Here’s a question I’ve been pondering recently… how much does the availability of award space directly impact the valuation of your points strategy? Most people will come up with some sort of theoretical value per point based upon redemption value. Some will claim that a $25,000 flight gave them a whopping 25 cents per point value or some such thing. Others will say that they value them at the same price as flying economy on the same route… there are as many ways to value as there are to get to Timbuktu.
But do any of these methods, and do you yourself, discount for inventory?
Personally I only fly saver level awards. These are the award blocks that both cost the least, are shared between alliances, meaning if there is space available I could use my AA miles to fly me to Madrid on Iberia. Let’s have a thought experiment here:
- Business class saver award (one way) for AA on IB is 50,000 AAdvantage miles.
- American Airlines gives out 100,000 miles via the Citi Executive card for a net $250 price.
If for whatever reason you wanted to visit Madrid (it is quite nice btw) and would have otherwise paid for economy class because you are not the Sultan of Brunei, one (reasonable)way that could value your points might be:
- Price for Economy Ticket $900
- Price for Business Class Ticket 100,000 AA
- Price for 100,000 AA $250
- Net savings = $650 + you get some fancypants travel
That’s the essence of the ‘travel hack’.
- But what if you found out there is only a finite number of seats on a plane? Shock Horror!
- What if they you found out that out of all those seats on a plane only some of them were actually in Business Class?
- What if you heard on the grapevine that Iberia wanted to sell some of them for cash to revenue passengers (the bastards!)
- What if you heard that they wanted to give award space to their own loyalty program first (non-saver level)
- What if you then found that there were 3 seats left after all that kerfuffle that would price at saver level?
Now you have two potentials for inventory control. Based upon supply and demand. One is that the points have flooded the market via credit card signup offers. This means that many unworthy people are competing for your space.
This means that the very act of granting your points devalues them. Did you discount them for that?
What about a silent but deadly devaluation?
Let’s say that Iberia elects to release just one seat to saver level partner inventory at Business Class instead of 3? If you are a party of 2 that makes for some tough choices. Perhaps you’ll still want to go to Spain, but you’ll have to be in the back of the bus. What happens to your valuation if your price options are:
- Economy one way 30,000
- Business one way 50,000
And now you are spending 60K per person to fly in coach?
Well, on the one hand, your 100,000 miles still are great value. 300,000 of them would cost $750 and get you 5x $900 flights. Not too shabby. But if you were valuing at the fancypants level, something just went a little wrong.
My last two awards for American Airlines have been for indirect transcon 738 First. I’ve paid 50,000 per ticket for them. I still think that is great value, but I am pretty sure that I didn’t use that benchmark when deciding to collect these miles….Airlines seem to be throttling inventory increasingly, in tandem with announced devaluations. Perhaps we should consider the impact of this more when making those time/money/point calculations?