Thinking about cash-and-points redemptions (is hard)

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There's a curious problem that everyone encounters eventually as they become increasingly involved in travel hacking: how do you think about award redemptions that combine both cash and points? For example, this hypothetical reservation in New York City offers three options:

You can pay $143 in cash, $125 in cash and 24,000 HHonors points (getting 0.075 cents per redeemed HHonors point), or 60,000 HHonors points (redeeming your HHonors points for 0.24 cents each).

Another way of putting the same facts is that you can pay 60,000 HHonors points, or 24,000 HHonors points and $125 in cash (buying 36,000 HHonors points for 0.35 cents each), or $143 (buying 60,000 HHonors points for 0.24 cents each).

In other words, a cash and points redemption can be thought of as buying HHonors points with the savings compared to a cash rate, or redeeming HHonors points to save money off the cash rate.

As I say, that's a curiosity built into the concept of points and cash redemptions, and I'm not going to resolve it one way or another for you today (or ever). I'm interested in something else.

British Airways sells Avios very cheaply when making economy award redemptions

I have a trip planned to Europe next summer, booked using the last of my Club Carlson points before the great devaluation of 2015. Since my partner has friends and relatives in Germany, we're going to end up there, giving me the opportunity to book our return flights by redeeming Avios on Air Berlin flights to New York City. Here are the pricing options (for two passengers):

I'll dispense with the comparison to a cash rate (around $1,622 for two passengers) and focus on the top and bottom redemption options. It's possible to redeem 40,000 Avios and pay $178.18 in taxes and fees, or 14,000 Avios (26,000 fewer) and $498.18 ($320 more). If I already had 40,000 Avios in my account, this would be a no-brainer: I'd redeem the miles I earned.

But as you can see, I have between 20,000 and 26,000 Avios in my account currently (a hair over 24,000, in fact). That means I can transfer 16,000 Ultimate Rewards points to British Airways in order to save $240 (getting 1.5 cents per transferred Ultimate Rewards point), or I can redeem 6,000 fewer Avios and pay $80 more in cash (buying Avios for 1.3 cents per point).

So what's the problem?

The problem is that those are both outstanding opportunities!

Buying Avios for 1.3 cents each is a great discount if I have any plans to redeem the saved Avios for short-haul American Airlines flights, which can offer phenomenal value.

Redeeming Ultimate Rewards points for 1.5 cents each is also a great opportunity, since Ultimate Rewards points are worth just 1 cent each when redeemed for cash and just 1.25 cents each when redeemed for paid airfare.

On the other hand, Ultimate Rewards points are potentially worth much more when transferred to Hyatt and redeemed for expensive stays.

My solution is definitely not your solution

If it sounds like I've been wrestling with this problem for a while, it's because I have. But ultimately, I fall on the side of redeeming my Ultimate Rewards points for 1.5 cents each. That's because I'm points-rich and cash-poor: if I "saved" my points by redeeming 20,000 or 14,000 of them against the Air Berlin itinerary, instead of transferring in 16,000 Ultimate Rewards points, I would then redeem the corresponding Ultimate Rewards points for cash at just one cent each.

In the business, that's what we call "false economy."

On the other hand, if you live in a city that's served by American Airlines — and they actually offer SAAver seat availability — you might be used to redeeming your Avios for astronomical sums and leap at the opportunity to buy them for just 1.3 cents each.

Similarly, if you value your Ultimate Rewards points highly because you're able to aggressively redeem them for super-high-value redemptions, the idea of transferring them to Avios in order to redeem them at 1.5 cents each should sound preposterous.

Conclusion

I'm one of the most vigorous enemies of earning points speculatively. But once you've earned them, speculatively or otherwise, it's even worse to speculatively forego redeeming them! They're sitting in your accounts, begging to save you money.

I'm going to do them a favor and let them.