When are more points worth more than fewer points?

Back in January I posed the rhetorical question, "Should all manufactured spend go through American Express gift cards?" and outlined a number of practical problems with using American Express gifts cards to manufacture spend (cards are shipped to your door activated, orders are sometimes inexplicably denied, American Express cards aren't accepted everywhere), as well as the significant advantages of fusing 1.5% or higher cash back onto everyday manufactured spend.

I concluded with a more speculative argument that "within reason, more points are more valuable than fewer points."

I want to dig a little deeper into that premise.

Comparing bonused spend to cash back

All manufactured spend should be divided, not into cash back versus miles and points, but into bonused and unbonused spend.

Theoretically, all unbonused manufactured spend would be better pushed through American Express gift cards purchased through a sufficiently lucrative cash back portal than if made directly with the credit card.

But that theoretical statement is not nearly as strong as it appears: many forms of unbonused manufactured spend are, for one reason or another, not accessible when using American Express gift cards.

The real issue arises when deciding between bonused spend and unbonused spend, when that unbonused spend is fused with cash back earned through American Express gift cards.

For example:

• A Hilton HHonors Surpass American Express card used at grocery stores earns 6 HHonors points per dollar. An American Express gift card bought at 1.5% cash back earns 3 HHonors points per dollar, plus 1.5% cash back.
• A US Bank Flexperks Travel Rewards card used at gas stations earns 2 Flexpoints per dollar. An American Express gift card bought at 1.5% cash back earns 1 Flexpoint per dollar, plus 1.5% cash back.
• A Chase Ink Plus card used at office supply stores earns 5 Ultimate Rewards points per dollar. An American Express gift card bought at 1.5% cash back earns 1 Ultimate Rewards point per dollar, plus 1.5% cash back.

The conceit here is obvious: 1.5% cash back ($15 per $1,000 in manufactured spend) is worth somewhat more than 3,000 HHonors points, roughly the same as 1,000 Flexpoints, and much less than 4,000 Ultimate Rewards points.

When are more points worth more than fewer points?

With all that being said, there's a reason I still manufacture HHonors points and Flexpoints at grocery stores and gas stations, and it's a function of my (extremely qualified) claim that, within reason, more miles and points are worth more than fewer miles and points.

The reason I stress the phrase "within reason" is that you should be redeeming your miles and points roughly as quickly as you earn them. When, and only when, you're doing so, there are advantages to having somewhat higher points balances rather than somewhat lower ones.

There a few reasons this is true:

• 5th night free benefits. Hilton, Marriott, and Starwood offer the 5th night free on 5-night award redemptions (Hilton for elite members, Marriott for all members, Starwood only at Category 3-7 properties). While the Marriott Rewards and Starwood Preferred Guest co-branded credit cards don't have bonused spending categories where it's easy to manufacture spend, Hilton does. If you foresee 5-night stays in your future, bonused spend on the HHonors Surpass American Express earns the equivalent of 7.5 HHonors points per dollar, which may put it over the top of 1.5% American Express gift card cash back.
• Tiered redemptions. The US Bank Flexperks Travel Rewards card has tiered redemptions, which means you can only redeem your Flexpoints starting at 10,000 Flexpoints (for up to $150 in hotel reservations) and 20,000 Flexpoints (for up to $400 in airfare) when they cover an entire travel purchase. If the perfect ticket you're looking at costs more than the maximum value your current Flexpoint balance can be redeemed for, you're (usually) out of luck.
• Transfer partners. This is a corollary of the above, but is just as important: 4 Ultimate Rewards points are worth more than 1.5% cash back not just because they can be redeemed for 4% cash back, but because they can be transferred to partner hotels and airlines where they're worth even more than a cent each.

Conclusion

This post absolutely isn't is an unqualified endorsement of manufacturing bonused spend instead of cash back — I love cash back, and my overall impression of the travel hacking community is that folks are too committed to hotel points and airline miles, acquiring unredeemably high balances at the expense of always-useful cash back.

But if, and only if, you're diligently redeeming your miles and points roughly as quickly as you earn them, then there are reasons to favor spending directly with bonused merchants rather than unbonused spending pushed through American Express gift cards, precisely because that bonused spending might get your balance within reach of a redemption you'd otherwise fall short of.

Quick hit: Hotel Hustle Hot Rates

I'm fond of saying that what travel hacking needs is more facts and less data. Much of affiliate blogging is taken up with listing transfer partners and earning rates, without concern for the ways that people actually earn and redeem their miles and points, and how to do so as lucratively as possible.

If there is a good argument for data over facts, it's the website of Seth Miller, the Wandering Aramean. He has developed a number of tools, some more and some less useful, but one I've been spending a lot of time on lately is Hotel Hustle. Hotel Hustle allows you to search, by airport or city, for properties in eight major hotel loyalty programs. It has a number of bugs which require it to be used in conjunction with another tool like AwardMapper, but it's a great resource.

The other day I noticed that Seth introduced what had the potential to be a very fun addition to Hotel Hustle: Hot Rates.

When I saw him post about Hot Rates on Twitter, I thought it might be an interesting way to see which hotel loyalty points are really worth earning for "aspirational" properties. My thought was that since cash prices have no upward bound (a hotel can theoretically charge any amount for a night), but award prices do have an upward bound (the top of the award chart), outsized per-point values would be most likely to occur at the most expensive properties.

Oddly, that proves to be not at all the case. Since the Hot Rates are powered by users' searches on Hotel Hustle, it's impossible to tell how representative they are, but the vast majority of Hot Rate properties are either airport properties or random mid- and low-tier properties in cities that happen to host one or more huge events each year.

Here's the entirety of the Club Carlson Hot Rate list. Besides the Radisson Blu in Beijing, these are not properties folks are sprinting to redeem their last-night-free benefit:

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Anyway, this post isn't meant to be an endorsement or an indictment, just a quick hit making my readers aware of this potentially useful resource.

Hopefully Seth will continue to introduce new features that will eventually make it truly valuable to the working travel hacker, and prove me wrong once and for all about the usefulness of data in this hobby!

If US Bank is trimming the fat, is Flexperks Travel Rewards next?

Plenty of digital ink has been spilled about the May 28/31 Club Carlson devaluation, including here, and there's not too much left to be said. However, one thing has been bugging me about the way Club Carlson has been talking about the change: they refer to it on Twitter as the "Visa announcement."

To explain why this has been nagging at me, it helps to think about how these co-branded credit card partnerships work. There are three independent corporate actors in any co-branded partnership. In the case of Club Carlson:

• Visa processes transactions. Visa owns and operates a worldwide network of point-of-sale terminals, for the use of which it charges merchants every time a Visa credit or debit card is used as a form of payment. It rebates part of those fees to US Bank in exchange for Club Carlson cards being issued on the Visa payment network.
• US Bank extends credit. US Bank timely pays merchants for the services rendered, and keeps track of customers' charges. If the customer fails to pay their balance in full and on time, they also get to charge the customer interest on those purchases.
• Club Carlson sells Gold Points to US Bank, and operates a hotel loyalty program.

With respect to the last-night-free benefit, the question is, who was paying the cost of those bonus nights?

One possibility is that Club Carlson was paying for those nights. They could have been reimbursing their participating hotels the full negotiated rate for Gold Point redemptions, and simply been eating the cost of the last-night-free benefit, in exchange for selling more Gold Points to US Bank and their customers.

The other possibility is that US Bank was paying. They may have agreed to buy additional Gold Points at whatever fixed rate they negotiated with Club Carlson, such that Club Carlson was made whole for however many last-nights-free we redeemed.

The way that the changes have been communicated, and Club Carlson's framing of the change as a "Visa announcement" leads me to believe the latter option is more plausible. And that feels like bad news.

US Bank is terrible at predicting the costs of their rewards programs

There are two ways for a bank to predict how much a rewards program will cost before launch.

One method is to look at a static picture of how your current customers spend their money. A certain amount on gas, a certain amount on groceries, a certain amount on clothes, a certain amount on tuition. You can then design a rewards structure that will be competitive with your rivals, while turning a healthy profit for yourself.

Another option is to look at the dynamic effects of the rewards program itself. It may be that offering 5% cash back in a certain category will make your customers divert more of their spending to that category than they were before the rewards program was introduced. This is much more difficult, since every bank treats information about customer spending behavior as a closely guarded, proprietary secret.

To date, US Bank appears to have exclusively used the former method. When they first introduced the Cash+ card, it had no limits on 5% cash back earnings, and no limits on the $25 bonus for redeeming more than $100 in cash back. What were they thinking? Well, they were calculating their costs based on the existing spending pattern of their customers, without taking into account the dynamic effects of 6.25% cash back in super-exploitable categories like department stores, home improvement stores, and others.

This is the best explanation of the Club Carlson devaluation

It's become a cliche that the last-night-free benefit at Club Carlson properties was "too good to last." But to a travel hacker, it's obvious that it was too good to ever get started! And yet it did. Why? Because US Bank looked at a static picture of the distribution of the length of award stays and decided they could afford to pay for the last night, without considering how that distribution would shift once the last-night-free benefit was introduced.

Once they came to terms with the fact that the number of 2-night stays shot up ten or one hundred times, they had to make a decision, and the decision was to end the benefit.

This may spell trouble for Flexperks Travel Rewards cards

I write about the US Bank Flexperks Travel Rewards card a lot because I love it: 2 Flexpoints per dollar spent at gas stations or grocery stores each month and 3 Flexpoints per dollar spent on charity, each worth up to 2 cents for paid airfare.

The trouble is that, for redemptions on airfare, it is almost mathematically impossible for US Bank to be turning a profit on this product.

Technically the worst redemption in the program would be redeeming 20,000 Flexpoints for a $201 ticket (since for cheaper tickets a 1-cent-per-point cash back redemption would be better); that would generate a hair over 1 cent per point, or a hair over 2% cash back at gas stations or grocery stores.

At 2% cash back, it's possible for the Flexperks Travel Rewards card to be turning a profit.

But besides those marginal airfare redemptions of $201 to $266, the second-worst airfare redemption in the program would be redeeming 30,000 Flexpoints for a $401 ticket, which would yield 2.67 cents per dollar spent at gas stations or grocery stores, or 4.02 cents per dollar spent on charity. And remember: that's the second-worst airfare redemption in the program. Every other airfare redemption (of points earned in bonus categories) is costing US Bank more than that.

And, as unbelievable as it sounds, if you spend at least $24,000 on the card per cardmember year, you also don't have to pay an annual fee! You'll earn 3,500 bonus Flexpoints you can redeem against your annual fee. You can even make the redemption online.

Keep your expectations low and your balances lower

I do my best to redeem my miles and points as fast as I earn them, and that's as true for US Bank Flexpoints as it is for any other rewards currency. As long as a currency is in the hands of the bank, airline, or hotel, I have no control over its value. Once I've redeemed it and, even better, once I've traveled, it's not something that can be revoked or devalued.

Note on booking Delta flights with Alaska miles

One of the great things about Alaska Airlines' Mileage Plan program is the ability to both credit paid flights operated by American Airlines and Delta Airlines, and redeem Mileage Plan miles for flights on either carrier (when low-level space is available).

I wrote back in February about free award changes and redeposits being a great benefit of Alaska MVP Gold and MVP Gold 75K elite status, since it applies to award bookings on partner airlines as well. In March, when I went to use that benefit again, I encountered an unexpected snag, one it's vitally important to be aware of if you use Mileage Plan as your primary frequent flyer program, as I do.

Delta enforces stricter fare construction rules on Alaska awards than on their own members

In the pre-2015 days of award charts and the deeply broken Delta booking engine, to piece together an international award trip you had one option: search leg-by-leg for low-level award space, then plug each leg into Delta's multi-city search tool.

With the improvements to the SkyMiles booking engine, and loss of stopovers, that's not only unnecessary, it's counterproductive. While before you could book low-level awards by stringing together low-level segments, now Delta will sometimes show different award availability for non-stop flights than for connecting itineraries. Here's an example of a flight from Boston to Detroit with availability only at the 20,000 SkyMile level:

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And here's a connecting itinerary with the same 10:30 am flight — but now it's available at the low level:

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If you want to fly to Detroit, and aren't checking a bag, you could of course book the connecting flight and get off in Detroit, although there are some risks to hidden-city ticketing. If you don't actually want to fly to Detroit, then if you're booking with Delta SkyMiles this doesn't affect you; just search for and book the connecting flight.

Here's the problem: when I attempted to book the same itinerary using Alaska Airlines Mileage Plan miles, the Alaska website returned the following error:

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When I spoke to an Alaska representative about the issue, she looked into it and explained that Alaska could only book Delta flights when there was low-level availability on each component flight of an itinerary — even if Alaska's website shows space on the composed itinerary, and even if Delta is willing to book the complete itinerary for their own members.

Conclusion

It's hard to say in the abstract how big a problem this is or will become. For now, on most flights, most of the time, Delta award space on each leg of an itinerary roughly corresponds to the award space for the entire itinerary, and this problem doesn't arise.

On some itineraries, some of the time, especially when connecting through one or more Delta hub, this will be a huge problem since it will completely prevent an award from being booked with Mileage Plan miles at any price.

In any case, it's an issue anyone using Alaska Airlines' Mileage Plan as their primary frequent flyer program should be aware of.

The May/June Club Carlson devaluation makes it just another middling hotel loyalty program

Before I get to the meat of my analysis of Club Carlson’s recently-announced devaluation, allow me to briefly mention my general approach when it comes to credit card rewards:

• I prefer cash above all other rewards currencies. I can use cash to pay my expenses, save for the future, and of course pay for travel out of pocket;
• There are times when earning rewards currencies besides cash can reduce the cost of a flight or hotel below the cost I would incur making a similar reservation with cash;
• If those situations occur frequently enough in a specific credit card rewards program, I’ll consider prospectively earning those rewards instead of cash.

The point is that my default mode when earning rewards currencies through credit card spend is cash back, and other loyalty currencies need to offer consistent, out-sized value in order to earn my business. Since the least valuable point is always the one you don’t redeem, I also make sure to redeem my hotel, airline, and proprietary credit card rewards points approximately as quickly as I earn them.

Consider the US Bank Flexperks Travel Rewards credit card. By earning 2 Flexpoints per dollar spent at "grocery stores" or "gas stations” each statement cycle, and redeeming those points for up to 2 cents each towards paid airfare, you might think that a return of up to 4% is a no-brainer (and, indeed, I do earn and redeem a lot of Flexpoints).

But last month I took a $500 voluntary denied boarding voucher on an American Airlines-operated flight. The next time I make a paid American reservation, I’ll use that voucher instead of up to 30,000 Flexpoints. Suddenly I have 30,000 more Flexpoints than I would have otherwise!

Sure, I can redeem them for 1 cent each in cash back, but that’s still a $33 loss compared to putting the same $15,000 in gas station or grocery store spend on my Barclaycard Arrival+ card (or, given the categories, another even higher-earning credit card like my Chase Ink Plus).

The Club Carlson credit cards used to offer consistent, super-sized value

The tool I use to analyze the value of hotel co-branded credit cards is the "imputed redemption value” of award reservations made with the chain: that’s the value you’re implicitly putting on a hotel redemption when you earn enough points through manufactured spend to make an award stay instead of earning cash back with the same spend. The last-night free benefit of the Club Carlson credit cards produced extremely low (that’s good, remember) imputed redemption values for stays of at least 2 nights:

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The only other hotel program which I have found to offer consistent value compared to cash back is Hilton HHonors, when you manufacture gas station and grocery store spend with the Surpass co-branded American Express card. While their 2014 devaluation dramatically raised the points cost of their properties, the exceptionally high earning rate of 6 HHonors points per dollar leaves relatively reasonable imputed redemption values, especially on stays of exactly 5 nights, when elites can take advantage of the 5th-night-free benefit:

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As I wrote on Friday, Wyndham’s new rewards program, which will, starting May 11, 2015, offer free nights at all participating Wyndham properties for 15,000 Wyndham Rewards points, has a single imputed redemption value. Manufacturing a single night at their properties will cost $166.50 in foregone cash back:

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Club Carlson’s program will be fine, if you really want to stay at Club Carlson properties

I have a commenter who always pokes fun at me when I talk about staying at dumps like the Radisson Blu es. Hotel, Rome or Radisson Martinique on Broadway just because the last-night-free benefit made them so cheap.

The fact is, I’m a poor person, so if I want to travel as much as I do, I need to do it cheaply. The Club Carlson credit card helped me do that. New York’s an expensive place to stay, and while I could always transfer Ultimate Rewards points to Hyatt and stay at one of their Manhattan properties, those points have an extremely high opportunity cost since they can also be redeemed for cash or paid airfare, or transferred to the right partner at the right moment. The Martinique made sense for me as an (admittedly run-down) alternative.

But beginning June 1, Club Carlson will not offer the outsized rewards that justified manufacturing thousands of dollars per month on their co-branded credit card. Here’s a side-by-side comparison of the imputed redemption values of Club Carlson stays and their competition, with the cheapest, second-cheapest, and most expensive stays highlighted in green, yellow, and red:

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Note: For Hilton I used a synthetic "mid tier" value of 45,000 HHonors points, which does not actually exist on their award chart; they have an even number of hotel categories.

As the chart clearly illustrates, at bottom-, mid-, and top-tier properties, Club Carlson is consistently the cheapest or second-cheapest chain to manufacture stays of less than 5 nights (top-tier, 5-night Hilton stays do clock in cheaper at $281, as shown in the chart further above), even without the discontinued last-night-free benefit.

The problem is that in exchange for your Club Carlson points, you’ll have to stay at Club Carlson properties, and many Club Carlson properties are dumps. Unless you have a clutch of Club Carlson properties you visit regularly, or a specific property you have your heart set on visiting, it no longer makes sense to manufacture large numbers of Club Carlson Gold Points speculatively.

If you feel like it, buy 3 domestic nights each year for $326.40 (or $351.40)

The Club Carlson co-branded credit cards still offer a single, specific value proposition:

• the US Bank Club Carlson Premier Rewards card has an annual fee of $85, while the Business Rewards card has an annual fee of $60;
• each year you renew your membership with either card, you receive 40,000 Gold Points;
• starting June 1, 2015, each year you spend $10,000 with the card you receive a free night at any Club Carlson property in the United States.

Since the earning rate of the card hasn’t changed, all this adds up to paying $222 in foregone cash back and a $60 or $85 annual fee, and receiving 90,000 Gold Points and a free night in the United States. Even if you have to manufacture an additional $2,000 in order to “top up” your Gold Points to 100,000 each year, you’ll end up paying $266.40 in foregone cash back, for which you’ll receive at least 3 nights at any US Club Carlson property (there are no domestic Category 7 hotels).

Since my partner and I visit Chicago at least a couple times per year, I’ll probably do exactly that, paying $108.80 per night for an annual 3-night stay at the Radisson Blu Aqua Hotel Chicago in downtown Chicago, which is a lovely hotel we’ve stayed at many times before (using the last-night-free benefit, of course).

By way of comparison, the imputed redemption value of the Hilton downtown Chicago properties (ranging from 40,000 to 60,000 HHonors points, depending on the season) is $118 to $178, while a reservation at the three Category 4 Hyatt properties in downtown Chicago would cost 15,000 transferred Ultimate Rewards points (worth $150 in cash).

Conclusion

The Club Carlson last-night-free benefit was so lucrative it justified a lot of otherwise-bizarre behavior. At the end of May, it’ll be gone, and Club Carlson will be just another middling hotel chain, packed with dilapidated, aging properties and struggling for relevance.

It sure was fun while it lasted, though!

Yes, the new Wyndham Rewards program will be great

I saw yesterday morning that Shawn at Miles to Memories had taken a crack at comparing the much-beloved Club Carlson rewards program with the just-announced changes to the Wyndham Rewards program, effective May 11, 2015.

There are many methods of comparing co-branded hotel credit cards. Personally, I prefer using a metric I call "imputed redemption values:" the amount of cash back foregone by using a hotel's co-branded credit card instead of a 2% or 2.22% cash back card.

The method isn't perfect (it ignores points earned on paid stays and elite-qualifying nights and stays) but it has two key benefits: it makes co-branded hotel credit cards directly comparable; and it gives a rough guideline for how much your typical room redemptions should cost to make hotel points worth manufacturing at the expense of cash back.

For example, here's an imputed redemption value chart for Club Carlson, in which I've helpfully included the last-night-free benefit:

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This chart illustrates the decreasing impact of the last-night-free benefit on longer stays.

By contrast, here's an imputed redemption value chart I whipped up just now for Wyndham Rewards' revalued post-May 11, 2015, program, using the Barclaycard no-annual-fee co-branded credit card earning 2 Wyndham Rewards points on all purchases:

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Stating the obvious

A glance at the charts shows that, unsurprisingly, It's still true that if you're staying exactly two nights somewhere with a Club Carlson property where you'll be happy staying, those two nights will always be cheaper if manufactured with a Club Carlson credit card than with a Wyndham Rewards credit card (or any other hotel's co-branded credit card).

Some people take vacations of more or fewer than 2 days

But if you're staying a single night, your last-night-free benefit is worthless. If you're staying more than 2 nights, and especially if you don't have a second Club Carlson account you can use to book alternating pairs of nights, the last-night-free benefit rapidly loses value.

Wyndham and Club Carlson have different property footprints

This works in two different ways. First, Club Carlson and Wyndham properties are located in different places. If you want to stay where a Wyndham property is located, you need to use Wyndham points or cash. If you want to stay where the Club Carlson property is located, you need to use Club Carlson points or cash.

Second, the distribution of properties within category bands is different. In a city with exclusively high-category Club Carlson properties, Wyndham stays are more likely to be cheaper (except on two-night stays, as mentioned above), while areas with low-category Club Carlson properties will have relatively expensive Wyndham properties.

The important thing to note here is that these distributions are not random. It is knowable (or at least predictable) in advance whether you're going to be visiting areas with relatively expensive or relatively cheap Wyndham properties (for example by looking at your travel pattern for the previous few years).

In other words, you don't need to decide between Club Carlson and Wyndham in a vacuum: you can make an educated guess about how well each program will work for you based on your actual and planned travel.

Club Carlson properties are wildly inconsistent

I'm checking in for a 2-night Club Carlson stay this afternoon. A few days ago I checked out of another 2-night Club Carlson stay. I had a 2-night Club Carlson stay in Rome in January. Last year I had several 2-night Club Carlson stays in New York City.

Suffice it to say, I love Club Carlson's program, and I love the last-night-free benefit.

With that out of the way, let's be honest: Club Carlson properties can be pretty terrible. The Radisson Blu in Rome has a great location right by the train station and a great breakfast buffet, and it costs just 44,000 Gold Points per 2-night stay (about $98 in foregone cash back per night). But I'll never stay there again; it's a dump.

Of course, readers have also shared wonderful experiences at various Club Carlson properties. The point is simply that locking yourself into Club Carlson because it's the "best" rewards program requires you to be indifferent to the quality of the properties themselves.

As travel hackers, we can hold ourselves to (at least slightly) higher standards than that!

Conclusion

The Wyndham Rewards co-branded credit card paired with the May 11, 2015, revaluation of the Wyndham Rewards program will make Wyndham Rewards stays in areas with high-category properties in other chains the cheapest or second-cheapest to manufacture, depending on the length of your stay.

However, whether it makes sense to prospectively manufacture large numbers of Wyndham Rewards points will still depend entirely on the distribution and quality of Wyndham and other hotel properties in the areas you actually intend to visit.

What's the point of class-of-service bonuses?

With the 2015 division of US airline loyalty programs into revenue-based (Southwest, Delta, United) and distance-based (American, Alaska) models, deciding on a primary carrier and loyalty program has become a game with multiple moving parts. While loyalty programs have always been confusing, evaluating a loyalty program now requires prospectively considering:

• your average cost per mile flown each year. If it's over the break-even point with Delta and United, you may be better offer continuing to credit your flights to them. If it's less than the break-even point, you'll be better off crediting your flights to a distance-based award program;
• how much of a premium you're willing to pay. How much more expensive are the typical American or Alaska flights out of your home airport? Are you willing to drive to a more distant airport in order to credit miles to a distance-based carrier?
• how much you value elite benefits. Crediting paid American and Delta flights to Alaska, as I do, means foregoing upgrades and same-day travel benefits on those flights. Likewise high-level elite status with either airline – but not Alaska – comes with regional and global upgrade certificates that can move you from economy to business class (or first class in American's case) on paid international flights.

In my case, taking all those factors into consideration, I decided to go with Alaska Airlines Mileage Plan as my primary airline loyalty program. That's principally because my flexible schedule means I'm always paying as little as possible for airline tickets, and redeeming miles for award flights whenever possible. My cost per mile flown would generate a trivial number of redeemable miles each year, while crediting flights to Alaska will continue to produce a noticeable number of miles.

All this was on my mind this week when I called into Delta to add our Alaska Airlines frequent flyer numbers to our first class tickets returning from New Orleans. In Delta's revenue-based model, those tickets would earn 1,715 SkyMiles for a general member or 2,401 SkyMiles for a Silver Medallion.

In Alaska's distance-based Mileage Plan, they'll earn 2,495 miles: 1,426 base miles and a 1,069-mile class-of-service bonus (we'll earn additional bonus miles as Mileage Plan elites, as well).

Thinking about this raised a seemingly-obvious question: what's the point of class-of-service bonuses, anyway?

Premium fares are more expensive because they're premium

In principle, passengers might be willing to pay more for premium fares for a number of reasons: full-fare economy tickets are freely changeable or refundable; business and first class fares include free checked bags, meals, drinks, and more comfortable seats or beds.

Of course at the other end of the spectrum Delta's cheapest "E" fares don't even include the ability to choose your seat.

The point is, why would airlines feel the need to bundle bonus frequent flyer miles into premium fares, when the fares are already higher because of manifest differences in the product being sold?

The way I see it, there were two possible reasons.

People are suckers

No one's ever gone broke underestimating the intelligence of American consumers. Every day I'm sure consumers buy more expensive tickets than they actually want or need in order to earn bonus frequent flyer miles, the value of which doesn't come close to making up for the difference in prices.

I bought our first class tickets using US Bank Flexpoints, so I was going to be paying the same 20,000 Flexpoints per ticket as long as the total price didn't exceed $400. Delta was selling a "G" class fare for around $300 and an "A" class fare for $392. Using Flexpoints, it was a no-brainer to choose the "A" fare, since it will earn 40% more Mileage Plan miles. I wouldn't have done the same if I were paying with cash, but are there consumers who would? Without a doubt.

People take advantage of corporate travel policies

The other explanation is that the individuals who accrue frequent flyer miles for trips paid for by their companies lobby for corporate travel policies that allow them to book premium fare classes. In other words, class-of-service bonuses pit the individuals doing the traveling against the companies that pay for it.

I'm not questioning that there are individuals who really do need fully flexible tickets. A consultant who truly has no idea how long an assignment will last springs to mind as the classic example.

But when refundable flights cost 3 or more times as much as non-refundable flights, simply not knowing if you'll have to return Friday or Monday isn't an excuse; the company would be better off booking two (or three!) non-refundable flights, while the employee doing the flying would much prefer the class-of-service bonus earned on a single changeable/refundable fare.

Enjoy class-of-service bonuses while they last!

While class-of-service bonuses are a scam, that doesn't quite do justice to the situation. Class-of-service bonuses are a scam because frequent flyer programs (and loyalty programs in general) are a scam. They exist in order to cloud consumers' judgment and earn excess profits on top of what airlines or hotels would earn providing commodity travel services.

Travel hacking has been the recognition of exploitable elements of systems designed in their turn to exploit travelers. Revenue-based programs are targeted at one of those exploitable elements (mistake fares and mileage runners), but commodifying frequent flyer programs into a simple rebate scheme will also be clarifying for passengers who mistakenly thought they were the beneficiaries of the airlines' largesse.

In the medium-term, it'll of course be interesting to see if and when American Airlines and Alaska Airlines follow suit. Until then, I'll be happily earning miles based on distance flown and enjoying class-of-service bonuses when – and only when – it makes sense to.

Trailing interest charges: the silent killer

Every travel hacker knows that interest charges (and annual fees) are the flip side of credit card rewards. You may earn 2% on the front end when paying with a credit card, whether you're buying a cup of coffee or manufacturing spend, but if you don't pay off your entire balance in full by the due date on your statement, you'll give it all back and more as your remaining balance accrues interest. On my credit cards rates typically start at 12.99% APR annually and go way, way up from there.

All over the travel hacking blogosphere you'll find variations of the mantra, "if you don't pay your credit cards off in full every month, travel hacking isn't for you." There's an ironclad kernel of truth to that (your interest charges will far exceed the value of your rewards) but also a deep illogic: even if you have to pay interest, you're strictly better off earning the most valuable rewards possible on any purchases you have to make. So I'll skip the lectures and stick to the facts.

Warning: trailing interest is like interest, but worse

Just like the interest earned on your savings, the interest paid on your credit card balances compounds, which gives rise to a (deliberately) confusing concept: trailing interest. Trailing interest is the product of a mismatch between the pace at which interest accrues (daily) and the pace at which it posts to your outstanding credit card balance (monthly).

Here's the description of trailing interest given on my American Express credit card statements:

"About Trailing Interest

You may see interest on your next statement even if you pay the new balance in full and on time and make no new charges. This is called "trailing interest." Trailing interest is the interest charged when, for example, you didn't pay your previous balance in full. When that happens we charge interest from the first day of the billing period until we receive your payment in full. You can avoid paying interest on purchases by paying your balance in full and on time each month."

The takeaway from this statement is that, if you failed to pay for your purchases in full and thus have a balance that's accruing interest, the date your credit card statement closes is the only date when your outstanding balance accurately reflects the amount you owe. Every subsequent day, a hidden amount of trailing interest accrues which will only post on the following statement closing date.

To avoid paying interest, you have to pay your balances off on time. To avoid paying trailing interest, you have to pay any interest-bearing balances off early, preferably on the statement closing date, to avoid giving trailing interest a chance to accrue.

Bonus warning: know how your banks calculate interest charges

Since I pay off my credit cards in full every month (preferably before my statement closes, to ensure as low a credit utilization as possible is reported to the credit bureaux), I never took the slightest interest in how banks calculate interest charges.

Until a few months back, that is, when due entirely to my own negligence I paid $5 less than my statement balance on my US Bank Flexperks Travel Rewards Visa Signature card:

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Mint, the website I use to track my bank accounts, credit cards, and investments alerted me that interest had been charged on one of my accounts, so I pulled up my statement and was horrified to see an interest charge of $20.35. Naturally my first move was to call in and ask a representative reverse the interest charge:

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But while I was on the phone, I asked her to explain how it was possible that I was charged $20.35 in interest on a $5 unpaid balance. The representative explained that at US Bank, they charge interest on your entire balance if any part of it is unpaid on the statement's due date.

So in case you were wondering how credit card companies pay for the rewards they shower on us, this is how: by aggressively charging customers who are anything less than totally and utterly vigilant about paying off their credit cards in full and on time.

Conclusion

I hope credit card interest charges are an issue that will remain completely and utterly academic for all my readers. Realistically, that's not going to be the case, but the more information you have about the kinds of interest charges and the way they're calculated, the more lucrative I hope your relationship with your credit card issuers will be.

Anatomy of an Award Trip: City of New Orleans

As teased in yesterday's housekeeping post, I'm headed to New Orleans for a week! Here's the scoop:

Getting there: a family bedroom on Amtrak's City of New Orleans

Amtrak operates a daily service between Chicago and New Orleans stopping in, among other places: Champaign-Urbana, IL, Carbondale, IL, Memphis, TN, and Jackson, MS.

Since both Chicago and New Orleans are in Amtrak's "Central Zone," a roomette award costs 15,000 Amtrak Guest Rewards points while a bedroom award costs just 25,000 Amtrak Guest Rewards points. Importantly, such awards include the fare for up to the maximum occupancy of the room. In other words, up to two people can travel in a roomette on a single, one-zone 15,000 Amtrak Guest Rewards award redemption.

Since my partner and I have already experienced the "roomette" (on the Empire Builder) and "bedroom" (on the Southwest Chief and Coast Starlight) room types, I decided to redeem my points for a "family bedroom." Here are a few key things to know about such redemptions:

• They cost the same number of Amtrak Guest Rewards points as a regular bedroom award;
• They include up to two adults and two children;
• They have windows facing out both sides of the train (roomettes and bedrooms are lined up along each side of the wagon, looking out one direction or the other);
• They do not have en-suite facilities. My understanding is that the family bedroom is on the same level of the wagon as the public showers, while bedrooms have private showers and toilets directly off the sleeping quarters.

Since the ride is just under 20 hours, my expectation is that the roomier accommodations and better views will make up for the lack of a private toilet and shower, but on a longer, cross-country trip that may become increasingly inconvenient.

Total cost: 25,000 Amtrak Guest Rewards points (transferred instantly from Ultimate Rewards).
Total value: $637. Value per point: 2.55 cents.

Staying there: Club Carlson and Hilton HHonors

Since we'll be in New Orleans for 7 nights, there were a few decent options for hotel redemptions:

• There's a category 6 Marriott downtown, the AC Hotel New Orleans Bourbon/French Quarter Area, where I could have redeemed 230,000 Marriott Rewards points for a 7-night Hotel + Air package and received a rebate of up to 55,000 United Mileage Plus miles or, more realistically, 50,000 Alaska Airlines Mileage Plan miles. That would have involved transferring 180,000 Ultimate Rewards points, worth $1,800 in cash. Since 7 nights at a 4-star hotel downtown cost (very roughly) $1,300, even generously valuing the Alaska miles at 2 cents each I'd only be getting about 1.28 cents per transferred Ultimate Rewards point. I felt I could do better.
• There's a Club Carlson property downtown in the French Quarter, the Country Inn & Suites By Carlson, New Orleans French Quarter, LA. As a Category 5 property costing 44,000 Gold Points per night, I could theoretically book 7 nights for the price of 6, or 264,000 Gold Points. Using the same $1,300 valuation as above, that would yield 0.49 cents per Gold Points. Since the Club Carlson Business Rewards Visa earns 5 Gold Points per dollar spent, that would yield a return of 2.46% on the spend I manufacture with the card, which isn't terrible for non-bonused spend.
• There's also a category 7 Hilton property downtown, the Hilton New Orleans/St. Charles Avenue. It ordinarily costs 50,000 HHonors points per night, but due to weird Hilton premium award pricing is available for 44,519 HHonors points during our stay in New Orleans. The wrinkle is that as an HHonors elite, I can book 5 nights for the price of 4, or 200,000 HHonors points, but unfortunately that benefit only applies to standard room awards, not premium room awards, which is where "weird" award pricing comes into play! Nonetheless, 280,000 HHonors points for a 7-night stay, $1,300 stay would yield 0.46 cents per HHonors point, or a 2.79% return on gas station and grocery store spend with my American Express HHonors Surpass card.

Ultimately, I split the difference: since the last night is free on all Club Carlson award reservations separated by at least one day, I booked our first two and last two nights in New Orleans at the Country Inn & Suites, and the middle three nights at the Hilton New Orleans/St. Charles Avenue, taking advantage of "weird" premium award pricing. In total, I paid 88,000 Club Carlson Gold Points for four nights (0.84 cents per Gold Point at $185 per night) and 133,557 HHonors points for three nights (0.42 cents per HHonors point at $185 per night).

However, if standard rooms open up for five consecutive nights at the Hilton, I'll cancel the first or last Club Carlson redemption and rebook using 200,000 HHonors points instead, saving the Gold Points for another day.

Getting back: US Bank Flexpoints for Delta first class (credited to Alaska)

For our return, I noticed that Delta was selling first class seats on the perfect itinerary home for just a hair under $400: $392.10, to be precise. Since I'm sitting on a constantly-growing stash of US Bank Flexpoints, it was a no-brainer to book us in paid first class for 20,000 Flexpoints per ticket. I'll credit the flights to Alaska, which will net me 3,922 Mileage Plan miles and get me 2,139 elite-qualifying miles closer to MVP status for next year.

Total cost: 40,000 Flexpoints.
Total value: $784.20. Value per point: 1.96 cents.

Conclusion

We're thrilled to be headed back to New Orleans, and I'm excited to try out a new Amtrak accommodation type on a new route. So until next week, I'll leave you with this:

Have a great weekend!

Blog housekeeping for March 26, 2015

A few quick notes on the site, feel free to skip if this stuff bores you.

WELCOME SAVEROCITY READERS!

Matt, the benevolent dictator/head honcho over at Saverocity, recently reconfigured his site and generously offered to plug my RSS feed into his front page. I leapt at the opportunity and want to extend the warmest welcome to Saverocity readers discovering my site for the first time: make yourselves at home!

Should I re-enable the site's mobile theme?

I hate mobile themes. When I visit this site on my mobile phone, it's because I want to access one of the resources conveniently linked at the top of the page (like hotel promotions) or check an airline's alliance membership or flexible currency transfer partners.

But I understand my readers are more likely to just want easy access to blog posts. If you care one way or the other, vote in the following poll and I'll act accordingly:

customer survey

Updated revenue disclosure

Reader Declan made an interesting point in the comments to this post about the old disclosure I had at the top of each page. He wrote:

"Do you know what "personal referral links" are - including links from Amazon Associates accounts? They're "third-party" (i.e. not you, not me) affiliate links."

In response I explained my reasoning, and still feel that my old disclosure policy (which explicitly mentioned Amazon Associates revenue) gave readers the information they needed to judge any possible conflicts of interest, but I've made it even more explicit so there's no mystery as to how I make (not very much) money from this site: Google Adsense, Amazon Associates, blog subscriptions, and personal referral links to sites like TopCashBack (the same links anyone else gets when they open an account).

I also decided to no longer include Amazon Associates links to specific products I'm reviewing (as far as I know, I've only ever included one, in my review of Pound Foolish, which I've now removed). The disclosure now reads:

"Disclosure: to the best of my knowledge, the only remuneration I receive for any of the content on this site is through my personal referral links, my Amazon Associates referral link, the Google Adsense ad found in the righthand sidebar, and my blog subscribers, who also receive my occasional subscribers-only newsletter. You can find all my personal referral links on my Support the Site! page."

I hope that makes sense, and if anyone has any other questions or concerns I'd be more than happy to address them.

Off to New Orleans

On Friday I'm heading to New Orleans for a weeklong vacation (look for an Anatomy of an Award Trip on Friday). The trip starts with a 20-hour Amtrak trip on the City of New Orleans, so my online presence will be limited over the weekend, but I anticipate keeping to a normal blogging schedule once there. We're planning a swamp kayak tour, so follow me on Twitter if you want to maximize your chances of seeing egrets next week.