Two takeaways from Starwood Preferred Guest merger announcement

Since blog subscribers already knew about the changes coming to Marriott's elite status qualification in August, I want to highlight two additional takeaways from the details released Monday about the new program.

Starwood Preferred Guest cardholders see a 33% devaluation

Right now Starwood Preferred Guest cardholders earn 1 Starpoint per dollar spent on purchases, and can transfer 20,000 Starpoints to 25,000 airline miles with most of their partner airlines.

After August, they'll earn 2 Marriott Rewards points per dollar spent, and be able to transfer 60,000 Marriott Rewards points to 25,000 airline miles.

The same $20,000 in spend will only get you two-thirds of the way to the same number of airline miles, meaning that on a per-dollar-spent basis, you'll see a 33% devaluation.

Ultimate Rewards transfers look a little better for certain Starwood stays booked in 2018

Currently, flexible Chase Ultimate Rewards points transfer on a one-to-one basis to Marriott Rewards, where they can be transferred on a three-to-one basis to Starwood Preferred Guest. Since Starwood properties top out at 35,000 points, they require up to 105,000 Ultimate Rewards points per night (84,000 Ultimate Rewards points per night on a fifth-night-free award stay).

In August, standard awards will top out at 60,000 Marriott Rewards points, or 43% less than top-tier, peak-season Starwood stays cost today.

"Starting in 2019," standard awards will top out at 100,000 Marriott Rewards points during peak season, bringing the 2019 award chart basically in line with where it is today, although 70,000-point off-peak Category 8 awards will still look better than the 90,000 points they cost today.

Annoyingly, Marriott did not include information one way or the other about whether the new program will continue to offer the fifth night free on award stays. I feel like they could have cut 7 seconds off one of their garbage promotional videos to mention that important piece of information (note that embargoed-for-your-protection Gary Leff says the feature will remain).

Conclusion

Both these observations point in the same direction: if you have a Starwood Preferred Guest credit card today, you have up to 4 more statement closing dates before the changes go into effect. While the Starwood Preferred Guest American Express cards have always been decent for unbonused manufactured spend, especially if you had a particularly lucrative hotel stay or airline transfer partner in mind, all your spend that posts by your July statement closing date will be grandfathered in at the current airline transfer rate and benefit from lower point requirements at Starwood Preferred Guest Category 6 and 7 properties after August 1.

In other words, it's a uniquely auspicious time to pivot away from your other unbonused manufactured spend credit cards and towards your Starwood Preferred Guest, especially if you primarily redeem your Starpoints for Category 6 and 7 redemptions.

This post is focused on Starwood Preferred Guest members because Marriott Rewards members have been so screwed for so long I don't think it's worth dwelling on the fact that the beatings will continue for the foreseeable future.

It's true that the creation of three additional Marriott Rewards redemption tiers above the current maximum redemption rate of 45,000 points will create additional headroom for Marriott to inflate properties into more expensive categories, punishing people who earn Marriott Rewards points through paid stays (and certainly make the 25,000-point and 35,000-point free night certificates just as worthless as they are today). But my working assumption is that anyone who has been earning Marriott Rewards points through paid stays is already so thoroughly downtrodden they'll scarcely notice that the beatings have slightly accelerated.

Don't sleep on the next couple weeks of manufactured spend

There are a couple current and upcoming manufactured spend opportunities I want to make sure readers are aware of.

Office Depot/OfficeMax Visa gift card promotion through March 17

This promotion comes around every few months and is always a good opportunity to load up on Ultimate Rewards points for folks who have a Chase Ink Plus, Ink Bold, or Ink Cash small business card. The current iteration of the promotion is $10 off $300 or more in Visa gift cards.

If you buy two $200 Visa gift cards with $6.95 activation fees, you'll end up paying $3.90 in activation fees after the $10 discount is applied, or 0.2 cents per Ultimate Rewards point if you pay with a card earning 5 Ultimate Rewards points per dollar spent at office supply stores.

This is worth doing basically regardless of your liquidation method. Even paying Plastiq (you can find my personal referral link on the Support the Site! page) $4.88 per card in liquidation fees brings your cost per Ultimate Rewards point up to just 0.68 cents each — a good deal!

Grocery store gas points on Visa gift card purchases between March 16 and March 22

Slightly overlapping with the Office Depot promotion, via Miles to Memories I saw that Giant, Stop & Shop, and Martin's stores will offer 2 gas points per dollar spent on Visa gift cards between March 16 and March 22.

These stores usually don't offer any gas points on prepaid debit card purchases, so it's potentially lucrative to time your grocery store manufactured spend to periods when these promotions are in effect, if you drive and especially if you have a way of storing extra discounted fuel.

I don't drive but have mused in the past about options for distributing fuel points to folks who do (there are some more great suggestions in the comments to that post).

Are your unredeemed points killing your game?

I haven't written about this lately, so hopefully my long-time readers will indulge me as I dive back into what I find is one of the most under-appreciated risks of travel hacking: the risk of unredeemed points.

Plenty of attention is paid to devaluation risk, which is what you encounter when it takes you too long to earn the points you need for the trip you want to take, and the amount you earn in anticipation of a redemption ends up not being sufficient. This risk does not concern me in the least. Earning more points is the natural condition of the travel hacker, so who cares if every few years you need to pack on a few tens of thousands of points in order to secure the redemption of your dreams?

No, the real risk faced by travel hackers every day isn't earning too few points — it's earning too many points, and finding them unredeemable or redeemable only at much lower value than the redemption they were earned in anticipation of.

It turns out flying to Munich is very cheap

The occasion for me thinking about this subject is my partner's planned intercontinental family reunion in Germany this year, which I figured was the perfect opportunity to prove the value of all those trips to Walmart: with all the transatlantic Star Alliance traffic, it should be a piece of cake to find some premium cabin award space so we can travel there in style and comfort. Since I've got way more Ultimate Rewards points than I'm comfortable with, a quick transfer to United would yield a high-value redemption and take a weight off my mind.

Unfortunately, flying to Munich is very cheap. We can fly there and back, nonstop, on the day of our choosing for $775. That's handily under the $800 US Bank Flexperks redemption threshold, so I can book a nonstop ticket for $400 in Flexpoints.

Meanwhile, two roundtrip award tickets in Lufthansa's business class would cost 280,000 Mileage Plus miles and $212 in taxes and fees, or $1,506 per ticket valuing Ultimate Rewards points at their cash value of 1 cent each.

$1,106 is a lot of money, and $2,212 is even more money, so I'm not going to pay that much to upgrade us to business class on a couple of 8-10 hour flights.

What do you do when this happens over and over again?

There are two potentially competing forces at work here: the drive to earn the most valuable points possible and the drive to redeem the right points for each individual redemption. I say "potentially" competing because in many — hopefully most — cases you'll find they are not: if you primarily travel to cities with Hyatt locations that meet your needs, you'll almost invariably find that cheaply-earned Ultimate Rewards points transferred to Hyatt are one of the best values available.

For example (just because I like examples), in Seattle a night at the Hyatt at Olive 8 costs 15,000 World of Hyatt points ($3,000 in office supply store spend with a Chase Ink Plus) while the Hilton Seattle may cost 70,000 Honors points ($11,667 in bonused spend on a Surpass American Express).

But what happens when "high-value" redemptions like the Lufthansa business award I described above are ruled out over and over again by far cheaper paid tickets booked using fixed-value currencies like Flexpoints?

I stay at a lot of Hyatt properties, and I book them for friends and family every chance I get, and I still have enough World of Hyatt and Ultimate Rewards points for 10 nights at a Category 7 property, or 64(!) nights at a Category 1 property. Having too many points to redeem doesn't feel as acutely painful as having too few points to redeem, but both situations send the same signal: that my system is out of of balance.

I think you should redeem your points for cash, but you won't (and neither will I)

The funniest thing I see on Twitter and in the miles and points blogosphere is people bragging about their points balances, as if having a high balance was a point of pride, rather than an admission of failure.

To state what should be obvious, the best number of miles and points to have in all your accounts is zero: the perfect calibration of your earning and burning activity would leave all of your accounts empty virtually all the time, with all of your earning activity purposefully directed towards particular planned redemptions.

That's impossible, both because the world isn't so tidy and because humans are blessed with foresight: odd numbers of points accumulate here and there as various promotions are triggered, and points are earned in small amounts in anticipation of large future redemptions. Such is life.

But the necessity of living in the world as it actually confronts us is sometimes converted into the false belief that high balances are good in their own right, because they give you "flexibility" for future redemptions or "insurance" against a particular deal or earning opportunity dying.

Conclusion

I understand that one subset of travel hackers is wealthy people who use miles and points as a kind of stunt to save money on the kinds of luxury vacations they'd still take if the game didn't exist.

Above I compared a business class award flight on Lufthansa to a paid economy class flight on United. However, if your alternative to each redemption were payment in cash, the comparison would look very different: the $775 United flight gets you about two cents per point on a Flexperks redemption, while the $1,506 Lufthansa flight gets you over 4 cents per point (for a ticket that would otherwise cost $6,143). There you'd be comparing a "good," or even "great," Ultimate Rewards redemption against a "standard" Flexperks redemption, and you wouldn't be wasting $1,106, but rather saving $4,637 per ticket!

That is, needless to say, not my perspective.

Rewards programs, ranked by reliability

One fun thing about writing a blog is that reader feedback gives you a chance to see how different ideas interact and collide. Last Friday when I wrote "While I'm willing to take unlimited risk in my investment portfolio, I'm willing to take virtually no risk in my travel hacking portfolio," reader Danny commented:

"This seems like an interesting sentiment. I'd be far more concerned with keeping my investments sound than my points balance."

Then on Monday I wrote with respect to my findings on Hilton all-inclusive award pricing that:

"If points costs will fall to match low revenue rates, it is easier to justify earning large quantities of Hilton points knowing that you'll almost always get close to, or above, their imputed redemption value."

I've been thinking about these two ideas, risk and reliability, and how they interact in my travel hacking practice.

Devaluations are the big, unknown risk

For several years, the US Bank Club Carlson credit card offered the last night free on all award stays. Now, this benefit was never quite as good as it was cracked up to be since Club Carlson properties, even or perhaps especially high-end Club Carlson properties, are dumps (true story: months after the Radisson Blu Warwick Hotel Philadelphia finished their renovations to not be a dump any longer they left the program).

Many people, expecting that benefit to continue indefinitely, earned hundreds of thousands, or millions, of Club Carlson Gold Points (trust me — many of them are readers of this blog).

Then the last-night-free benefit ended, and those points could only be redeemed at still-crappy Club Carlson properties. The same spend that earned those millions of points could have been used to earn 2% cash back, unbonused Ultimate Rewards or Membership Rewards points, or another rewards currency.

That's the kind of risk that I do my best to avoid in my travel hacking practice, by earning the rewards I redeem and redeeming the rewards I earn.

Reliability is the certainty of being able to redeem rewards for the trips you want to take

Reliability is something slightly different than risk. A reliable program offers consistent redemption values, whether or not that value is high or low, attractive or repulsive.

For example, according to Hotel Hustle, the IHG Rewards Club offers quite remarkable consistency, with a median value of 0.58 cents per point, with 75% of award searches above 0.44 cents per point and 75% of awards below 0.68 cents per point. That doesn't make it attractive to manufacture IHG Rewards points, but it gives you a clear view of the value of any points you might earn in one of their periodic sweepstakes or promotions.

My top ten loyalty programs, by reliability

Whether a particular rewards currency is "worth earning" depends on both your cost of acquisition and your particular travel plans, so this is not a list of the top ten most valuable loyalty programs. It's only a list of the top ten rewards programs sorted by my view of their reliability.

  1. Cash. Cash has the great benefit of maintaining its dollar redemption value no matter what happens. It is, in that way, the most reliable rewards currency. Into this category also falls the fixed-value redemption of currencies like Ultimate Rewards, Membership Rewards, BankAmericard Travel Rewards, and other rewards programs with fixed values, like Delta SkyMiles Pay with Points redemptions. Their reliability is unimpeachable.
  2. IHG Rewards anniversary free night certificates. In the several years I've been travel hacking, I've never seen an IHG property that I would be willing to transfer points, buy points, or manufacture points in order to book. But they really do have a Chase IHG Rewards credit card that gives you an annual award night at any IHG Rewards property in the world! I've never seen a report of the certificate not being honored for any reason, except the chain's preposterously loose rules on award availability. As far as I can tell the thing is completely reliable. Compare that to Marriott's anniversary night certificates, which have become almost unredeemable as properties continually migrate up out of Category 4.
  3. Flexible Ultimate Rewards. Chase Ultimate Rewards points held in a Sapphire Preferred, Sapphire Reserve, Ink Bold, or Ink Plus account are more valuable than cash but slightly less reliable, since their value depends in part on the value of transferred points. One component of the value of a flexible Ultimate Rewards point is the value of one United Mileage Plus mile, but the value of a United Mileage Plus mile is highly volatile, so that portion of the value of an Ultimate Rewards point is also volatile. Nonetheless, Chase strongly supports the 1:1 transfer ratio of Ultimate Rewards points to their partners, so the reliability of the program overall is raised by the relative constancy of programs like World of Hyatt and Southwest Rapid Rewards.
  4. US Bank Flexpoints. Long-time readers know I love the US Bank Flexperks Travel Rewards Visa because of its generous bonused earning categories, but the process of redeeming Flexpoints introduces some unreliability into the system. Flights will sometimes be shown with odd fare differences which push them into a higher redemption band, for example. Nonetheless, the ability to redeem Flexpoints for between 1.33 and 2 cents per Flexpoint makes them one of the most reliable currencies around.
  5. Flexible Membership Rewards. Here the problem of transfer partner volatility is magnified by the eclectic range of partners Membership Rewards has. For example, in 2015 the transfer ratio to British Airways Avios dropped 20%, from 1000:1000 to 1000:800. Then in 2016 British Airways created a special exception to their distance-based award chart in order to charge between 33% (off-peak) and 60% (peak) more for business class flights between Boston and Dublin on Aer Lingus. Today, you may need to transfer 75,000 Membership Rewards points to Avios to pay for a flight that would have cost 37,500 Membership Rewards points before the two devaluations. This doesn't mean that Membership Rewards points themselves have radically decreased in value (how often do you fly between Boston and Dublin?), but the example illustrates the way in which their reliance on transfer partners for value introduces a lot of volatility into the value of their rewards currency, since they don't control their partners' award redemption rates.
  6. Southwest Rapid Rewards. Unlike a true fixed-value currency, Southwest Rapid Rewards points have fixed values only within each fare bucket: Wanna Get Away (between 1.4 and 1.6 cents), Anytime (about 1.1 cents), and Business Select (about 0.9 cents). That means that while you know you'll get one of those three values, which one you get depends on availability, reducing in my view the overall reliability of the program. Southwest enthusiasts avoid this problem by carefully watching the schedule and snapping up Wanna Get Away fares as soon as they become available, increasing the overall reliability of the program for them, at least for flights booked far enough in advance.
  7. World of Hyatt. According to the Hotel Hustle database of search results, the lowest value redemption at Hyatt properties is 0.91 cents per point (the median is 1.78 cents). If my Chase accounts were abruptly closed and I had to speculative transfer my entire Ultimate Rewards balance, I would choose World of Hyatt in a heartbeat. Hyatt doesn't have properties everywhere in the world, which makes it hard to rely on as a first-string hotel rewards program, but if there's a Hyatt in your destination you're exceedingly likely to get a good redemption value.
  8. Starwood Preferred Guest. Starwood has three different sources of value: their points can be redeemed for hotel stays at Starwood and Marriott, they can be transferred to airlines partners (either directly or through a Marriott Hotel + Air package), or they can be redeemed for revenue flights. That makes it almost impossible to get a bad value for your Starpoints, although it also causes the much more serious and common problem of hoarding Starpoints and being unwilling to redeem them for anything but the perfect redemption!
  9. Hilton Honors. As I've been discussing lately, the biggest effect of the recent changes to Hilton Honors is that they've apparently deliberately increased the reliability of the program. While there will always be sub-par redemptions in any non-fixed-value loyalty program, Hilton appears to have increased the number of properties where points redemptions make sense compared to paying cash rates.
  10. Legacy airline programs. I got into travel hacking at the very tail end of the period when, with flexibility and planning, it was still possible to fairly reliably book low-level domestic award tickets. Those days are over. Virtually all of my domestic travel today, in both economy and first class, are revenue tickets, not because revenue tickets have become cheaper but because award tickets have become completely unreliable as a means of booking domestic travel. International travel, especially on partners, hasn't seen quite as bad a gutting, and flexibility and planning still go a long way to booking flights overseas. Having access to legacy airline currencies through Ultimate Rewards, Membership Rewards, and Starpoints is still a reasonable tactic in case you happen to find award availability, but I don't think it can be the cornerstone of a strategy any longer.

Conclusion

There you have it, my completely subjective top ten ranking of rewards programs by reliability. This is certainly not the only ranking possible: those whose travel regularly brings them to expensive cities with Starwood properties will find they're able to get consistent value from Starwood Preferred Guest, and those who live in cities with many international partner airlines will likely get more consistent value from legacy airline programs than I do. But today, a combination of cash back, Ultimate Rewards or Membership Rewards, and one or two strong hotel programs seems most likely to help you pay as little as possible for the trips you want to take.

Booking Southwest flights with Flexpoints and Ultimate Rewards

I previously wrote up my experience booking a Hyatt all-inclusive resort in Jamaica. That left the question of how to get there. While I'm not ready to be seduced by Southwest, I waited to pull the trigger a bit too long and the price difference between the nonstop Southwest flight and one-stop options on real airlines shrank enough to convince me to give them a shot, despite my reservations.

Chase Ultimate Rewards points and US Bank Flexpoints can be used to book Southwest flights

Southwest famously doesn't participate in the public Global Distribution System that real airlines use, which is why their fares don't show up on ITA Matrix, Google Flights, and online travel agencies (Google Flights will show you Southwest routes, but not fares).

But the Chase Ultimate Rewards travel center and US Bank Flexperks Travel Rewards travel contractor can book Southwest fares over the phone.

Redeeming Chase Ultimate Rewards points for travel on Southwest

To make an Ultimate Rewards redemption on Southwest call 866-951-6592.

Like all Ultimate Rewards travel redemptions, points are worth 1.25 cents each for travel on Southwest, and you can use any number of Ultimate Rewards points against the purchase price and pay the remainder in cash. After transferring points to Hyatt to pay for our stay in Jamaica, I didn't have quite enough Ultimate Rewards points left to pay for my partner's ticket, so I redeemed my entire Ultimate Rewards balance and paid the remaining amount with my Chase Ink Plus card, which should earn 2 Ultimate Rewards points per dollar if the purchase codes correctly as a Travel Center reservation.

Theoretically I could have redeemed my Ultimate Rewards balance for a cheaper Southwest fare, then cancelled that flight and used the value towards the ticket I really wanted while paying the difference with the card of my choice. Since this was my partner's ticket and as far as I know she doesn't even have a Rapid Rewards account, I decided to keep it simple and just book the tickets I really wanted.

After feeding the Ultimate Rewards agent the dates and flights I wanted, she came back with a price about $90 cheaper than the fare available online. I had heard of this happening before, so told her to go ahead and make the reservation. After giving her all of my partner's information and my credit card information, and waiting on hold for a while, she came back and told me that flight was not available.

After going back and forth a few times, it turned out what she really meant was that that fare wasn't available, which didn't surprise me, and she was ultimately able to book the fare I had found online.

The call took a total of 45 minutes.

Redeeming US Bank Flexpoints for travel on Southwest

To redeem Flexpoints for travel on Southwest call 888-229-8864. The "Rewards Center" US Bank uses is not open 24 hours a day, but has pretty reasonable hours, something like 7 am to 11 pm, Monday through Saturday (I didn't catch their Sunday hours, but they were closed at 10:50 pm Eastern on Sunday).

After taking down my trip details, the agent explained that in order to book international travel on Southwest he had to call them, get a fare quote, put the reservation on hold, and then return to confirm the fare and itinerary with me. He asked me if there was a particular fare I was expecting, which seemed like a common sense precaution to make sure we were looking at the same flights and dates. It was unclear to me whether the same procedure is required for domestic travel on Southwest.

While the Southwest Anytime fare I booked for my partner was still available for about $900, a Business Select fare was also available for $950. Since I was redeeming Flexpoints, I knew that either itinerary would cost 50,000 Flexpoints and I told the agent to look for the Business Select fare. He was happy to do so and, after putting me on hold for 25 minutes or so, returned with the same fare I had found online.

Since Southwest flights can't be booked online, he also waived the $25 phone booking fee.

The call took a total of 44 minutes. If it seems strange that the call took almost as long as my call with Chase did even though the agent was able to accurately find the correct fare on his first try, the reason is the two lengthy holds he placed me on while calling Southwest.

Adding your Rapid Rewards number

Neither agent asked for a Rapid Rewards number to add to the reservations, and I didn't ask since I was getting pretty bored of waiting on the phone. However, both agents provided the Southwest confirmation number, which made it easy to pull up the reservations on Southwest.com. The Flexperks Rewards Center also provided an "agency" confirmation number they use internally — be sure you get the Southwest confirmation number as well.

Strangely, I was unable to add my Rapid Rewards number to my reservation while logged into Southwest.com. After logging out, however, I was able to pull up my reservation and manually add my Rapid Rewards number, and the reservation immediately appeared in my account.

Fuel surcharges on Korean's SkyTeam partners

Last week I saw a flood of posts about Korean Air adding the ability to search and book SkyTeam partner awards online (for example). Since Korean Air SKYPASS is an Ultimate Rewards transfer partner, it's worth checking to see if there are any good values on their SkyTeam partners now that it can be done easily online.

The three most important things people know about Korean Air SKYPASS are:

  1. You can only book awards for yourself and a very tightly defined group of family members;
  2. SKYPASS awards pass along fuel surcharges;
  3. Korean Air's award "zone" definitions are unusually generous, with Hawaii located in North America and South America being treated as a single zone.

Being a literal-minded sort of person, I decided to see how bad those fuel surcharges are on all of the SkyTeam carriers departing from the United States.

Here's what I found.

Not bookable online

While I was able to find award space on these SkyTeam airlines using Delta's search engine, I couldn't pull up the same flights using SKYPASS:

  • Aeromexico to Latin America;
  • Alitalia to Italy;
  • Aerolineas Argentinas to Argentina.

The functionality may be added in the future, but for now I don't believe SkyTeam awards are bookable online using SKYPASS on those carriers.

Low fuel surcharges

Carriers that charge low fuel surcharges are the likeliest to be worth redeeming SKYPASS miles on, since you can take advantage of Korean's generous award chart without suffering the drawback of paying a high cash co-pay. On these low-fuel-surcharge routes you're likely to save money whether you choose to fly in economy, business, or first class.

For each airline I've given a sample route and the cost in SKYPASS miles for an economy ticket, and I've separated out the taxes and fees and the fuel surcharges. In all cases these prices are roundtrip, since Korean requires SkyTeam awards to be booked as roundtrips.

  • Delta to Peru, ATL-LIM. 50,000 SKYPASS miles, $103.40 in taxes and fees, $0 in fuel surcharges.
  • Delta to Japan, SEA-NRT. 80,000 SKYPASS miles, $80.04 in taxes and fees, $0 in fuel surcharges.
  • Aeroflot to Russia, JFK-SVO. 50,000 SKYPASS miles, $252.12 in taxes and fees, $0 in fuel surcharges.
  • China Eastern to China, LAX-PVG. 90,000 SKYPASS miles, $420.60 in taxes and fees, $8 in fuel surcharges.
  • China Airlines to Taiwan, HNL-TPE. 90,000 SKYPASS miles, $73.15 in taxes and fees, $0 in fuel surcharges.

Medium fuel surcharges

These routes charge less than $500 in fuel surcharges, and might be worth considering in premium cabins or if you find award space on dates with particularly expensive cash fares.

  • Delta to China, SEA-PEK. 90,000 SKYPASS miles, $70.60 in taxes and fees, $282 in fuel surcharges.
  • Delta to South Africa, ATL-JNB. 80,000 SKYPASS miles, $99.95 in taxes and fees, $390 in fuel surcharges.
  • China Southern to China, LAX-CAN. 90,000 SKYPASS miles, $70.60 in taxes and fees, $208 in fuel surcharges.

High fuel surcharges

These are the routes where high fuel surcharges mean economy award tickets are likely to cost the same or more than economy tickets, while premium cabin award tickets may cost the same as an economy ticket paid for with cash.

  • Delta to Europe, JFK-BCN. 50,000 SKYPASS miles, $81.25 in taxes and fees, $556 in fuel surcharges.
  • Air France to Europe, JFK-CDG. 50,000 SKYPASS miles, $113.16 in taxes and fees, $576 in fuel surcharges.
  • KLM to Europe, JFK-AMS. 50,000 SKYPASS miles, $82.26 in taxes and fees, $576 in fuel surcharges.

Those flights would cost just 80,000 SKYPASS miles roundtrip in business class, for a total cost of $1437.25 - $1489.16 if you value transferred Ultimate Rewards points at their cash value of 1 cent each. Unfortunately business class space on SkyTeam across the Atlantic is very poor so you're unlikely to be able to take much advantage of these price points.

Routing rules

The basic routing rules for SkyTeam awards are pretty simple, although there are a host of exceptions: you can have three segments in each direction between your origin and destination, one stopover per itinerary, and one open jaw at your destination (which does not consume your stopover).

Drew at Travel is Free wrote a more detailed guide to Korean's routing rules, but I don't know if there's much point in trying to intellectualize their rules and restrictions. Basically, you can do a lot of things, within reason, and you can do some things beyond reason,  if you use Korean-operated flights. For example, a LAX-PVG-NRT-PVG-JFK itinerary will not price out entirely on China Eastern, but if you make it LAX-PVG-NRT/NRT-ICN-JFK with the return operated by Korean, it'll happily price out. This may also have to do with a Maximum Permitted Mileage restriction — the point is there's no substitute for getting in and playing around with the search engine to see if it'll accept your particular crazy idea.

For example, the engine happily priced out LAX-HNL(stopover)-NRT(destination)-HNL(transfer)-LAX for 80,000 SKYPASS miles and $87.84 total in taxes, fees, and surcharges. While a roundtrip to Hawaii for 25,000 miles is a good deal, a roundtrip to Japan with a stopover in Hawaii for 80,000 miles is a great deal.

Overdiversifying, underdiversifying, and practicing what I preach

I recently had the pleasure of redeeming 30,000 American AAdvantage miles for a $290, one-way domestic plane ticket, which gave me an excellent opportunity to reflect on some travel hacking wisdom I never get tired of preaching: the least valuable point is the one you don't redeem.

The real risk of underdiversifying is paying cash

The point of travel hacking should be to pay as little as possible for the trips you want to take. I'm absolutely indifferent to whether you want to travel domestically or internationally, by plane, train, or automobile, with your family or alone, in first class or in steerage. I just want to help you spend as little money as possible to do it.

Diversifying your points balances is a way of achieving that. With no rewards currencies at all, you'd pay the retail cost for all your travel, minus any savings achieved by booking through online portals, paying with discounted gift cards, taking advantage of best rate guarantees, and the other techniques we have available.

With a single rewards currency, you can start to save money when you're able to find award space with that loyalty program. If you only collect Hilton HHonors points, you're in good shape as long as you're visiting a city with a Hilton property, and that property has award space. You'll still pay cash for your airfare, but hotels can often be the biggest expense on a trip, so the savings there can quickly add up.

With multiple rewards currencies, you can start to bring down your costs considerably. If you earn Ultimate Rewards points with an Ink Plus card, then you'll be able to save money by redeeming Hyatt Gold Passport points when you visit a city served by Hyatt, and by redeeming United, British Airways, Flying Blue, and Southwest points when those airlines and their partners make award space available. Even better, when award space isn't available, you can still get a 20% discount on revenue flights by redeeming Ultimate Rewards points at 1.25 cents each.

I won't belabor the point: having more rewards currencies reduces the chance that you'll have to pay retail for your travel. As long as those rewards currencies are acquired cheaply enough, that means each redemption saves you money on your travel, which, again, is the point of the game.

The real risk of overdiversifying is unredeemed balances

Many travel hackers and bloggers believe that "earning and burning," or keeping points balances as low as possible by redeeming award currencies roughly as quickly as they're earned, is the best approach. The reason normally given for this is that regular devaluations decrease the value of earned miles and points, so your balances will never be worth as much in the future as they are in the present.

Meanwhile, I spend no time thinking about devaluations, and don't think you should either. Your travel hacking practice should be giving you big enough savings on each redemption that even substantial devaluations won't affect the calculus of redeeming miles versus spending cash.

But the logic of diversifying your points balances really can be taken too far!

Above I said that when you don't have the right currency to pay for the trip you want to take as cheaply as possible, you run the risk of having to pay cash and not save any money at all. One way to react to that possibility is to accumulate high balances in as many programs as possible, to ensure that you always have enough of the right currency for the job.

The problem with that approach is that it exposes you to the real risk of overdiversifying: unredeemed balances. From hundreds of interactions with readers and friends in the community, I have come to believe that accumulating large, unredeemed balances is the single biggest mistake made by even experienced travel hackers.

There's no mystery to how it happens: a new credit card is launched, or refreshed, or suddenly has a much higher-than-usual signup bonus. Once the credit card affiliate bloggers get their links, you see two or three weeks of blanket coverage online. Sometimes the coverage even runs over into the mainstream media. Even those who are disgusted by the orgy of profiteering start talking about the orgy of profiteering, bringing the offer in front of even more eyeballs.

And then, like clockwork, people start asking: "I have all these Wyndham/Membership Rewards/Amtrak/Choice/Trump Shuttle points. What do I do with them?"

The answer, unfortunately, is usually "nothing."

Pay as little as possible for the trips you want to take

Without travel hacking, most of us couldn't afford to spend a week in the Maldives. But even without travel hacking, many of us could afford to fly home for Thanksgiving.

Paying $150 for a $600 plane ticket you'd otherwise pay cash for is a savings of $450.

Spending $2,500 for a trip someone else paid $15,000 for is an expense of $2,500.

I've heard that the Maldives are lovely, and I'm sure I'd enjoy visiting. But speculatively accumulating huge balances at random as signup bonuses change and cards are launched or discontinued, instead of targeting programs that save you money on the trips you want to take is a way of spending money, not saving it!

Again, this says nothing about the merits, or lack thereof, of the Maldives, of your favorite Park Hyatt, or of Emirates First Class. I'm sure they're lovely. But being talked into taking someone else's idea of the perfect trip is an expensive mistake — travel hacking just makes it less expensive.

Conclusion: my fantastic AAdvantage redemption

All of that brings me to my 30,000-mile, $290 one-way American Airlines ticket. If you believe that the goal of travel hacking is to get the highest dollar value from each redeemed mile, this is a preposterous redemption — less than a penny per point!

But I had a different problem: an unredeemed American Airlines balance. I'd earned the miles cheaply, through Barclaycard US Airways anniversary miles, a negative-interest-rate loan I took out, and some experiments I'd been running through the American Airlines shopping portal, so I was certainly saving money on the ticket compared to paying cash.

But even more importantly, I judged ridiculous the idea of paying $200 (the cash value of the 20,000 US Bank Flexpoints I'd need to redeem) or $232 (the cash value of the 23,200 Ultimate Rewards points I'd need to redeem) when I had more than enough AAdvantage miles sitting in my account unredeemed. I didn't have a plan for the miles because I had earned them more or less accidentally: I had overdiversified into AAdvantage miles, and was sitting on a balance of miles that were, unredeemed, worthless to me.

The point of travel hacking is to pay as little as possible for the trips you want to take. I wanted to take a $290 flight and $5.60 in taxes and fees was as little as I could pay for it. Mission: accomplished.

Why I manufacture cash

I was chatting with a blog subscriber the other day who expressed surprise when I told him I was manufacturing spend on a 2% cash back card, rather than a mile- or point-earning credit card.

That exchange made me think I should present my argument for why travel hackers as a general rule either should manufacture cash back, or at least should be willing to manufacture cash back. The simple reason is that doing so keeps you honest.

Bonused spend is capped or limited

There are cards that are straightforwardly superior to cashback-earning credit cards, or may be under certain circumstances. For example, if you have access to grocery store manufactured spend, a US Bank Flexperks Travel Rewards card (2x), Hilton HHonors Surpass American Express (6x), Amex EveryDay Preferred (4.5x), or American Express Premier Rewards Gold (2x) card are either clearly or convincingly worth more than manufacturing spend on a simple 2% cash back card.

But manufacturing spend at grocery stores faces all sorts of obstacles, from daily limits on purchases to annual caps on bonused spend. Whether the limits you face are imposed by the stores you visit, the cards you carry, or the inconvenience of visiting bonused retailers, they leave you with a simple choice: restrict your manufactured spend to bonused retailers, or manufacture unbonused spend as well?

Unbonused spend should present hard choices between rewards currencies

I loosely consider the 3 most lucrative travel rewards-earning credit cards for unbonused spend to be:

  • Chase Freedom Unlimited. 1.5 Ultimate Rewards points per dollar spent, flexible if transferred to Chase Sapphire Preferred, Ink Plus, or Sapphire Reserve.
  • Amex EveryDay Preferred. 1.5 flexible Membership Rewards points per dollar spent.
  • Starwood Preferred Guest American Express. 1 Starpoint (1.25 airline miles) per dollar spent.

You would need to get 1.33 cents per Ultimate Rewards or Membership Rewards point in value, or 2 cents per Starpoint (1.6 cents per mile when transferred in 20,000-Starpoint increments), to break even compared to a 2% cashback-earning credit card.

Those thresholds are, on the one hand, trivially easy to meet. Getting 1.33 cents per Hyatt Gold Passport point or United Mileage Plus mile is considered a poor redemption of those currencies since it's so easy to get so much more value from them. Even 1.6 cents per transferred Starpoint is relatively easy to achieve on long-haul flights, especially in premium cabins.

On the other hand, those thresholds are only easy to meet when the points are redeemed for travel. When you earn rewards currencies other than cash because of their possible future value, then fail to redeem them, you are ultimately paying a premium for an inferior product.

Consider two travel hackers, each of whom manufactures $10,000 in unbonused spend each month for a year. The first uses a Chase Freedom Unlimited and earns 15,000 Ultimate Rewards points. The second uses a 2% cash back card, and earns $200 in cash back. Both pay the same purchase and liquidation fees. At the end of the year (in the 13th month), the first travel hacker will have 180,000 Ultimate Rewards points, and the second will have $2,400 in cash.

To make up the $600 in cash value, the first could redeem all 180,000 Ultimate Rewards points for 1.33 cents each — an easy lift, as described above.

But what if the first travel hacker redeems just 120,000 of their Ultimate Rewards points for travel, leaving them with a 60,000-point balance? Now she needs to get 1.5 cents per Ultimate Rewards point — still not too difficult, on long-haul United award redemptions or at mid-tier Hyatt properties. After all, Hotel Hustle pegs the median Hyatt Gold Passport point value at 1.862 cents.

Finally, consider if the first travel hacker redeems just 60,000 of their 180,000 Ultimate Rewards point haul for the year. They still have $1,200 in cash value, but that means they'll need to get 2 cents per Ultimate Rewards point to break even with the 2%-cashback travel hacker. Now we've found ourselves, rather than being safely below the median Hyatt point value, 7.5% above it. Rather than merely looking for a decent United redemption, we need an excellent one. All to break even with the person who's been taking their rewards to the bank in the form of cash each and every month!

This has nothing to with devaluations

When I point out the folly of hoarding miles and points, people often think I'm talking about the risk of devaluations. But as I wrote in the linked post, 

"For all the wailing and gnashing of teeth whenever an airline or hotel devalues its miles, that process is relatively gradual and relatively predictable.

After all these years, despite everything that's happened in the airline loyalty industry, the 25,000 domestic saver award ticket still exists."

If there is never another devaluation of any loyalty program under the sun; if every loyalty program opened up every seat, in every cabin, on every flight, for award redemptions, unredeemed points will still be worth nothing, while cashback earned can still be put to work paying for the expense of your choice, from groceries to retirement savings.

Conclusion

Past performance is no guarantee of future results. But it's as good a place as any to start!

When deciding between a cashback-earning credit card or putting the same unbonused spend on a travel rewards-earning credit card, take a look at your existing balances and your account history. Do you redeem the points you earn? Are you consistently getting the value you need to break even compared to a 2% or higher cashback card, taking into account the orphaned points you don't redeem?

If so, terrific — keep doing what you're doing. If not, then it's time to ask further questions about your manufactured spend strategy.

And those questions are how cashback credit cards keep travel hackers honest.

Finding the value in the Chase Sapphire Reserve

Now that everyone's had a chance to calm down about the Chase Sapphire Reserve card, let's take a look at the card's features and see what, if any, value it might have to a travel hacker.

Keep in mind that since the Sapphire Reserve has a $450 annual fee, you don't need to get $450 in value to make the card worth getting. You need to get $450 in value to break even.

Ultimate Rewards flexibility

When you have a Chase Sapphire Preferred, Ink Plus, or Sapphire Reserve, you can transfer your Ultimate Rewards points to Chase's travel partners.

I won't relitigate the question of who qualifies for a Chase Ink Plus credit card. But suffice it to say, some readers cannot or feel they cannot be approved for Chase Ink Plus cards, in which case their only option if they want to make their Ultimate Rewards points flexible has been to carry a Sapphire Preferred, with its $95 annual fee.

If carrying a Sapphire Reserve allows you to downgrade your Sapphire Preferred to a Freedom or Freedom Unlimited, that brings your Sapphire Reserve's annual fee down by $95, plus the value of any additional points you earn with whichever of the the two, far superior, credit cards you change your Sapphire Preferred to.

Note that this is not true if you have access to an Ink Plus, since its accelerated earning rates at gas stations and office supply stores makes it worth carrying whether or not you have a Sapphire Reserve.

100,000 Ultimate Rewards-point signup bonus

After spending $4,000 on purchases within 3 months, you'll earn 100,000 Ultimate Rewards points, worth $1,000 in cash. Since the annual fee of $450 isn't waived the first year, this is the equivalent of a $550 signup bonus, less the difference in value between the cashback you'd otherwise earn on the same $4,000 in spend. Assuming you have a 2% cashback card you'd otherwise manufacture spend on, the total value of the signup bonus drops to $510 in cash.

Is a $510 signup bonus worth pursuing? Maybe! But I walked into a Citi bank branch today and picked up a brochure for a $400 cash bonus for opening a new Citibank Checking account. Doctor of Credit has a list of a few thousand dollars in bank account signup bonuses. The Chase Sapphire Reserve signup bonus is a bit higher than those signup bonuses, but a bit harder to get — you have to be approved, after all!

In short, if you chase signup bonuses, the 100,000 Ultimate Rewards-point signup bonus is probably all you need to know about this credit card. If you don't, you'll need to find the card's value elsewhere.

Increased value of Ultimate Rewards travel reservations

With a Sapphire Preferred or Ink Plus credit card, there are exactly two reasons you would redeem Ultimate Rewards points to book travel through the Ultimate Rewards booking engine:

  • you are booking paid air travel on an airline or a stay at a hotel without award availability;
  • or, although there is award availability, transferring Ultimate Rewards points to one of Chase's transfer partners would yield less than 1.25 cents per point in value.

The two situations have different implications, and need to be treated differently.

If you regularly use Ultimate Rewards points to book travel when there is no award availability with Chase's travel partners, then the move from a 1.25 to 1.5 cent-per-point redemption means saving Ultimate Rewards points: every $1,000 in paid reservations you make costs 13,333 fewer Ultimate Rewards points (66,667 instead of 80,000). If you currently book $3,375 in paid Ultimate Rewards reservations per year, the Sapphire Reserve will pay for its annual fee in the cash value of those savings.

In the second case, you are moving the threshold for points transfers compared to paid bookings. With a Sapphire Preferred or Ink Plus card, at all redemption values above 1.25 cents per point, accounting for taxes and fees, you'll get more value transferring Ultimate Rewards points to a travel partner than booking through the Ultimate Rewards portal. For example, a simple domestic United one-way costing 12,500 Mileage Plus miles and $5.60 in fees is a better value than redeeming Ultimate Rewards points for the same flight at any price higher than $161.85. At 1.5 cents per point, that breakeven point moves to $193.10. This is a very small change in the breakeven point!

The fact that taxes and fees are levied on both paid airline reservations and award flights means that the breakeven point increases by less than the 20% increase in the value of Ultimate Rewards points redeemed for paid travel.

Thus the difference between the first and second situations becomes clear: if you already find value redeeming your Ultimate Rewards points for paid travel, the Sapphire Reserve generates genuine savings compared to what you're currently paying. However, the increase in breakeven point is not significant enough to change the value calculation for Ink Plus and Sapphire Preferred cardholders who already get more than 1.5 cents per point in value from their United Mileage Plus and Hyatt Gold Passport points transfers.

Southwest Airlines presents a slightly different case, recently discussed by Trevor at Tagging Miles.

$300 annual travel credit

I'm the only blogger who says this, which either means I'm wrong or that I need to keep saying it more loudly and convincingly: statement credits are worth much less than cash.

How much less? Well, we've already established that with the Sapphire Reserve, $300 in travel booked through the Ultimate Rewards booking engine costs just $200 in Ultimate Rewards points.

If that is true, then how can it be the case that a $300 annual travel credit is worth $300, rather than $200?

There are lots of ways to get $300 in travel out of the $300 annual travel credit:

  • Buy $300 Alaska Airlines tickets and refund them to your travel bank.
  • Buy $300 in Southwest Airlines tickets and redeposit their value to your account.
  • Buy $300 in gift cards from a travel provider that sells its own gift cards (Marriott properties all sell Marriott gift cards, for example).
  • Pay $300 for travel.

The card is too new to know whether this would work, but you could theoretically even book an Alaska Airlines ticket more than 61 days out, or a fully refundable airline ticket, or a refundable, prepaid hotel reservation, wait for the credit to hit your account, then refund the reservation. I consider that an excruciatingly bad idea, but that's up to you.

The point is, $300 in travel is not worth $300 in cash to a travel hacker, but credit card annual fees have to be paid for in cash!

Conclusion

There are a lot of places a travel hacker can look for value with the Sapphire Reserve, but the card's benefits are not additive in the way affiliate bloggers suggest: 100,000 Ultimate Rewards points are not worth $1,500, a $300 travel credit is not worth $300, and the increased value of Ultimate Rewards points through the Chase booking portal is only valuable to the exact extent you redeem Ultimate Rewards points through the Chase booking portal.

This doesn't mean the Sapphire Reserve is a bad card or that you shouldn't get it.

This does mean you should look at your own pattern of earning and redemption, then think for yourself before jumping on the latest credit card affiliate bandwagon.

Some bonus categories I never think about

I belong to the noisy-but-unpopular school that believes everyday spending should properly be a rounding error in the typical travel hacker's overall miles and points strategy. That's because more miles can be earned in an afternoon of light manufactured spending than will be earned in a month or year of trying to earn as many points as possible on actual purchases.

The flip side of that is a blind spot when it comes to the bonused categories of spend on cards that I already carry, either for purposes of manufactured spend or recurring annual bonuses. In the interests of keeping my blind spots few and far between, I decided to take a closer look at a few of those categories.

Hotels

With increasingly limited access to gas station manufactured spend, you may find that you're not able to manufacture $50,000 in spend in a Chase Ink Plus's double point category of "gas stations and hotel accommodations when purchased directly with the hotel."

Since Ultimate Rewards points are worth 1.25 cents each when redeemed for paid airfare, or more when transferred to Hyatt Gold Passport, Southwest Rapid Rewards, and (usually) United MileagePlus, you're strictly better off paying for your hotel stays with a Chase Ink Plus than with the 2% cash back card you use for your other everyday purchases. One possible exception is if you are having trouble finding eligible expenses to redeem your Barclaycard Arrival Plus, Capital One Venture, or BankAmericard Travel Rewards miles against, although you can always consider refundable reservations in that case.

I'm fond of paying the revenue component of my Hyatt stays with Hyatt gift cards purchased at a discount using cashback rewards, but if you pay for Hyatt stays directly, the 3 Hyatt Gold Passport points earned per dollar with the Chase Hyatt credit card are superior to the 2 Ultimate Rewards points earned by both the Chase Ink Plus and Chase Sapphire Preferred — assuming you plan to transfer your Ultimate Rewards points to Hyatt Gold Passport at any point in the future.

The math is somewhat less favorable when paying for Hilton stays with the American Express Hilton HHonors Surpass card, which earns 12 HHonors points per dollar spent at Hilton properties. According to the Wandering Aramean visualization tool, 12 HHonors points are worth a median 5.376 cents, while 2 Ultimate Rewards points, transferred to Hyatt Gold Passport, are worth a median 3.724 cents. That's an edge, but it's an edge that's highly dependent on your actual redemption pattern.

Finally, the Chase Marriott Rewards Premier credit card is by and large not worth holding for either its recurring benefit (one free category 1-5 night each account anniversary) nor for manufactured spending (one elite night credit for each $3,000 spent). But if you do have it for one reason, the other, or both, you are still unlikely to get more value from the 5 Marriott Rewards points earned per dollar spent at Marriott properties than you would from 2 Ultimate Rewards points earned on the same spend — unless, of course, you are already planning to transfer Ultimate Rewards points to Marriott for some reason, like booking a 7-night Hotel + Air package.

Restaurants

As I've written before, most of the time one or more rotating cashback bonus card is offering 5% cash back at restaurants, so the idea of needing a particular card "dedicated" to restaurant spend is misleading: you should use your most lucrative card, which will, at least 6 months of this year, be a Discover it or Chase Freedom card. But that leaves the other half of the year, which makes it a legitimate question whether there are better cards than a straight 2% cashback card for use at restaurants.

Using the same median Hilton HHonors point value as above, the 6 HHonors points earned per dollar with the Hilton HHonors Surpass American Express at restaurants slightly edges out a 2% cash back card, earning the equivalent 2.688 cents per dollar spent, while the Chase Hyatt credit card earns 2 Hyatt Gold Passport points per dollar spent, or a median 3.724 cents per dollar.

This matters because the Chase Sapphire Preferred, often promoted by affiliate bloggers for its high affiliate payout and earning rate on travel and dining, earns 2 Ultimate Rewards points per dollar. In other words, for just $75, rather than $95, you can earn 2 Hyatt Gold Passport points at restaurants with a card that also offers a free night at Category 1-4 Hyatt properties worldwide. That's a fact that's helpful to keep in mind the next time someone tells you the Chase Sapphire Preferred is the best card to carry for restaurant spend.

Airline tickets

Finally, I very rarely find myself booking air travel directly through an airline (preferring to use miles, Ultimate Rewards points, or Flexpoints earned with a US Bank Flexperks Travel Rewards card), but if you do book air travel directly, or need to pay the taxes and fees attached to award tickets, you can do better than a 2% cashback card with cards you may already carry.

If you periodically sign up for a "spare" US Bank Flexperks Travel Rewards card, for example during the current Olympics promotion, you can use that extra card to pay for airfare, earning 2 Flexpoints per dollar spent, and transfer the resulting bonus Flexpoints to your primary account for future redemptions.

If you use an American Express Premier Rewards Gold card to manufacture grocery store spend on an ongoing basis, you may as well use it to pay for airfare, earning 3 Membership Rewards points for your airline tickets as well, which can be transferred to potentially lucrative travel partners like Delta SkyMiles. The same goes for a Citi Prestige card you may carry to raise the value of your existing Citi ThankYou points.

And the Chase Hyatt credit card earns 2 Hyatt Gold Passport points per dollar spent on airfare, giving it an edge over a straight 2% cashback card, depending as always on your actual planned redemptions.

Conclusion

I don't think it's useful, let alone necessary, for a travel hacker to stress over every possible bonus point at every possible merchant. But for the kind of purchases that you know you make frequently, it's at least worth considering finding additional value by keeping in mind the bonus categories offered by cards that you already use to manufacture spend, or hold for their recurring annual benefits.

As I indicated above, I don't usually pay for airline tickets or hotel stays with credit cards. But digging into my existing cards' bonus categories, I realized I could replicate the majority of the Chase Sapphire Preferred's "travel and dining" bonus categories with cards I already had: the Chase Ink Plus and Chase Hyatt credit cards. Between the two, they cover hotels, airlines, restaurants, and rental cars.

Obviously that leaves out things like cruises, travel agency bookings, local transportation, and so on. But they do include the bulk of reimbursable business travel, so if you do spend a large amount in those categories each year, you may find yourself coming out ahead by examining the bonus categories on your existing card card portfolio.