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.

I don't buy points, but maybe you should!

Every major loyalty program sells their points for cash, normally at a fixed rate through the industry-sponsored site Points.com.

For example, you can buy up to 60,000 Delta SkyMiles per calendar year for 3.76 cents each, up to 75,000 United MileagePlus miles for 3.76 cents each, up to 150,000 American AAdvantage miles for 3.19 cents each, and up to 60,000 Alaska Mileage Plan miles for 2.96 cents each.

Hotel programs likewise sell their points currencies for cash, with IHG Rewards Club selling up to 60,000 points for 1.15 cents each, Hilton HHonors selling 80,000 points for one cent each, Marriott Rewards selling up to 50,000 points for 1.25 cents each, Starwood Preferred Guest selling up to 30,000 points for 3.5 cents each, and Hyatt Gold Passport selling up to 55,000 points for 2.4 cents each.

Purchased points are too expensive for me

I don't personally buy miles or points because it's a more expensive way of acquiring miles and points than the other methods I have available.

United MileagePlus miles and Hyatt Gold Passport points cost just 1 cent each when purchased with Ultimate Rewards points transferred from a Chase Ink Plus account.

I happen to have a Citi AAdvantage Platinum Select MasterCard, so if I ever needed to stock up on AAdvantage miles, I can do so for 2.105 cents each — the cash back I'd earn manufacturing the same unbonused spend on my Barclaycard Arrival+ MasterCard.

And of course I earn 6 HHonors points per dollar spent with my American Express Hilton HHonors Surpass card at grocery stores, so even compared to an "optimal" redemption rate of 2 cents per US Bank Flexpoint, I'm already buying HHonors points at a mere 0.67 cents each, 33% less than the 1 cent per point Hilton wants to charge.

Purchased points may make sense for you

As the examples above make clear, the decision whether to purchase miles and points or manufacture them rightly depends upon your next best alternative: your opportunity cost.

If you're currently manufacturing the bulk of your otherwise-unbonused spend on a 5% cash back card like the Wells Fargo Rewards Visa during the introductory promotional period, then manufacturing spend on a one-mile-per-dollar card costs not 2.105 cents per mile, but 5 cents per mile, 57% more than, for example, American is willing to sell them!

Likewise, if you have $100,000 on deposit with Bank of America, you might be earning 2.625% cash back with a BankAmericard Travel Rewards card. That may make purchasing Hyatt Gold Passport points at 2.4 cents each worthwhile, compared to manufacturing spend on a Chase Hyatt credit card.

Purchase small numbers of points for high-value, upcoming redemptions

While you usually see affiliate bloggers advocate buying large numbers of points speculatively when loyalty programs offer the highest bonuses on purchased points (bringing down the cost per point), I have exactly the opposite view.

If you find yourself with an upcoming, high-value redemption, and don't have the time to manufacture the required points, then go ahead and buy them. Paying "too much" per point, if it drastically brings down your total out-of-pocket cost, makes perfect sense: the goal isn't to pay as little as possible per point, it's to spend as little money as possible on the trips you actually want to take!

But the money you spend speculatively buying miles for redemptions you don't actually have planned could almost invariably be better spent building a credit card and manufacturing spend strategy that generates the trips you want to take at far lower out-of-pocket expense.

Earn valuable points, or expensive points?

I've been messing around with shopping portals for the past few days, which is always a good opportunity to reflect on deeper questions about the miles and points lifestyle.

Manufactured spend gives one vision of cost

As a manufactured spend enthusiast, I spend a lot of time comparing different credit cards, merchants, and earning rates to make sure I'm getting the most value for each of my manufactured dollars in spend. Using that perspective, every mile or point I manufacture costs precisely the dollar value of the cash rewards I would otherwise earn on the same spend. That's my opportunity cost: the value I need from a non-cash currency to justify earning it instead of cash.

Portal spend can turn things sideways

What I started thinking about while mucking about on shopping portals was this question: should you earn the most valuable points (usually the points you'll actually redeem), or the most expensive points when clicking through a shopping portal?

Here's a simple example: according to Cashback Monitor, you can earn 5% cash back when clicking through the Discover Deals portal to purchase Apple merchandise. Alternatively, you can earn 1 United MileagePlus mile per dollar spent at the Apple store.

Paying 5 cents per MileagePlus mile is a preposterously bad deal, since United miles can be purchased for 3.76 cents each any day of the week directly from United.

Now take a look at a merchant like eBay, where we can earn either 1.3% cash back or 0.5 United miles per dollar spent. At 2.6 cents each that's a little below the retail price of United miles, so you might consider using the United portal instead of earning cash back.

How opportunity cost differs from price and value

At this point you should be asking yourself, "why would I pay 2.6 cents per Mileage Plus mile when I can pay 1 cent per mile by transferring flexible Ultimate Rewards points into my United account?"

And that's exactly right — if you would, in fact, redeem your Ultimate Rewards points for cash, then the price you would pay for United miles would be 1 cent. But if you would otherwise redeem your Ultimate Rewards points by transferring them to another travel partner, like Southwest or Hyatt, then your opportunity cost isn't 1 cent — it's one Rapid Rewards point or one Hyatt Gold Passport point.

This matters because you may get more value from a Rapid Rewards point (for example, if you have a Southwest Companion Pass) or a Hyatt Gold Passport point (by redeeming at expensive properties or taking advantage of Points + Cash redemptions) than you do from a United Mileage Plus mile. Using the example above, the opportunity cost (2.6 cents) of earning United miles rather than cash back may be lower than the opportunity cost (1 Rapid Rewards point or 1 Hyatt Gold Passport point) of transferring Ultimate Rewards points to United.

United miles aren't valuable, but they are expensive

I don't like United Airlines. I find them consistently rude and unreliable, so I don't fly them if I can help it. But even I admit that their miles can be useful for redemptions on their Star Alliance partners, like my upcoming Turkish Airlines flight to Europe. The problem is that United miles transferred from Ultimate Rewards are expensive, because I place a lot of value on the ability to transfer Ultimate Rewards points to Hyatt Gold Passport, and each point I transfer to Mileage Plus is one I can't transfer to Hyatt.

This creates the kind of situation I've described, where it may be worthwhile to pay a high price for each United mile, since doing so preserves the ability to transfer Ultimate Rewards points to Hyatt, where I'll get more value, instead.

For the sake of completeness (and to silence quibblers), I do want to mention that Hyatt also sells points (up to 55,000 per year before bonuses are added) for 2.4 cents each. So it's not strictly speaking worthwhile to pay 2.6 cents per United mile just to "save" your Ultimate Rewards points since your total cost will be lower simply earning cash back, transferring Ultimate Rewards points to United, and using the cash to buy Hyatt Gold Passport points. Using other merchants and portal payout levels, and accounting for bonuses on purchased miles and points, the numbers will naturally be different.

Starting from scratch: airline tickets

Travel hacking is an iterative game: the options you have available today are restricted by the decisions you made in the past. That's one reason I avoid giving advice whenever possible: your situation is different from mine, not just depending on the merchants you have available geographically, but also depending on which banks you have relationships with, which products you've already had or lost, and the amount of time you have available to dedicate to the game.

Having said that, I do sometimes think about how I would design a travel hacking strategy from scratch: with a blank slate, what approach would I take to the loyalty ecosystem to get the most value for my travel hacking dollar?

Today's post is about how I would approach booking airline tickets if I were starting from scratch. Tomorrow's will be about hotel stays.

Revenue versus award

Starting from scratch, there's a basic decision you have to make about how to pay for the flights you're responsible for securing each year: will you book revenue tickets or award tickets? Once you're deeply involved in the game you may have large balances across a range of programs you can deploy for their optimal uses. But when you're just getting started, it's much easier to focus on this stark choice.

When booking revenue tickets, you'll usually get a fixed return on your travel hacking dollar, or one that falls in a relatively narrow band: US Bank Flexpoints are worth 1.33 to 2 cents each, Chase Ultimate Rewards points in a premium (Ink Plus or Sapphire Preferred) account are worth a fixed 1.25 cents each, and Citi ThankYou points are worth between 1.25 cents and 1.6 cents depending on whether you have a Premier or Prestige card, and the airline marketing the flight.

When booking award tickets, there's no such band of values: points can range in value from a fraction of a penny up to 10 cents or so depending both on the cash price of the flight and the number of miles required to book it.

Note that neither of these options is any more or less "free" than the other. Since you should be manufacturing spend furiously, you're paying acquisition and liquidation fees for whichever currency you happen to choose. The only question is which strategy will bring the cost of your travel down the most.

Revenue tickets are cheap

On the revenue side, there are lots of good options depending on your situation:

  • Citi ThankYou Premier. A fixed 3.75 cents in airfare per dollar spent at gas stations. At $5.75 in "all-in" cost for $505 in spend, a 69.6% discount off retail.
  • US Bank Flexperks Travel Rewards. Up to 4 cents in airfare per dollar spent at grocery stores or gas stations (wherever you spend more each month). At $6.30 in "all-in" cost for $506 in spend, an "up to" 68.9% discount off retail.
  • BankAmericard Travel Rewards. For those with $100,000 on deposit with Bank of America, Merrill Lynch, and MerrillEdge, a fixed 2.625 cents in airfare per dollar spent everywhere. At $4.30 in "all-in" cost for $504 in spend, a 67.5% discount off retail.
  • Chase Ink Plus. For small business owners, a fixed 6.25 cents in airfare per dollar spent at office supply stores (and 2.5 cents per dollar spent at gas stations). At $9.18 in "all-in" cost for $309 in office supply spend, a 52.5% discount off retail.

When I say "depending on your situation," I mean to draw attention to the fact that you when starting from scratch, you shouldn't pursue all four options! If you don't have access to gas station manufactured spend, the Citi ThankYou Premier won't work for you. If you don't have access to grocery store manufactured spend, the Flexperks Travel Rewards card isn't for you. If you don't have access to $100,000, the BankAmericard Travel Rewards card won't give you the same value it will someone who does. And if you don't own a small business, Chase probably won't give you an Ink Plus.

Award tickets are cheap and (can be) hedged

On the award side, the picture looks radically different. Three of the four major domestic airlines offer some form of "last-seat" availability on their own flights: Delta, American, and Alaska will sell almost any seat on almost any date for some number of miles, while United reserves last-seat "standard" availability to their co-branded Chase credit cardholders. Thus there are three pots airline rewards currencies fall into:

  • Delta. When starting from scratch, there are two main ways into the Delta ecosystem: their own co-branded credit cards, and American Express Membership Rewards co-branded credit cards. Unfortunately, neither of them is cheap. The American Express Delta Platinum and Reserve credit cards offer 1.4 (Platinum) and 1.5 (Reserve) SkyMiles per dollar spent everywhere when you spend exactly $25,000 (Platinum) and $30,000 (Reserve) and $50,000 (Platinum) and $60,000 (Reserve) each calendar year. But the Delta Platinum card costs $195 per year and the Reserve $450 per year! Meanwhile, the American Express Premier Rewards Gold costs $175 per year and earns 2 Membership Rewards points per dollar spent at gas stations and supermarkets. Those points can then be transferred to Delta on a 1-to-1 basis. Moreover, Membership Rewards points let you hedge your downside risk: if a particular Delta award redemption gives you less than 1 cent per Membership Rewards point, you can book it as a revenue ticket. If it gives you more than 1 cent per point, you can book it as an award ticket.
  • Alaska and American. Advanced travel hackers muck about with applying for Alaska and American co-branded credit cards over and over again at various intervals. But when starting from scratch, there's a simple way into both ecosystems at the same time: with the Starwood Preferred Guest American Express. When transferred to either Alaska or American, the card earns 1.25 miles per dollar spent everywhere, which is higher than the amount you can earn directly with either airline's co-branded credit card. Like Membership Rewards points, Starwood Preferred Guest also offers a hedged downside risk, since you can redeem their points for between 1 and 1.43 cents per point for revenue tickets using "SPG Flights."
  • United. If you're able to make United your main airline, then you'll never do better than with a Chase Ink Plus small business credit card, because of its bonused earning rate at office supply stores and 1-to-1 transfer ratio to United MileagePlus. But if you can't get a small business credit card, then you have some hard decisions to make. You could get a Chase Freedom Unlimited, which earns 1.5 Ultimate Rewards points everywhere, and a Chase Sapphire Preferred, which enables the transfer of Ultimate Rewards points to United, but that combination comes with a $95 annual fee. Alternatively, a Chase United MileagePlus Club card earns 1.5 United miles on all purchases but has a $450 annual fee. That's the kind of up-front expense that's not precisely crazy, but needs to be well-justified before taking it on.

Your situation should drive your decision between revenue and award tickets

As I mentioned, I try not to give advice.

Your situation is different from mine: your award availability, typical revenue flight prices, and airline service have nothing to do with mine.

But in my experience, for many people, much of the time, a focus on revenue tickets will generate bigger savings than a focus on award tickets, and if I were starting from scratch, that's where I'd start.

Fortunately, you don't need to take my word for it: all the numbers are above. Look at your own travel needs and it should quickly become obvious whether revenue flights or award flights will generate more value for your travel hacking dollar.

Tomorrow, I'll take the same approach to hotels: starting from scratch, are award nights really cheaper than just paying for your hotel stays?

Use these 3 weird programs to search Star Alliance award space

In Chapter 5 of my occasionally-selling ebook, I discussed the technique of using All Nippon Airways' search tool to find Star Alliance award space. Recently, they made some changes to their award search function which makes it somewhat less convenient to use while searching for Star Alliance award space.

But it's still relatively easy to find partner award seats if you know where to look.

Step 1: United Mileage Plus

United Airlines is a US-based airline, which means most readers likely already have a Mileage Plus account. Log in, then search for a one-way or roundtrip award flight from your origin to destination and see what United comes up with.

Step 2: Air Canada Aeroplan

Air Canada's Aeroplan frequent flyer program has online access to partner award space on airlines that United Mileage Plus doesn't. It's slightly difficult to find their online award search tool, but just log into Aeroplan and visit this URL to get started.

Step 3: All Nippon Airlines

All Nippon Airlines has made some odd reconfigurations of their website which makes it harder, but not impossible, to search across the entire Star Alliance. You can now only search roundtrip or multi-city flights.

Once you log into your account, you can search for roundtrip or multi-city flights between any Star Alliance cities. In other words, once you find an arbitrary city pair with Star Alliance availability, you can search for availability between any other other Star Alliance cities by inputting the existing availability as the "first" or "second" leg.

Then you should be able to call and book the Star Alliance availability using whichever program you happen to have your mileage balances with.

Conclusion

You don't normally have to use every technique for every award booking you make; often, the first search you make will simply throw up the award seats you need. But when it doesn't, make sure you've exhausted every possibility before you consider paying cash for your seats.

Anatomy of an Award Trip: Summer in Europe

I've written a few times about this trip before (as recently as yesterday), but now that it's locked down, I thought I'd share one of my patented Anatomies of an Award Trip!

Getting there: Turkish Airlines to Budapest

Turkish Airlines economy award space is wide open for next summer, so I transferred 50,000 Chase Ultimate Rewards points from my Ink+ account to United Mileage Plus, where I already had 10,000 orphaned miles. The ticket is booked out of Chicago, since there's never any award space on United from our hometown to O'Hare, so we'll pay an additional $60 for two bus tickets, which I included in the total cost below.

Total cost: 60,000 Mileage Plus miles and $81.80. Total value: $2,449.20. Value per point: 3.95 cents per Mileage Plus mile.

Getting back: Air Berlin to New York City

Air Berlin award space isn't as good as Turkish Airlines award space next summer, but I didn't have too much trouble finding two economy award seats, which I booked using a combination of Avios and cash. I actually don't have our tickets home from New York City yet, but I assume I'll just throw some Delta Skymiles or US Bank Flexpoints at that problem eventually.

Total cost: 26,000 Avios and $358.18. Total value: $1,539. Value per point: 4.54 cents per Avios.

Staying there (1): 9 nights in Central and Eastern Europe

I pieced the bulk of this trip together by first booking 3 pre-devaluation pairs of nights at Club Carlson properties in Central and Eastern Europe, then filling in the gaps with post-devaluation points, plus one paid night. Here are the totals:

  • 3 nights at the Radisson Blu Beke Hotel, Budapest. Total cost: 45,000 Club Carlson Gold Points. Total value: $294.54. Value per point: 0.65 cents per Gold Point.
  • 3 nights at the Park Inn Danube, Bratislava. Total cost: 18,000 Gold Points and $2.12. Total value: $239.05. Value per point: 1.32 cents per Gold Point.
  • 2 nights at the Radisson Blu Style Hotel, Vienna. Total cost: 50,000 Gold Points. Total value: $475.53. Value per point: 0.95 cents per Gold Point.
  • 1 (paid) night at the Hilton Vienna Danube Waterfront. Total cost: $146.

Staying there (2): 6 nights in Germany

From Vienna, our plan is to spend 6 nights in Germany, split between Berlin and the home of my partner's relatives in Bavaria. I recently orchestrated a complicated trade for 2 free Hyatt credit card signup nights, so I'll likely redeem those for two nights at the Grand Hyatt Berlin, a $458.05 value.

Conclusion

Looking over the awards I booked to piece this trip together, I see that I'm consistently getting more value from my miles and points redemptions than I would by booking my flights and hotels with fixed-value points like Barclaycard Arrival+ miles and US Bank Flexpoints. That's the kind of ongoing feedback I continually use while deciding whether to collect airline and hotel loyalty currencies, versus more flexible fixed-value points.

Use a demand schedule to maximize open jaws on revenue tickets, too

The "demand schedule" is a tool I first read about at Milenomics, which has now become more or less conventional wisdom: by creating a consolidated list of all the trips you plan to take, including flights, hotels, and transportation, you're able to maximize the value (and minimize the cost) of each trip by taking advantage of stopovers, open jaws, and roundtrip pricing.

Equally importantly, when a mistake fare or generous coupon code pops up, you have an itemized list of all the reservations you need to make with it. Avoiding paralysis in that way maximizes the value you get from your travel hacking practice.

I confess I'm not terribly diligent about maintaining my demand schedule; I more or less piece together trips as award space opens up, and most of my hotel stays are paid for with Hilton HHonors or Hyatt Gold Passport points, where I almost never have trouble finding rooms available with points.

But an upcoming trip illustrates why a little planning can go a long way.

Revenue tickets can include very cheap open jaws

I have a number of pre-devaluation award nights booked at Club Carlson properties in Europe for next summer, and paid 26,000 Avios and $358.18 to book two tickets back from Berlin to New York at the end of the trip.

My initial plan was to book our outbound flights to Budapest on Turkish Airlines for 30,000 United Mileage Plus miles each, since award availability is wide open next summer. That would involve transferring 50,000 Ultimate Rewards points (with a cash value of $500) from Chase to United Airlines Mileage Plus (I have 10,000 orphaned Mileage Plus miles in my account already).

Then I realized that I still have the US Bank Flexpoints I had been saving up for this trip before I found Air Berlin award availability. I still plan to book my partner's ticket by transferring 20,000 Ultimate Rewards points to United in order to empty my Mileage Plus account, but for my own flight I decided to look into revenue tickets on the same outbound flight.

While searching for Turkish Airlines revenue tickets, I immediately noticed that a one-way outbound flight prices out at $1,010 through the Flexperks booking portal, while it's only trivially more expensive to add a return flight from most Turkish Airlines destinations in Europe back to Chicago (for example, $1,185 returning from Berlin).

Because of that fluke of pricing, whether I book a one-way outbound or a return itinerary, I'll pay 70,000 Flexpoints — an example of what I've called in the past "price compression."

In other words, I can substitute 70,000 Flexpoints for 30,000 Ultimate Rewards points and get an additional one-way flight from Europe to Chicago — but only if I can decide on the origin and date of that future flight at the time of booking! A demand schedule would help in that calculus, but I don't have any additional trips to Europe planned, aside from our summer holiday.

Is this a good deal?

There are two competing intuitions when it comes to situations like this, and I want to give each one a fair airing:

  1. since 30,000 Ultimate Rewards points are worth $300 in cash, and 70,000 Flexpoints are worth $700 in cash, a 30,000-points Ultimate Rewards redemption is $400 cheaper than a 70,000-Flexpoint redemption;
  2. since 70,000 Flexpoints are worth a maximum of $1,399 in paid airfare, and 30,000 Ultimate Rewards points are worth up to 12.4 cents each, or $3,720, when redeemed for Korean Air First Class flights, it's better to redeem the fixed-value Flexpoints wherever possible, while saving Ultimate Rewards points for those redemptions where their value is maximized.

In other words, you can think of the reservations as minimizing your cash-equivalent outlay or maximizing your option value by retaining your most potentially-valuable points as long as possible.

Finally, the paid Flexpoints redemption booked into the "H" fare class will earn 100% of the actual miles flown, or roughly 6,142 Mileage Plus miles if I credit the outbound flight to United. As long as I ever plan to transfer Ultimate Rewards points to United again, booking the paid fare will save me 6,000 Ultimate Rewards points at that time. If I book a return flight from Europe to Chicago at any time within Turkish Airlines' booking window (and end up flying it), that will add another 6,000 or so miles to my United balance.

Suddenly, we're talking about paying 70,000 Flexpoints or 42,000 Ultimate Rewards points (30,000 spent on the reservation booking and 12,000 foregone by booking non-mileage-earning award flights), and the Flexpoints redemption is looking even more persuasive.

So, what should I do?

My decision will ultimately depend on whether I can find a return flight from Europe that I'm more likely than not to actually take.

Spending $700 in Flexpoints in order to save 36,000 Ultimate Rewards points isn't as compelling as saving 42,000 would be (if I was able to fly both the outbound and return), since it moves the cash-equivalent breakeven point from just above $300 to just below $300, and one-way economy flights between the United States and Europe cost exactly 30,000 Ultimate Rewards points when transferred to United Mileage Plus (subject to award availability).

Avios and cash followup: booking that Air Berlin flight

Last month I wrote about an Air Berlin flight from Berlin to New York City, for which I was planning to redeem British Airways Avios. I had 24,000 Avios in my account, but since British Airways allows cash to be substituted for Avios at relatively favorable rates, I had to decide how many Avios to redeem (including transfers in from Chase Ultimate Rewards) and how much cash to pay for the two tickets I wanted to buy.

Here were my Avios and cash options for purchasing the tickets:

 

As I wrote then,

"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."

Not so fast!

My decision was based on the best alternate redemption of the Ultimate Rewards points I already had, which was just 1 cent each for cash redemptions. However, I still wasn't sure how I was going to fly outbound from the United States to Budapest.

So before transferring 16,000 Ultimate Rewards points to British Airways, I first checked for award space between Chicago and Budapest, and sure enough the calendar was wide open for economy award travel on Turkish Airlines, United's Star Alliance partner. Suddenly, my alternate Ultimate Rewards redemption wasn't 1 cent each for a cash redemption, but a little over 3 cents each when transferred to United for a transatlantic flight redemption.

British Airways charges variable amounts of cash per substituted Avios

A close look at the Avios and cash chart above reveals something odd: the intervals between the Avios redemption levels are irregular. Here's the same chart, rearranged to illustrate the point:

Now, if I already had enough Avios in my account, I would certainly have redeemed the maximum 40,000 Avios and paid just $178.18 in cash.

But I didn't have enough Avios, which is why I had to ask the question of how many Ultimate Rewards points I was willing to transfer in.

  • Since I had 24,000 Avios in my account, the first 2,000 were a no brainer: I would get the full $60 in cash savings value but pay just $20 in Ultimate Rewards points.
  • The next 6,000 would give me just 1.17 cents per Ultimate Rewards point, less than the points' value when redeemed for paid travel and barely more than their cash value.
  • Finally, an additional 8,000 transferred points would yield 1.38 cents per point, which would be worth considering, except that in my case it would first require the above 6,000-point transfer, averaging out to just 1.29 cents per Ultimate Rewards point.

Since I already have a planned redemption that offers more than twice as much value per Ultimate Rewards point — my Turkish Airlines flight to Budapest — I ended up transferring just 2,000 Ultimate Rewards points and saving the remaining 14,000 points for my transfer to United Mileage Plus.

Conclusion

The lesson here is that the value of points and miles varies, not just between people but for the same person over time, depending on their points balances and plans for redemptions.

In my earlier post, I was fully ready to redeem 16,000 Ultimate Rewards in order to save $240 (1.5 cents each). When my plans developed further and I settled on a 3-cent-per-mile Turkish Airlines award, my calculus likewise changed and I became unwilling to transfer more than a nominal number of Ultimate Rewards points.

I was right both times, but the more information I had about my future plans, the better my decision became.

The single best award redemption, by transfer partner: Chase Ultimate Rewards

As my regular readers know, I don't chase "aspirational" redemptions; I earn the miles and points I need to pay for the trips I want to take as cheaply as possible.

But many of you do chase aspirational redemptions! That gets me into hot water whenever I point out that a Chase Ultimate Rewards point is worth 1 penny (its cash redemption value), or that American Express Membership Rewards points are hard to redeem for cash.

So in the spirit of reconciliation, I though it would be fun to put together a list of the absolute best redemption values for the transfer partners of each flexible rewards currency. Since I'm most familiar with Ultimate Rewards points, let's start there.

Airline Partners

As a reminder, here are the Chase Ultimate Rewards airline transfer partners:

  • United MileagePlus
  • British Airways Executive Club
  • Korean Airlines SKYPASS
  • Singapore Airlines KrisFlyer
  • Southwest Airlines Rapid Rewards
  • Virgin Atlantic Flying Club

United MileagePlus

Two of the best international first class products, Lufthansa and Singapore, belong to the Star Alliance, and United MileagePlus miles can be redeemed for first class on either airline at their partner award prices. But which is the better redemption?

One-way award seats in Lufthansa first class between New York and Frankfurt cost 110,000 MileagePlus miles, plus $5.60 in taxes and fees. Unless you're a MileagePlus elite, you'll also pay a $75 close-in ticketing fee, since Lufthansa first class seats are generally made available to United only a few days or weeks before departure.

At the time of writing, Lufthansa first class seats between New York and Frankfurt cost $11,049 on October 10, a date Lufthansa first class award seats are also available. Less the $80.60 in taxes and fees, that gives a redemption value of just about 10 cents per Ultimate Rewards point.

We can actually do a hair better than this by flying not to Frankfurt, but to Tokyo's Haneda airport via Frankfurt. This itinerary also costs 110,000 MileagePlus miles, but retails for $952 more, at $12,001, giving us 10.8 cents per MileagePlus mile:

By comparison, Singapore's JFK-Frankfurt flight costs a mere $7,108. In any case, since Singapore Air is also a Chase Ultimate Rewards transfer partner, Lufthansa walks away with an easy victory here.

British Airways Executive Club

A safe choice for best British Airways redemption is a 4,500-Avios American Airlines short-haul flight like Norfolk, VA, to Charlotte, NC, which can get you about 9.9 cents per Ultimate Rewards points.

Knowing that Brazil forbids airlines from adding fuel and passenger surcharges to tickets, I was hopeful that a route like Sao Paulo — London would generate an astronomical value per Avios. But it turns out those flights don't get more expensive by distance in the way that Avios redemptions do! A first class seat from Sao Paulo to London costs just $5,783, which at 120,000 Avios gives a piddling 4.8 cents per point.

You're better off moving to Norfolk.

Korean Airlines SKYPASS

A popular use of SKYPASS is to book cheaper award tickets from the US mainland to Hawaii than those available on domestic US carriers. So, for example, while a Delta Skymiles award ticket to Hawaii from the continental 48 costs a minimum of 45,000 miles roundtrip, a SKYPASS award ticket costs just 35,000 miles.

Delta flies nonstop from Atlanta to Honolulu, so let's use that as our basis for comparison. A roundtrip departing March 8 and returning March 16, on which there's low-level award availability, costs $1,134. Less $11.20 in taxes and fees, that returns a SKYPASS redemption value of 3.24 cents each. That's not bad for SKYPASS miles, but it's not the best.

That's because Korean Airlines SKYPASS miles can also be redeemed for first class on Korean. On April 4, 2016, a first class flight from New York JFK to Seoul Incheon costs $10,032, but just 80,000 SKYPASS miles plus $104.20 in taxes and fees, giving 12.4 cents per SKYPASS mile, the highest transfer value for Ultimate Rewards we've seen yet!

It should be possible to kick that up another few cents per point by booking a single first class award from New York to Sydney for 120,000 SKYPASS miles, but I cannot for the life of me get the Korean Airlines website to price out such an award.

Singapore Airlines KrisFlyer

Remember the disappointing, $7,108 New York - Frankfurt flight operated by Singapore that I mentioned above? The good news is that it costs just 57,375 KrisFlyer miles (after their 15% online booking discount) and $203.30 in taxes and fees, or just over 12 cents per KrisFlyer mile.

There are more expensive Singapore Airlines routes, but they cost many more KrisFlyer miles such that you're unlikely to do better than the above. For example, it costs $984 to continue in first class to Singapore from Frankfurt, but 36,125 more KrisFlyer miles. At 2.7 cents per mile, that's a pretty good redemption in its own right, but it drags down the overall redemption value significantly.

Southwest Airlines Rapid Rewards

Since Southwest is a revenue-based program, you're not doing to do better than 1.6-1.7 cents per Rapid Rewards point unless you have the Companion Pass. If you do, congratulations, you can get up to 3.2-3.4 cents per Rapid Rewards point when booking Wanna Get Away fares.

For example, with the Companion Pass you could fly two passengers from Baltimore, Maryland to Aruba for 11,620 Rapid Rewards points and $31.20 in taxes and fees, a $407.60 value, giving you 3.24 cents per Rapid Rewards point.

Virgin Atlantic Flying Club

Virgin Atlantic has a number of partner airlines that could potentially offer some value, like South African Airways. Their website even contains this mysterious language:

"Economy Class Mileage* 40,000
Business Class Mileage* 50,000
Between Dakar and New York***"

Mysterious because South African Airways does not fly from Dakar to New York, although it's possible to book itineraries connecting in Washington Dulles. Maybe that's what they mean?

Virgin Atlantic does partner with Delta, which basically makes it a poor man's Skyteam partner. You can fly from the US to Europe for 100,000 Flying Club miles roundtrip, as long as you can find Delta low-level availability, compared to 125,000 Skymiles for the same awards. You can fly anywhere in Africa for 120,000 Flying Club miles roundtrip in business class, compared to 140,000 Skymiles to northern Africa and 160,000 Skymiles to South Africa (I think — no award charts, remember?).

I couldn't find any low-level availability on Delta metal to Johannesburg, but a roundtrip business class flight with award availability between New York and Dakar priced out at $3,375. Assuming Virgin Atlantic charges the same taxes and fees as Delta, $127.60, you could get about 2.7 cents per Flying Club mile on such an award.

Hotel Partners

Here are the Chase Ultimate Rewards hotel transfer partners:

  • Hyatt Gold Passport
  • Marriott Rewards/Ritz Carlton Rewards
  • IHG Rewards Club

Hyatt Gold Passport

There are two places you can look for the highest redemption values in a program like Hyatt Gold Passport. You can look at properties in the highest categories during the property's high season (after all, they're there because they're expensive!), or you can look at properties in the lowest categories during major events. So, which approach yields the highest redemption value?

I looked at a range of top-tier properties, and the best I could do was at everyone's favorite aspirational beach resort, the Category 6 Park Hyatt Maldives Hadahaa, where rates go up to $2027 in early January, or 8.1 cents per point. Then Grant pointed to a May 29, 2016, stay at the Park Hyatt Milan, when the Hyatt Daily Rate is $4577 — and rooms are still available for 30,000 Gold Passport points, or 15.26 cents per point.

Other top-tier properties offer fine redemptions, but nothing like that: the Category 7 Park Hyatt Sydney charges about $814 on January 25 (the day before Australia Day), or 30,000 Gold Passport points, for about 2.7 cents per point.

What about on the low end? During CES in Las Vegas, you can book the Hyatt Place Las Vegas for 8,000 Gold Passport points or $338, about 4.2 cents per point. My main problem searching for these low-end redemptions is that enough people have obviously had the same idea that room rates are extremely difficult to find during the Super Bowl, Kentucky Derby, Indianapolis 500, and other high-profile events! So if you want to secure an outsized value during those events, book as early as possible!

Marriott Rewards

Obviously the best Marriott Rewards redemption will involve a Hotel + Air Package, which allows you to buy much more valuable airline miles at a deep discount. Since we've already established that 110,000 MileagePlus miles are worth 10.8 cents each ($11,880), let's use that as our baseline and figure out where to redeem our 7, Category 5 nights.

The most expensive Category 5 Marriott Rewards property I found is the Courtyard Paris Saint Denis, where you can redeem your 7 nights for a stay that costs $3,027, bringing your total return on 250,000 Marriott Rewards points to $14,907, or 5.96 cents per point. That's true, however, If and only if you begin your 7-night stay on July 4, 2016.

Award rooms are not available for those dates. Marriott Rewards is a terrible program.

IHG Rewards Club

IHG Rewards properties get so exorbitantly expensive in points, so fast, that the best awards will invariably be on their PointsBreaks list. I've spent a couple lovely summers in Brno, Czech Republic, so I was pleased to see that I could get 3.6 cents per IHG Rewards point at the Holiday Inn Brno on October 13, which would otherwise go for $180.12.

The best rates found on Hotel Hustle's Hot Rates page top out at 1.94 cents per point (exclusive of taxes), so if you're looking for outsized value from your Ultimate Rewards points, stick to the PointsBreaks list (or look elsewhere).

Conclusion

When I started writing this post I thought this would be an easy and fun exercise. It turned out to be difficult, time-consuming, and boring, which I hope speaks to my basic point: seeking the "best" value from your miles and points is a thankless chore.

You'll always be better off redeeming your miles and points for the trips you actually want to take, rather than the ones some blogger tells you are the best.

I still don't understand the appeal of revenue-based rewards programs

Invariably when I write about Ultimate Rewards transfer partners, commenters chime in that I've left out Southwest. And this is invariably true: Southwest doesn't serve my local airport, I don't fly Southwest, and I don't like Southwest, so I don't write about Southwest.

But it's worse than that: I don't care about any revenue-based rewards programs.

Hotel revenue-based rewards programs are great — if you're a business traveler

If you're a business traveler who is reimbursed for their paid hotel stays, then it's essential to understand the concept of point "density:" how much you need to spend at each chain in order to earn enough points for award redemptions at that chain's properties.

If you pay for your own stays, on the other hand, then it's vanishingly unlikely that you're going to get a big enough rebate from a hotel's loyalty program to justify paying retail for hotel rooms booked through that chain, as is typically required in order to earn hotel points: after all, you can get a 17% rebate by simply booking paid stays through Hotels.com, after clicking through a cash back portal like TopCashBack.

Of course there are corner cases, like someone who otherwise pays for their stays through manufactured spend, but who is gunning for Hyatt Diamond elite status in anticipation of an upcoming trip where that status is going to pay for itself with suite upgrades, breakfast, or lounge access. But an extraordinary amount of digital ink is dedicated to those corner cases, which are simply not encountered by the typical traveler in any given year.

Airfare is too cheap to think about revenue-base airline rewards

Southwest has a "pure" revenue-based rewards program: you earn points based on the amount you spend on airfare, and then you redeem points based on the paid price of a ticket, after the appropriate conversion rate is applied.

So the ideal use case for Southwest points looks something like this: earn Ultimate Rewards points at 0.5 cents (gas stations) or 0.67 cents each (office supply stores), transfer them to Southwest, where you have a Companion Pass, and redeem them for between 2.5 cents and 3.4 cents each when booking award tickets for yourself and your designated companion, giving you a discount of 73% to 85% over retail.

And if you live in a city served by Southwest, and which serves many destinations with nonstop flights, that really might work out to a pretty good value. Baltimore and Dallas, I'm looking at you.

In exchange, of course, you have to fly Southwest. On the one hand, that means free checked bags. On the other hand, it means furiously checking in exactly 24 hours before departure, lining up for the alphabetical cattle call, and then crossing your fingers that you and your companion will actually get to sit together while the flight attendant raps his safety briefing at you.

Meanwhile, if you have access to grocery store or gas station manufactured spend, you can use a US Bank Flexperks Travel Rewards card to get up to 75% off paid airfare on a distance-based carrier like American, Alaska, or Delta (if credited to Alaska). And in addition to your air travel, you also earn miles that can be redeemed for additional airline award tickets.

That's the calculation that prevents me from having any interest in flying on Southwest, or crediting my paid flights to revenue-based carriers.

Crediting paid flights to revenue-based airlines is the least efficient method of earning miles

A general member crediting a paid United flight to United will earn 5 Mileage Plus miles per dollar spent on airfare. Pay $400 for a domestic roundtrip ticket, with $5.60 in taxes and fees, and you'll earn 2,000 Mileage Plus miles.

Pay the same $406 for gas station manufactured spend, and you can buy 82 OneVanilla prepaid debit cards, earning 82,811 Ultimate Rewards points. That's 3 domestic economy roundtrips at the "saver" level or 1.5 roundtrips at the "standard" level. It's $1035 in paid, mileage-earning airfare — on any airline, not just United.

The difference in scale here is geometric. Go ahead and bump your United earning up to 7, 8, 9 or 11 Mileage Plus miles per dollar spent, and you'll run into the exact same situation: the more you spend out-of-pocket on paid airfare, the more miles you're leaving on the table.

The same is true of Delta: as long as SkyMiles are a transfer partner of American Express Membership Rewards, you'll never get better value buying paid Delta-operated flights and crediting them to Delta than you will spending the same money manufacturing spend in bonus categories on your American Express cards.

Go ahead and credit to Delta and United — just don't do it for the miles

Of course I'm begging the question here: once you've manufactured the spend you need to redeem your miles for paid domestic travel, you still have to credit the flights somewhere.

Personally, I privilege flying American, Delta, and Alaska in order to credit flights from all three to Alaska'a Mileage Plan, but you may well find that United best serves your needs, and decide to credit your paid United flights to Mileage Plus.

Likewise, you might find that Delta Medallion elite benefits make it worth crediting your paid Delta flights there, whether for complimentary upgrades, preferred seating, or refundable and changeable award tickets.

But if you do, don't use the rebate value of your redeemable miles as justification. It's not there.