As travel hackers we work really hard to accumulate points, so when it comes to redeeming them you want to be sure you’re getting the maximum value for your money.
One of the ways of determining what your miles/points are worth is to think of them as currency. You’ve paid something to acquire them (time and effort) and you expect to get some value out of them when you redeem them.
Different people assign different values to miles depending on their travel goals and priorities. Some people prefer making value redemptions to maximize on luxury (like spending miles travelling business class), while others simply want to increase their travel frequency and reduce out of pocket expenses.
Whichever the case, I try to combine two key factors when calculating the value of points, namely:
- What value would I get for redeeming them?
- How much would it cost me to buy the points/miles if I had the chance?
Most people redeem their miles using the domestic economy award. So this is a fairly good yardstick to use when calculating the cost per mile of your redemption. Let’s compare 2 scenarios to better understand the redemption value of your miles.
Round-trip flight from Montreal to Ottawa: Air Canada will sell you a ticket for around $430, or you can redeem 15,000 miles.
The redemption value here is 2.8 cents per point/mile.
Round-trip flight from Toronto to Washington: Air Canada will sell you a ticket for around $670; again redeeming will cost you 15,000 miles.
Redemption value here is 4.4 cents per point/mile.
Clearly, you’re getting a better deal from scenario 2 than 1 because your redemption value is higher.
The cost per mile (CPM) equation used to calculate the redemption value looks like this:
Scenario 3: Redeeming miles for business class flight
Now let’s look at a third scenario involving a business class award. Say you want to fly business class Vancouver to London, Heathrow. Let’s use an Air Canada flight again as an example; they’ll sell you a ticket for $6,560, or you can book the flight with 110,000 miles.
Using the equation above, your CPM, or redemption value is around 5.9 cents per point/mile. So redeeming miles for a business class flight gives you more value than travelling economy.
Fuel Surcharges and airport levies
You should also be aware that fuel surcharges and airport levies, which can be as high as $200 for a flight, also eat into your CPM; when planning a flight paid with reward miles you need to factor this in as well. Air Canada and British Airways are known for imposing high levies, while airlines like Singapore Airlines have more customer-friendly policies.
The best redemption value
At the end of the day you’ll find that the best redemption value for your miles usually comes from flying longer distances, premium class flights and redeeming for hotel suites. That said, there are still many opportunities you can exploit to get excellent returns on economy flights and lower-tier hotels.
Here is a breakdown of the redemption value I place on different reward programs:
|Rewards Program||2017 Value ($ Cents)|
|American Express Membership Rewards||2|
|British Airways Avios||1.5|
I’ve highlighted American Express Membership Rewards and Starwood Starpoints due to their high redemption value. This is also the reason they are my favourite reward programs.
Amex Gold Rewards Card, The Amex Platinum Card and Starwood Preferred Guest (SPG) Credit Card, are my favourite cards because of their great sign up bonuses which serve to add to their redemption value. Here’s what their CPMs look like:
- Amex Gold Rewards Card: You get 30K welcome bonus points which is equivalent to $570, there’s no annual fee for the first year. Amex Membership Rewards has a 1.9 cent CPM.
- Amex Platinum Card: You get 60K points, valued at $1,159 with a $699 annual fee. Amex Membership Rewards has a 1.9 cent CPM.
- SPG Card by Amex: You get 20K SPG starpoints equivalent to $500 and there’s a $120 first year annual fee. Starwood Starpoints has a 2.5 cent CPM.
Don’t redeem for the following services unless you absolutely have to:
Overall the best return you can expect when redeeming reward points is booking flights, buying gift cards or using Uber. Amazon gives you a poultry 0.7 cents per point redeemed, while Booking Hotels with Points costs you 0.75 cents per point.
However, I understand that all men are not made equal, so if you ever find you must redeem your points through shopping this is what you should expect:
|Redemption Option||2017 Value ($ Cents)|
|Airbnb Direct Booking||0.007|
|Airbnb Gift Card||0.010|
|Paying off a charge||1.000|
|Shopping on Amazon||0.700|
|Booking Hotels with Points||0.750|
The figures I’ve provided here are by no means conclusive, and you should take time to come up with your own values for the reward programs you use.