Think about two situations for reserving an award flight to Europe: Within the first, you redeem 60,000 miles for a round-trip financial system award. Within the second, you pay 20,000 factors for a one-way financial system award. Which supplies the higher worth?
Chances are you’ll be inclined to say the second state of affairs, however it’s a trick query. Each situations lack the context to guage whether or not both represents a very good deal, a lot much less which supplies higher worth.
In brief, the associated fee in factors or miles is inadequate to inform you whether or not the award is an effective deal. So, let us take a look at tips on how to resolve when to make use of your factors and miles and tips on how to calculate your redemption worth.
Deciding when to make use of factors or miles
Getting worth out of your factors and miles begins with figuring out their price. Each month, TPG publishes valuations for all the main loyalty packages. We additionally replace our award calculator that can assist you resolve when to redeem factors or miles and when to e book a paid price.
Utilizing the TPG calculator
Utilizing the TPG calculator is simple. Choose whether or not you wish to calculate the worth of airline miles or lodge factors, after which select a program. Enter the fields utterly, together with any charges it’s essential to pay in your award.
For instance, as an example you needed to e book a five-night keep on the Waldorf Astoria Los Cabos Pedregal. Charges will fluctuate primarily based in your dates. However, in an instance we discovered, you would pay $10,549.75 or redeem 480,000 factors (after Hilton’s fifth-night-free profit for elite members on award stays) for a Pacific-view room with a king mattress and a plunge pool.
You need to use the TPG calculator to find out your potential redemption worth and whether or not you must redeem Hilton factors or e book a paid price for this keep. Since there are no charges on this award keep, you will put “$0” within the charges area.
Choose the “Calculate” button as soon as you’ve got enter your information. On this case, TPG values 480,000 Hilton Honors factors at $2,880. For the reason that money value of the lodge is (far) larger than $2,880, the calculator recommends redeeming Hilton factors.
You may see the calculation on the right-hand facet of the above screenshot. By finding out this calculation, you’ll be able to learn to calculate when to make use of your rewards or e book a paid price.
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Calculating your redemption worth
Redemption worth is a metric to find out when to redeem your factors or miles and when to e book a paid price. You may calculate your redemption worth by multiplying the money value ($10,549.75) by 100 and dividing the consequence by the award value (480,000 factors).
By doing so, you’d be taught the above Hilton keep would provide you with a redemption worth of roughly 2.20 cents per level. TPG’s valuations peg the worth of Hilton Honors factors at 0.6 cents per level, which means you would be getting over 3 times our valuation of Hilton factors.
Everytime you’re contemplating a redemption, you will wish to ask your self, “Ought to I exploit my factors and miles now, or am I higher off saving them?” In fact, solely you’ll be able to resolve primarily based in your state of affairs. However, in case you are ready to both use money or your factors and miles, use the next pointers:
- If you happen to calculate your redemption worth to be increased than our valuations, lean towards reserving an award.
- If you happen to calculate your redemption worth to be decrease than our valuations, lean towards reserving a paid price.
- If you happen to calculate your redemption worth to be equal to our valuations, different elements — which we focus on under — could show you how to resolve.
Associated: How (and why) you must earn transferable bank card factors
Accounting for taxes and costs
It’s essential to embody taxes and costs when utilizing the TPG calculator or calculating your redemption worth.
Lodge-related taxes are sometimes set by a share of the money price. So, in case you’re paying $200 for a lodge and the taxes add as much as 10%, you’ll be able to count on round $20 in taxes. Utilizing factors, alternatively, your money price is $0, so you’ll incur no taxes. Factors and miles might be a good way to keep away from paying hotel-related taxes — particularly in locations with sky-high tax charges.
Earlier than reserving, you’ll be able to see the total money price — together with taxes and resort charges — on the ultimate reservation display screen. Your choices could be as follows for a Marriott keep, as Marriott Bonvoy does not waive resort charges on award stays:
- Redemption keep: 80,000 factors plus $50 in resort charges
- Paid keep: $1,200
To appropriately calculate the award redemption, you’ll add taxes and costs on the award reserving ($50 of resort charges on this case) into the “Charges” field on the calculator. The calculator subtracts these taxes and costs from the paid price of the lodge. In any case, we’re finally evaluating $1,150 to 80,000 factors.
TPG values 80,000 Marriott factors at $672, so that you’re higher off redeeming Marriott factors on this instance for the reason that money price is far increased.
We are able to additionally calculate the redemption worth by multiplying the money value ($1,200) much less the award taxes and costs ($50) by 100 after which dividing the consequence by the award value (80,000 factors). Doing so would reveal we’re getting 1.44 cents per Marriott level, which is increased than TPG’s valuation of Marriott factors at 0.84 cents every.
It is also vital to contemplate carrier-imposed surcharges when reserving award flights, as these can provide an much more pronounced instance. For instance, contemplate the next Virgin Atlantic Flying Membership award choices. Particularly given how cheap paid charges might be for transatlantic flights, it is not extraordinary that you simply may discover paid flights bookable for lower than the taxes and costs on these awards.
On this state of affairs (and the others above to a lesser extent), failing to account for charges would paint a distorted image of the redemption worth.
You need to use the identical strategy when calculating the redemption worth of blended points-and-cash awards. Enter the money value of your itinerary like regular, deduct the money portion of your award as if it have been every other charge, and divide the remaining quantity by the factors portion of your award.
Associated: Tourism taxes are making worldwide journeys costlier
Different concerns
Along with charges, your calculation ought to embody any bills you would not have incurred on a paid itinerary. You might also wish to contemplate the chance value of the rewards you would’ve earned on a paid flight or keep.
We have in contrast apples to apples when calculating redemption values, however you do not essentially have to base your evaluation on similar itineraries. Suppose you wish to fly from San Francisco to Los Angeles, and you should buy an Alaska Airways ticket for both 10,000 miles plus $5.60 in taxes and costs or $150. That will provide you with a redemption worth of about 1.5 cents per mile.
Nevertheless, as an example Southwest has an analogous flight for $100. Setting apart elements that are not strictly pertinent to the calculation (like bag charges, seat choice and elite qualification), you might wish to use the Southwest flight value and decrease the redemption worth to about 1 cent per mile. In brief, it’s essential to resolve whether or not your choices are related sufficient to be interchangeable. If the schedule is shut and also you count on the expertise to be comparable, you might wish to base your calculation on the cheaper possibility.
Lastly, one controversial query within the award journey group is whether or not it is cheap to base redemption worth on a money value you’ll by no means really pay. For instance, you would get an outsize return on a premium award for a flight that usually prices tens of 1000’s of {dollars}. However in case you would solely be prepared to pay a fraction of the worth in case you booked a paid price, do you have to use that decrease price when calculating your redemption worth?
Associated: Save miles or cash and unlock higher availability with positioning flights
Backside line
The calculations mentioned on this information might help you consider whether or not you are getting a very good return. However these calculations should not dictate whether or not you e book an award.
A suboptimal award is usually a nice redemption in case you are quick on money however have factors to redeem. There are numerous methods to use your rewards for distinctive experiences for which it’s troublesome (or inconceivable) to peg a real worth. It is as much as you to resolve whether or not a given award is sensible.
