The concept of loyalty and the Wyndham Rewards revaluation

/

I had an interesting exchange on Twitter the other day with Seth, the Wandering Aramean, who was arguing in response to Trevor at Tagging Miles that loyalty currencies are on a perpetual downward valuation spiral. While they devalue at different rates and different times, Seth claimed, they never increase in value.

My response was, "What about Wyndham?" After all, the May 11, 2015, revaluation of the Wyndham Rewards program made the 4 cheapest award categories (5,500 to 14,000 Wyndham Rewards points) more expensive, while the 5 most expensive award categories (16,000 to 50,000 Wyndham Rewards points) became less expensive when all properties were realigned at 15,000 Wyndham Rewards points per night.

Meanwhile, the Barclaycard Wyndham Rewards credit cards continue to offer 2 Wyndham Rewards points per dollar spent everywhere.

Reconciling these two positions is easy, as long as you can tell the difference between loyalty programs and loyalty.

If you were a loyal Wyndham guest, you probably got screwed

I admit that I've been travel hacking so long that it's a bit tough to remember what "loyalty" is supposed to signify.

But if "loyalty" means anything, it's surely the willingness to pay more to direct your stays or flights to a particular travel provider, not for any short-term interest but because over multiple nights, flights, stays, and years, your business will be rewarded in a way it wouldn't if you stayed at the cheapest possible hotel and booked the cheapest possible flight each time you traveled.

Since most travelers, most of the time, are traveling domestically, and only rarely staying in the most expensive categories of property, the change of cost of Wyndham Rewards nights to a flat 15,000 points was, as Seth asserted, a radical devaluation for "loyal" travelers, which is to say for travelers who directed their paid stays to Wyndham in order to secure cheap future award nights.

If you're a travel hacker, the Wyndham Rewards revaluation was a godsend

Compared to putting the same spend on a 2% or 2.105% cash back credit card, the Barclaycard Wyndham Rewards credit cards allow you to purchase a night at any Wyndham Rewards property in the world for between $150 and $158. As it is for a "loyal" Wyndham Rewards customer, at many properties that's an increase over the cost prior to the May 11, 2015, revaluation.

But the key takeaway for the travel hacker is that other, cheaper options remain for the nights you'd otherwise have redeemed Wyndham Rewards points for. There's a difficulty in analyzing the situation precisely, but fortunately Wyndham still makes available the list of properties which went up and went down in category in 2013, which at least gives a sense of what properties were in which categories prior to the 2015 revaluation.

With all that in mind, here are some United States properties which, as of 2013, cost less than 15,000 Wyndham Rewards points per night. These are properties that became more expensive after the 2015 revaluation. Next to each property I also suggest the cheapest nearby competing property and its imputed redemption value.

I don't claim this is exhaustive research — anybody can do the same research and find more extreme examples at their leisure using the links provided above.

  • Baymont Inn and Suites Florence/Muscle Shoals. Was 14,000 Wyndham Rewards points ($147 IRV). Nearby: Hampton Inn Florence-Midtown. 20,000 Hilton HHonors points ($70 IRV).
  • Days Inn Tempe ASU. Was 10,000 Wyndham Rewards points ($105 IRV). Nearby: Embassy Suites Phoenix - Tempe. 30,000 - 40,000 HHonors points ($106 - $141 IRV).
  • Days Hotel Oakland Airport-Coliseum. Was 14,000 Wyndham Rewards points ($147 IRV). Nearby: Hilton Oakland Airport. 30,000 HHonors points ($106 IRV).
  • Ramada Denver Midtown. Was 10,000 Wyndham Rewards points ($105 IRV). Nearby: Hampton Inn & Suites Denver-Speer Boulevard. 30,000 - 40,000 HHonors points ($106-$141 IRV).
  • Knights Inn Lafayette Midwest. Was 5,500 Wyndham Rewards points ($58 IRV). Nearby: 
    Homewood Suites by Hilton Lafayette. 30,000 - 40,000 HHonors points ($106-$141 IRV).
  • Travelodge - Columbus. Was 5,500 Wyndham Rewards points ($58 IRV). Nearby: 
    Hyatt Place Columbus/OSU. 8,000 Hyatt Gold Passport points ($80 IRV). Also
    DoubleTree Suites by Hilton Hotel Columbus Downtown. 20,000 - 30,000 Hilton HHonors points ($70 - $106 IRV)

Conclusion

The point of this post is not that the Wyndham Rewards revaluation was "a good thing." Whether or not a particular individual benefited or suffered from it depends on that person's past and future pattern of paid and award stays.

My point is that for a travel hacker the increases in prices at Tier 1-4 Wyndham Rewards properties are easily offset by balances in competing programs with more reasonably priced properties in the same markets.

Meanwhile, the decrease in prices for properties in Wyndham Rewards tiers 5 to 9 (16,000 to 50,000 Wyndham Rewards points) make their top-tier properties radically more affordable in the same markets as their competitors continue to charge high prices, whether you choose to pay in cash or in points.

Why I insist on pedantically comparing award redemptions to cash

/

In the comments to last Wednesday's post, reader Paul Wellington made a great comment, which read in part:

"this sort of redemption nerd logic makes me chuckle and misses the forest for the trees. You have zero interest in paying for it. So who cares what promotion they're running that nominally reduces the value of your redemption? Absolutely irrelevant. Your focus should be on 1) free 2) quality of amenity/experience. What do you care if the cash payers are getting a small break if you're still getting the same package of goods with points? Obviously, this is an elastic concept - at a certain price point, you'll happily pay cash instead of give up valuable points, but it's nowhere near that sweet spot."

I responded to Paul there, but I think he makes a couple very interesting points I want to address in slightly more depth.

There are (at least) three "costs" that matter when evaluating a redemption

There are two different ways to judge a redemption — and they may produce conflicting results:

  • How much did the points cost to acquire? If you manufacture spend, you can add up all the fees you paid to earn the earn the required number of points, and end up will a total out-of-pocket cost. For example, if you buy $300 Visa gift cards from Staples, you may pay 0.59 cents per Ultimate Rewards point, so a 30,000-point Hyatt Gold Passport stay will cost $177 in out-of-pocket fees (although the correct point of comparison is the $300 in cash you could redeem the same 30,000 Ultimate Rewards points for).
  • How much could you have earned manufacturing the same spend on a cashback-earning credit card? This value is what I call the "imputed redemption value" or opportunity cost of a redemption. If you buy PIN-enabled Visa gift cards at an unbonused merchant with a Marriott Rewards co-branded credit card, a 50,000-point redemption will cost you the $1,000 you could have earned manufacturing the same spend on a 2% cash back credit card.

Once you know those two costs, you can compare them to the retail cost of the award redemption or (my preferred metric) the cost of the hotel you'd stay in or ticket you'd buy if you didn't have access to loyalty currencies.

There are logically three places that price may fall:

  • The hotel may be cheaper than the price you paid for the required points. A 50,000-point Marriott room night might be selling for $250. If you transferred in 50,000 Ultimate Rewards points, you're paying $250 more than you would if you just redeemed your Ultimate Rewards points for cash and booked a paid stay!
  • The hotel may be more expensive than the price you pay for the required points, but cheaper than the imputed redemption value. Since I buy my HHonors points for about 0.22 cents each, but they have an imputed redemption value of 0.35 cents each, hotel redemptions falling in that range save me money compared to paying cash, but cost me money compared to manufacturing spend on a cashback-earning credit card instead of on my American Express Hilton HHonors Surpass card.
  • The hotel may be more expensive than the imputed redemption value. This is what you should generally think of as a "good" redemption: you're earning more value manufacturing spend on your co-branded credit card than you would have putting the same spend on a cashback-earning credit card.

Direct your spend to the cards that generate the most consistent value

Now, Paul is exactly correct that I have zero interest in paying cash for my stays. Since the least valuable point is always the one you don't redeem, I'll happily, eagerly, ecstatically redeem points at a mediocre or bad value rather than pay cash.

But if, over time, one loyalty currency affords me less and less value compared to earning cash instead, I'll shift my earning away from that currency towards cash or another, more consistently-valuable one.

But it's only possible to make those longterm strategic calculations if you also make sure to conscientiously track the value you get when redeeming your miles and points! That can seem pedantic, but only because the conventional wisdom about the value of manufacturing spend on hotel co-branded credit cards is roughly correct (Starwood, Hilton, and Wyndham are pretty good, the others are very bad).

If hotel occupancy rates stay high, and programs continue to devalue, their currencies will edge closer and closer to the breakeven point, and even programs like Hyatt Gold Passport will stop generating consistently outsized value. If you don't know how to calculate the value you're getting from your points, you're at risk of being left behind as those shifts take place.

Arrival+ devaluation and imputed redemption values in a 2.11% world

/

Last week a number of bloggers "confirmed" some forthcoming changes to the Barclaycard Arrival+ MasterCard. The trouble is, they confirmed different things!

  • Amol at Travel Codex wrote: "The first changes for new cardmembers should go into effect sometime in September, although it may vary for different people depending on when their cardmember year begins."
  • Matt Zuzolo at Bankrate wrote: "These changes will go into effect in November for cardholders who got the card before Sept. 30, 2014, and in August 2016 for cardholders who got the card on or after Oct. 1, 2014."
  • Summer Hull at Mommy Points wrote: "For those interested in applying for either version of the card, Barclaycard is targeted mid-July for a relaunch of the products for new customers.  At that time the 5% rebate on travel purchases will be in place, but it won’t expand to all categories until November (reportedly for tech related issues)."

I really like my Arrival+ card

As a reminder, I don't have any third-party credit card affiliate links anywhere on this site (although I do have a couple of personal referral links on my Support the Site! page).

So I don't have any incentive to write about cards I don't carry or cards I don't love. And I really like my Arrival+ card:

  • True Chip-and-PIN functionality makes it fantastic for buying train tickets when you've just arrived in Europe, without exchanging money at extortionate airport rates;
  • "Travel redemptions" are eminently gameable;
  • Barclaycard treats a wide range of online transactions as purchases, and MasterCards are much more widely accepted for such transactions than American Express cards;
  • I've had the annual fee waived on both of my account anniversaries to date.

Two changes to be aware of

While I'm not entirely convinced when the new changes will come into effect, all the reporting so far indicates that they will eventually be applied to existing cardholders. For me, there are two key changes to think about:

  • the Arrival+ mile rebate on travel redemptions will go down to 5% from 10%;
  • and travel redemptions will start at $100 (10,000 Arrival+ miles).

The first change means that the card is, at best, a 2.11% cash back card, while the second change means that the $89 annual fee will no longer be eligible for rebate. In other words, if you can't get Barclaycard to waive the annual fee, you'll actually have to pay it.

That raises the breakeven point of manufactured spend on the card from $40,050 to $80,909 — that's the point at which you're making any profit over a straight 2% cash back card, if and only if you actually pay the $89 annual fee (if you have the annual fee waived, then the card is still strictly superior to a 2% cash back card like the Fidelity Investment Rewards American Express or Citi Double Cash).

Imputed Redemption Values in a 2.11% world

I use the term "imputed redemption values" to designate the amount you have to save on hotel points redemptions in order to justify earning hotel points rather than cash back on your most-profitable cashback-earning credit card. So far, I've been using 2.22% cash back as my benchmark, and you can find those imputed redemption values here, which will remain valid for existing Arrival+ cardholders, for now.

But the upcoming devaluation of the Arrival+ MasterCard means those values will not be relevant to new cardholders, so I've recalculated my imputed redemption values for the hotel chains I follow using both the new 2.11% maximum earning of the Arrival+ MasterCard and a straightforward 2% cash back earning rate, like that of the two cards mentioned above. I've also included the 2.22% earning for the benefit of existing Arrival+ cardholders.

Club Carlson

This calculation has been additionally updated to reflect the end of the last-night-free benefit for co-branded US Bank cardholders.

Hilton HHonors

Starwood Preferred Guest

Marriott Rewards

Hyatt Gold Passport

IHG Rewards

Choice Privileges

This is the first time I've included Choice Privileges, the loyalty program of the Choice Hotels chain, in my hotel analyses. The administration of this program appears to me to be a complete disaster, but they have a remarkable number of hotels all over the world and what appear to me to be fairly generous imputed redemption values.

I'll have a more in-depth post coming on this program later this week, but for now, here's the imputed redemption value of manufacturing spend with the Barclaycard-issued Choice Privileges Visa Signature card, which earns 2 Choice Privileges points per dollar spent with the card:

Those are obviously very competitive imputed redemption values for top-tier properties. The only trouble is that it's wildly unclear to me whether Choice Hotels actually has any top-tier properties.

For example, the excellently-located Comfort Inn Central Park West costs just 25,000 Choice Privileges points. But a paid stay in July (Choice Hotels only allows award bookings within 30 days for non-elite members) costs just $209 — well below the $278 imputed redemption value for such a stay.