I love the guys at Travel is Free, and think they product great content. However, I feel the urge to challenge their latest post: MSing for Hotels. It’s just wrong. See, the numbers may be right for points requirements ( I didn’t check them) but what good are good numbers with bad concepts? However, in fairness, MSing for hotels is damn hard, so it was a great effort.
The great part of the post is that you get to see the prices of the hotels in relation to one another. Where it falls down is that you are relying on the co-branded cards and a brand driven strategy – or in other words you are looking at the tail that wags the dog.
I’ll start out first with a valuation concern: Drew lists Citi Thank You points as being transferable at 1:1.5 to Hilton. That is something that I didn’t know. The reason that I didn’t know it is that I would NEVER transfer a TYP to Hilton.
Understanding the intrinsic value
Citi TYP have a base value of a penny when used on travel. In his example he lists a 30,000 point hilton for which he would transfer (I guess 20,000 not 26,666) to get one free night. So you would spend $200 for a night in a hotel? What’s more, if you hold the Prestige Card you get a 33% bonus for flights, which becomes a 60% bonus for AA/US flights. Note, they have other transfer bonuses for travel but it seems they are depreciating this year. Value wise, that means we are talking about a $320 AA/US flight vs one night in a Hilton. Incidentally, I pulled up a random night on Hotels.com and came up with $167 for the Hilton, or right below it a 4 star for $102.
Don’t get me wrong, Drew and Carrie do travel a lot more than me, and I am certain they do so at a very low cost indeed, I am just pointing out that when you start comparing ‘scientifically’ like this, you have to keep your eye on the bigger picture. What they did here was take a 5x card and multiply it downwards by transferring to Hiton, even at a 1.5x multiplier.
The reason for this is the base value of a Hilton point is less than [1.5X 1 cent] especially when you can stay next door for less.
This is the tip of the iceberg
Before you go off and say ‘that’s just one little thing’ actually, the TYP example is the key to the real answer on how to MS for hotels. You find a real card that offers 5x and you buy the rooms with that. How does that work…? Let’s rip up the table and start again:
- 4 star hotel in Prague $102
- 5% cashback to earn $102 >> 5x $505 for $2525
- $2525 * 5% = 126.25
- minus $25 fees = $101.25 profit (close enough)
So we go from needing a hotel in Prague and being willing to pay $53 for it, to getting one for zero. Neat? OK mine doens’t come with the free breakfast for Hilton Golds, but I can go buy a bagel and a shot of rum somewhere nearby to kick off the day.
The Domestic/International Flight Effect
People rave about the Arrival card offering 2.22222% (or more if you can’t do math) cash back for travel. As we know, this can be useful for domestic flights, but not for long haul business class. The reason is simple, domestic travel is often bearable in economy and is relatively CHEAP. Long haul Business or First Class is EXPENSIVE.
Just the same with hotels. There are people who like to… dare I say it… Vendome their hotels. If you like fancy hotels then cash (or the Arrival at 2.668585%) isn’t viable.
At a certain point you need points
When you start seeing the ratio of a redemption increase above 1:1 then you have entered points territory.
- Example 1 Hilton Prague $163 per night with 20,000 points to spend is a ratio of 1:0.815 – cash is better
- Example 2 Park Hyatt Vendome $690 per night with 30,000 points to spend is a ratio of 1:2.3 – points are better
In example two we would be perhaps considering Chase Ultimate Rewards, that could be transferred to Hyatt, so rather than blowing 69000 by paying with them, you would use half that to transfer in for your room. Admittedly, in my case if I had 30,000 points to spend on 1 night I’d be looking to see what 4 star hotels I could pick up for <$300 per night.
We do get into that weird zone now of the Vendome – would you stay here and claim you got 2.3 cents per point value and tell your friends at the holidays (they hate you anyway because you travel and they have ugly kids) or would you shop around?
The SPG Effect
How about this… $350 cost to stay in the top tier SPG property via MS. Simple math is that you earn 1x SPG per dollar, so if you spend $35,000 you get a free night. Simple doesn’t work in Travel Hacking though.
35,000 SPG can get you one night in a nice SPG property, or it could get you Iberia Business Class from NYC-MAD with change. At this point, you need to start thinking about having a basket of points and miles, and knowing where to use them for maximum value. Just like using TYP was a bad transfer into Hilton, SPG is a bad award at a hotel (subjectively I admit). However, we have a further complication with SPG… the 5x factor. SPG points typically cost 3.5 cents each to buy with cash.
Let me ask you a question… if I gave you $10,000 (plus fees) of my float and said. Come back with as many SPG points as you could, what would you do?
- buy 285,715 points with the 10K?
- buy 20x $500 cards with your SPG Amex and earn 10,000 points?
- buy 20 x $500 cards with your 5x, earning $500 cash and use that to buy at 3.5cents each?
- run off with my $10,000 and say screw you pal?
If you picked option 1, you don’t get MS, that is OK, but if you have a significant other I would recommend that you give your credit cards to them for safekeeping. If you picked option 4 then yeah, you got me, that is much smarter than MSing it!
Option 2 (use the SPG) vs Option 3 (use a 5% and buy points) is the difference between earning 10,000 (SPG card) and 14,785 (14,285, plus the act of buying the would earn 500 more)
In short you not use SPG to earn SPG nights because they are vastly over valued. And furthermore but you should not use the SPG card to earn SPG points (if we are using this world of multipliers on cards) because you are losing 30% every time you do that.
You need a travel budget. The problem is that when people earn cashback they think of it as cash back, instead, think of using cash earned to top up your travel fund. Personally, this entire notion of comparing MS for hotels has some value in terms of perspective, but when I travel I tend to think of things differently.
My approach is:
- Where should we go? Anywhere (wife)
- I then get us there using points from signup bonuses
- I then book hotels using points or cash depending on the want- sometimes I/we want fancy (Park Hyatt Milan) sometimes I want value Radisson San Juan. If I can’t make fancy work for free then we go cheap. In my world, cash is king, and I won’t waste it, but I will splurge using my points if I can.
I’m pretty sure that Drew has a similar approach to travel, so I am just ragging on his post because I have a few hours to kill.