Think about two eventualities for reserving an award flight to Europe: Within the first, you redeem 60,000 miles for a round-trip economic system award. Within the second, you pay 20,000 factors for a one-way economic system award. Which supplies the higher worth?
You could be inclined to say the second state of affairs, but it surely’s a trick query. Each eventualities lack the context to guage whether or not both represents a great deal, a lot much less which supplies higher worth.
In brief, the price in factors or miles is inadequate to let you know whether or not the award is an effective deal. So, let’s take a look at learn how to resolve when to make use of your factors and miles and learn how to calculate your redemption worth.
Deciding when to make use of factors or miles
Getting worth out of your factors and miles begins with realizing their price. Each month, TPG publishes valuations for all the most important loyalty applications. We additionally replace our award calculator that will help you resolve when to redeem factors or miles and when to ebook a paid price.
Utilizing the TPG calculator
Utilizing the TPG calculator is simple. Choose whether or not you wish to calculate the worth of airline miles or resort factors, after which select a program. Enter the fields fully, together with any charges it’s essential to pay in your award.
For instance, as an example you wished to ebook a five-night keep on the Waldorf Astoria Los Cabos Pedregal. Charges will fluctuate primarily based in your dates. However, in an instance we discovered, you possibly can pay $10,549.75 or redeem 480,000 factors (after Hilton’s fifth-night-free profit for elite members on award stays) for a Pacific-view room with a king mattress and a plunge pool.
You should use the TPG calculator to find out your potential redemption worth and whether or not it is best to redeem Hilton factors or ebook a paid price for this keep. Since there are not any charges on this award keep, you may put “$0” within the charges subject.
Choose the “Calculate” button as soon as you’ve got enter your information. On this case, TPG values 480,000 Hilton Honors factors at $2,880. For the reason that money worth of the resort is (far) higher than $2,880, the calculator recommends redeeming Hilton factors.
You possibly can see the calculation on the right-hand aspect of the above screenshot. By finding out this calculation, you’ll be able to learn to calculate when to make use of your rewards or ebook a paid price.
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Calculating your redemption worth
Redemption worth is a metric to find out when to redeem your factors or miles and when to ebook a paid price. You possibly can calculate your redemption worth by multiplying the money worth ($10,549.75) by 100 and dividing the consequence by the award worth (480,000 factors).
By doing so, you’d be taught the above Hilton keep would provide you with a redemption worth of roughly 2.20 cents per level. TPG’s valuations peg the worth of Hilton Honors factors at 0.6 cents per level, that means you would be getting over 3 times our valuation of Hilton factors.
Everytime you’re contemplating a redemption, you may need to ask your self, “Ought to I take advantage of my factors and miles now, or am I higher off saving them?” In fact, solely you’ll be able to resolve primarily based in your state of affairs. However, if you’re able to both use money or your factors and miles, use the next pointers:
- Should you calculate your redemption worth to be larger than our valuations, lean towards reserving an award.
- Should you calculate your redemption worth to be decrease than our valuations, lean towards reserving a paid price.
- Should you calculate your redemption worth to be equal to our valuations, different elements — which we focus on beneath — might assist you resolve.
Associated: How (and why) it is best to earn transferable bank card factors
Accounting for taxes and costs
You should embody taxes and costs when utilizing the TPG calculator or calculating your redemption worth.
Resort-related taxes are sometimes set by a share of the money price. So, for those who’re paying $200 for a resort and the taxes add as much as 10%, you’ll be able to anticipate round $20 in taxes. Utilizing factors, alternatively, your money price is $0, so you’d incur no taxes. Factors and miles might be an effective way to keep away from paying hotel-related taxes — particularly in locations with sky-high tax charges.
Resort charges are trickier, as some resort loyalty applications waive resort charges on award stays or for top-tier elite members. For instance, World of Hyatt members do not pay resort charges on award stays, and top-tier Hyatt Globalist members additionally do not pay resort charges on eligible paid stays.
Earlier than reserving, you’ll be able to see the complete money price — together with taxes and resort charges — on the ultimate reservation display. Your choices is likely to be as follows for a Marriott keep, as Marriott Bonvoy does not waive resort charges on award stays:
- Redemption keep: 80,000 factors plus $50 in resort charges
- Paid keep: $1,200
To appropriately calculate the award redemption, you’d add taxes and costs on the award reserving ($50 of resort charges on this case) into the “Charges” field on the calculator. The calculator subtracts these taxes and costs from the paid price of the resort. In spite of everything, we’re finally evaluating $1,150 to 80,000 factors.
TPG values 80,000 Marriott factors at $672, so that you’re higher off redeeming Marriott factors on this instance because the money price is way larger.
We will additionally calculate the redemption worth by multiplying the money worth ($1,200) much less the award taxes and costs ($50) by 100 after which dividing the consequence by the award worth (80,000 factors). Doing so would reveal we’re getting 1.44 cents per Marriott level, which is larger than TPG’s valuation of Marriott factors at 0.84 cents every.
It is also essential to think about carrier-imposed surcharges when reserving award flights, as these can supply an much more pronounced instance. For instance, contemplate the next Virgin Atlantic Flying Membership award choices. Particularly given how cheap paid charges might be for transatlantic flights, it is not extraordinary that you just may discover paid flights bookable for lower than the taxes and costs on these awards.
On this state of affairs (and the others above to a lesser extent), failing to account for charges would paint a distorted image of the redemption worth.
You should use the identical method when calculating the redemption worth of blended points-and-cash awards. Enter the money worth of your itinerary like regular, deduct the money portion of your award as if it had been every other charge, and divide the remaining quantity by the factors portion of your award.
Associated: Tourism taxes are making worldwide journeys costlier
Different concerns
Along with charges, your calculation ought to embody any bills you would not have incurred on a paid itinerary. You may additionally need to contemplate the chance value of the rewards you possibly can’ve earned on a paid flight or keep.
We have in contrast apples to apples when calculating redemption values, however you do not essentially have to base your evaluation on similar itineraries. Suppose you need to fly from San Francisco to Los Angeles, and you should buy an Alaska Airways ticket for both 10,000 miles plus $5.60 in taxes and costs or $150. That will provide you with a redemption worth of about 1.5 cents per mile.
Nevertheless, as an example Southwest has an analogous flight for $100. Setting apart elements that are not strictly pertinent to the calculation (like bag charges, seat choice and elite qualification), it’s possible you’ll need to use the Southwest flight value and decrease the redemption worth to about 1 cent per mile. In brief, it’s essential to resolve whether or not your choices are related sufficient to be interchangeable. If the schedule is shut and also you anticipate the expertise to be comparable, it’s possible you’ll need to base your calculation on the cheaper choice.
Lastly, one controversial query within the award journey group is whether or not it is cheap to base redemption worth on a money worth you’d by no means truly pay. For instance, you possibly can get an outsize return on a premium award for a flight that usually prices tens of 1000’s of {dollars}. However for those who would solely be keen to pay a fraction of the value for those who booked a paid price, must you use that decrease price when calculating your redemption worth?
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Backside line
The calculations mentioned on this information can assist you consider whether or not you are getting a great return. However these calculations should not dictate whether or not you ebook an award.
A suboptimal award is usually a nice redemption if you’re brief on money however have factors to redeem. There are numerous methods to use your rewards for distinctive experiences for which it’s tough (or unattainable) to peg a real worth. It is as much as you to resolve whether or not a given award is sensible.
