfect and they won’t match everyone’s needs or beliefs about miles, but I know that I need something like this so maybe you do to. As much as possible, I’ve kept to nice round numbers and easy formulas.  Here goes:

Step 1) Take the # of miles you would need to redeem, chop off the final two zeros, and add a dollar sign in front. Example:

25000 Miles -> $250

This is the value of your miles if each mile was only worth a penny. However, according to the Fair Trading Prices chart, most miles are worth about 1.3 cents, so this is just a starting point. Also, don’t forget that by redeeming miles for a flight, you will lose out on earning new miles. So, go on to step 2:

Step 2) Answer the question: do elite qualifying miles matter to you?

When you fly on a regular purchased ticket, you earn both redeemable miles and elite qualifying miles. Redeemable miles are used for award flights. Elite qualifying miles are used for gaining airline elite status. You generally need to earn at least 25,000 elite qualifying miles on an airline in a calendar year in order to earn the lowest level of elite status.

If you are unlikely to earn elite status, then your answer should be “No”. Or, if you simply don’t understand the question, go with the answer “No”.

Step 3A) Use this formula if your answer to step 2 was “no, elite miles don’t matter”:

$250 x 1.5 = $375

This is your estimated loss for redeeming miles and forfeiting new bonus miles.

Step 3B) Use this formula if your answer to step 2 was “yes, elite miles matter”:

$250 x 2 = $500

This is your estimated loss for redeeming miles and forfeiting new bonus and elite miles.

Step 4: Compare

Take the value you computed above (either $375 or $500 in the examples) and compare to the paid flight option. If the calculated amount is less than the paid flight option, then redeem your miles.  Otherwise buy the ticket.

Example A: The estimated loss from redeeming miles ($375) is less than the cost of a ticket ($400), so: redeem miles

Example B: The estimated loss from redeeming miles ($500) is more than the cost of a ticket ($400), so: buy the ticket.

Notes:

1. Don’t forget to use your own common sense here. If you’re low on cash, or you don’t think you’ll ever be able to use your miles for a high value redemption, or you simply don’t value your miles, then by all means use the miles despite what the formula says! Conversely, you may value elite miles more than the formula allows, or you may be holding onto your miles for much higher value redemptions. In those cases, it would make sense to err towards buying flights.
   
2. The factor of 2 used in step 3B to compensate for the loss of elite miles is a very rough approximation. If you really want to be rigorous you can determine the number of elite miles that would have been earned for the flight and multiply by $.03 (3 cents per elite mile). Then, use formula 3A and add in the result of your extra calculation.

Stay informed:
Follow me on Twitter / Like me on Facebook

When opportunities arise to purchase elite qualifying miles, should you go for it?  How do you know if it’s a good deal?

Background

Delta is running a promotion through December 30th in which they are allowing people to buy elite qualifying miles, with prices between 9 and 11 cents per mile.  Should you do it?  Is it a good deal?

Note: Delta refers to their elite miles as MQMs (Medallion Qualifying Miles), but since everyone else uses the term “elite qualifying miles”, I’ll stick with that.

Elite qualifying miles (EQMs) are completely different from the regular kind of miles that can be redeemed for travel.  EQMs can’t be traded for anything at all.  Instead, they are used to earn airline elite status.  Typically, airlines require you to earn 25000 EQMs per year to reach the lowest level elite status, 50,000 per year to reach mid level status, and 75,000 to 125,000 to reach upper/top level status.  If this is all new to you, you might be interested in reading this post by The Points Guy for more information.

The Value of EQMs

It is extremely difficult to determine the value of EQMs in any broad way.  With most airlines, EQMs don’t roll over from year to year.  So, if you collect 25000 EQMs in a year, then each EQM has measureable value since it got you to elite status.  If you collect something short of that, say 24000 EQMs in a year, then the value is essentially zero since the miles didn’t get you to elite status and you will loose them all at the end of the year.  An exception to that is if you are trying to get to lifetime “million miler status” with an airline, then those lost EQMs at least do count towards that goal. 

See why this is hard? 

The Points Guy took an admirable stab at coming up with values for elite status tiers.  In this post he suggested that low level status is worth $400 to $500, mid level status is worth $900 to $1200, and top tier status is worth $2800 to $3500.  I see these as useful benchmarks as long as you keep in mind that elite status is worth nothing at all if you don’t fly!  The more you use your elite status benefits, then the more it should be worth to you.

EQM Fair Pricing

Another way to look at this is to determine the going rate for buying EQMs.  Just as I published fair trading prices for redeemable points and miles, we can use similar techniques to determine fair trading prices for EQMs.  This won’t tell you how much value you’ll get from EQMs, but it will give you an idea of whether or not you’re getting a good deal if you do buy them.

There are two usual ways to “buy” EQMs.  One is to fly.  Many people do “mileage runs” where they fly for the sole purpose of earning EQMs.  Another option is through credit card spend.  There are several credit cards that will award you with EQMs when you reach certain high level spending targets.  Let’s look at the trading price of each approach:

Mileage Runs:

Mileage runners look for opportunities to get the most EQMs for the smallest price.  A great mileage run is considered to be one in which the cost per EQM is 3 cents or less.  It is not easy to find deals like that, however, so let’s set the benchmark at an easier to achieve 6 cents per EQM.  This does not mean, though, that the going rate for buying EQMs through mileage runs is 6 cents per EQM.  The reason is that mileage runners also get redeemable miles from those runs.  Since elite flyers get bonus miles, let’s assume that, on average, a mileage runner will earn 1.5 redeemable miles for each EQM.  Since the average fair trading price for redeemable miles is about 1.3 cents each, that means that the mileage runner earns roughly 2 cents in the form of redeemable miles for each EQM earned.  So, going back to the 6 cents per EQM estimate, if we subtract the 2 cents worth of redeemable miles, we get to a fair trading price of 4 cents per EQM.

Credit Card EQMs

Now let’s go back to credit cards that earn EQMs for reaching large spending thresholds.  The number of EQMs one can earn ranges from .2 to .5 per dollar spent.  For the purpose of this analysis, let’s split the difference and say that it is possible to earn .35 EQMs per dollar spent on certain credit cards.

In previous posts, I’ve pointed out that when you put spend on a point earning credit card, you are giving up the 2% back you could get if you put your spending on a 2% cash back card.  So, when you put your spend on an EQM-earning credit card, you are essentially paying 2 cents per dollar in exchange for the bonus miles and EQMs you get in return.  Since the average fair trading price for redeemable miles is about 1.3 cents each, we can say that the difference between 1.3 cents and 2 cents is the price you pay for EQMs.  Since, on average, these cards deliver .35 EQMs per dollar, we can divide the cost (.7 cents) by the EQMs (.35) to get to a fair trading price of 2 cents per EQM.

Conclusion

The calculated fair trading price for EQMs in this analysis ranges from 2 to 4 cents per EQM.  Since it can be quite difficult to reach the high spend requirements of EQM-earning credit cards, I believe that it makes sense to split the difference between the two approaches and state that the fair trading price per EQM = 3 cents.

Now, let’s get back to the original question: is Delta’s “Buy MQM” promotion a good deal?  The answer is no.  However, it is clearly too late in the year to start running up credit card spend, and it’s getting near the end of mileage running opportunities, so it might still make sense for you.

Stay informed:
Follow me on Twitter / Like me on Facebook

Thinking of buying points and miles? Make sure to pay a fair price.

Overview

Lately I’ve been doing some pretty strange things. I checked into a hotel without any intention of staying there. I bought gift cards and sold them for less than I paid. And, I ordered products that I have no interest in ever using. Why have I done all of these crazy things? For points and miles, of course! Hotels, banks, and airlines regularly hold promotions in which you can earn bonus miles by staying, buying, flying, etc. Often it is possible to effectively buy miles and points at a very low rate by meeting the terms and conditions of these promotions even if you have no use for the hotel stays, products, or flights.

I and other BoardingArea bloggers regularly write about schemes that amount to buying points and miles at low cost. Here are a few examples from my blog:

• Top 5 Reasons to Buy Delta Miles for 1.1 Cents Each
  
• Mileage Run Shopping: Buying 162,000 Miles for $500
  
• Buy miles for 1.2 cents or less
  

The question you should ask before doing any of these crazy things yourself is whether these opportunities are really good deals. Is 1.2 cents a fair price to pay for Ultimate Rewards points? Is 1.1 cents a good price for Delta miles? If a blogger says something is a good deal, does that make it so? What if Lucky says it’s a good deal?

Read on and I’ll introduce an approach for answering these questions without having to make a “lucky guess” (pun intended). For simplicity, from now on I’ll refer to points and miles as simply “points”.

Fair Trading Prices

A common assumption many people have about buying points is that as long as the value exceeds the price paid, then you got a good deal. For example, if you pay $100 to buy enough points to cover your stay at a $400 hotel, then you got a good deal. Right? Not so fast; read on:

It is absolutely important that the value you get from points exceeds the purchase price, but another factor is also important: the current going rate, or what I’ll refer to as the “fair trading price”. As an example of why this is important, imagine if someone offers to sell to you a coupon for $100 that will give you a free night at a $400 hotel. That sounds like a great deal unless you happen to find that same coupon selling other places for $25. So, even though the value you would get from the $100 coupon far exceeds the cost of the coupon, it is not a good deal because there are better deals to be had. The same thing is true with purchasing points.

To the extent that there are straightforward and reproducible means for buying points, then the fair trading price is the lowest price available of those means. Most airlines and hotels will happily sell you points if you really need them. Unfortunately, they also often charge more for those points then the value you are likely to get from them. Unless a special rate is available, it usually only makes sense to buy points directly when you have a specific redemption in mind and you need a small amount to top off your account.

Another option people have for acquiring points is to use point earning credit cards. It is true that, unless you are a very big spender, using a credit card as the primary means to earn points is a long and slow road. However, the use of credit cards for acquiring points has become incredibly common (at least in the US) and I believe it is a useful tool for estimating fair trading prices.

The Cost of Credit Card Points

Yesterday, I asserted that using point earning credit cards is not free. In that post, I argued that there are several cards that offer 2% cash back (or equivalent) and that rate should be the standard by which we measure all other credit card returns. Using this measure, if your credit card gives you only one point for each dollar you spend, then you are effectively buying points for 2 cents each whenever you make a purchase. Therefore, 2 cents per point should be considered the high water mark for purchasing points. In other words, any “deal” in which you must spend more than 2 cents per point is no deal at all.

While 2 cents is a useful and easy to remember high water mark, it is not an accurate measure of fair trading price. Most points earning credit cards offer double or triple points for spend within certain categories. With those cards, the more you spend within those categories, the less you pay per point acquired. That is why, for several cards (SPG, Amex Premier Rewards Gold, and Sapphire Preferred), I estimated the blended rate cost per point for using those cards. Here is a table with the results:

Fair Trading Prices by Program

Each of the cards listed above are considered best in breed travel rewards cards. Each also allows points to be transferred to airline or hotel programs. This then allows us to build a chart of fair trading prices for common airlines and hotels:

* MR points can only be purchased to “top up” a specific redemption
** To transfer MR points to Hilton, it is necessary to first transfer to an airline (such as Hawaiian Airlines) and then transfer to Hilton Hhonors at a rate of 2 points for each mile.

Let me point out a few details about this table. The “Buy Direct” column is the advertised price to buy points or miles directly from each specific program. The price does not include any specials that may be running. The “Credit Card” column lists the best price you could get by trading points from one of the three listed flexible points programs. In each case I tried to find the transfer option that led to the lowest cost. Numbers in bold represent fair trading prices for each program. It is interesting to note that all listed airline programs get their fair trading price from credit card points, but for three out of five hotel programs the price to buy direct represents the fair trading price.

How to use the table

The table above does not answer the question of whether you are getting a good deal for a particular opportunity, but it does give you a benchmark to check against. Take the current Delta promotion, for example, where you can buy Delta miles for 1.1 cents each. Find Delta on the table above and you see that the fair trading price for Delta SkyMiles is 1.29 cents each. Since 1.1 cents is less than 1.29 cents, you can tell that the Delta promotion is a good deal. Let me stress, though, that it does not mean that you will benefit from this deal. Benefiting from a point buying deal depends upon how you end up using the points. If you manage to use the points for travel that would have otherwise cost significantly more than you paid, then you will have benefited.

Now let’s take a look at a few promotions to see if they are good deals or not:

Holiday Bonus Miles From American Airlines
Points, Miles, & Martinis wrote about this deal in which you can buy American Airlines miles for 2.1 cents each.
Deal price: 2.1 cents per mile
Fair trade price: 1.56 cents per mile
Good deal? No

100% Bonus on Purchased US Airways Miles is Back for December
View from the Wing reported that US Airways has brought back the 100% bonus on purchased miles.
Deal price: 1.75 cents per mile
Fair trade price: 1.56
Good deal? No

Club Carlson 50,000 points for Radisson stay Nov 10-Dec 30, 2011
Loyalty Traveler showed us how to qualify for this promotion. By staying one night in a Radisson after registering, Club Carlson will give you 50,000 Club Carlson points. If we assume that a night at a Radisson costs about $100, we can calculate the cost per point: $100 / 50,000 = $.002 = .2 cents per point.
Deal price: .2 cents per point
Fair trade price: .7 cents per point
Good deal? Yes!!!

Mileage Run Shopping: Buying 162,000 Miles for $500
In this post, I suggested a way to take advantage of an Ultimate Rewards promotion to effectively buy 162,000 Ultimate Rewards points for $500. In the details, though, you will see that 50,000 of those points were from a credit card signup bonus, so shouldn’t really be counted. The deal then is really 112,000 points for $500. We can calculate the cost per point: $500 / 112,000 = .0045 = .45 cents per point
Deal price: .45 cents per point
Fair trade price: 1.31 cents per point
Good deal? Yes!!!

Please keep in mind what I wrote earlier: just because something is a good deal when compared to fair trade prices, that does not mean it is a good deal for you. Only you can predict how you will ultimately use the points you buy. And, how you use the points will ultimately determine the value you get from them. Also, keep in mind that there are times where paying above the fair trading price is the right thing to do. For example, you may have an opportunity for a fantastic award redemption, but you don’t have enough points and you can’t wait to build up the points slowly. In that case, do the math to see if it the cost to buy points quickly is worth paying for the redemption you have in mind.

What’s Next

The table shown above is a point in time snapshot of what I believe to be fair trading prices for points and miles. I will soon add the table to a permanent page on this site. As I receive feedback from readers, I’ll update the table as needed. Also, I’ll continue to evaluate various credit cards and I’ll make that information available to you too. Beyond this, I intend to analyze a few credit cards that offer not just regular miles, but elite qualifying miles as well. From these cards we may be able to begin to estimate fair trading prices for elite qualifying miles. Please stay tuned.

Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.