I know this has been a tragic week for Points traveling folk as the United devaluation occurred, I see people wailing and maiming themselves in their attempts to shed their grief stricken pain (for non points traveling folk I mean they are booking up First class flights on Lufthansa from Toronto and trying to figure out how the heck to get to Toronto to board that flight).
The value that points and miles offer for travelers like myself cannot be overstated enough, and as much as I enjoy alternative options, such as cash back from cards like the Fidelity Amex, or Travel Cash Back from cards like the BarclayCard Arrival, they simply cannot provide a solution for people who like to fly long haul, especially in Business Class or above. However, people do go a little loopey when it comes to valuing points, so lets have a quick reality check here folks.
The Points and Miles Mantra
Value is gained from points when the dollar cost of the journey exceeds the dollar cost to acquire the points for the journey. But savings can never be more than the price to acquire the points.
The point of the Mantra is to understand real value you garner from traveling using points. If I had a penny for everytime I hear people say they got 5 cents per point value on their Avios I would have lots and lots of pennies (heck I say it myself, but lets pretend I don’t for the purpose of this post…) . Let’s look at an example, the best value you can get from British Airways Avios is most commonly found on their shortest flights, those that come in at a length less than 650 miles, which would cost you 4500 Avios, and typically $5 in fees if you are using American Airlines flights in North America, OK lets go!
Cost of Flight on American Airlines (Date Random in Future 2/12-2/19 Round Trip)
- Route – -New York (JFK) – Cincinnati (CVG)
- Duration 2hrs nonstop
- Price (from Kayak) $390
Same flight booked on BA.com using Avios:
- 9000 Avios and $5 in fees!
So that is certainly a bargain, and why I love Avios. But how much of a bargain, here is where our logic flies out of the window:
Avios are worth 4.2777 Cents Each!
The logic here is cost of flight, minus fees from award ticket divided by number of miles equals value AKA:
- $390 – $5 = $385/9000 = 4.277
This is what most people like to do for their math, it makes them feel amazing, and there is nothing wrong with wanting to feel amazing, but here is why it is wrong, remember the Mantra?
Value is gained from points when the dollar cost of the journey exceeds the dollar cost to acquire the points for the journey. But savings can never be more than the price to acquire the points.
Avios Points are by no means the cheapest to buy, in fact I would almost never recommend doing so, other than in this exact situation when calculating value. It is not that you would actually have to ‘buy’ the ticket on American Airlines to fly from JFK-CVG, if you can fly it on Avios that you own, you can buy Avios and fly it on those right?
Your Real Value must come from the lowest possible alternative for like for like product
The cost of buying the avios is a whopping $273 for 9000 Avios, but that, plus $5 in fees is still less than $390, so that has to be your basis for like for like comparison. So a much more accurate calculation of value per Avios would be:
- $273+$5/9000 = 3.0888
Of course, you could claim that if you already own such points then the calculation is not fair, and you want to go back to the originally inflated number of 4.277, however the rules of opportunity costs and the fact that you are diminishing your points dictate that you should value at the replacement cost, not at an arbitrary alternative cost.
Why do you want to fly American Airlines?
These short hops using Avios are fabulous value, I agree – but here is another factor to price into your valuation. If you are flying American Airlines using an Award ticket, be it British Airways Avios, or any of the Partners within OneWorld you are not earning anything in return for the flight – they don’t give you Airmiles for using Airmiles. As such, why would you seek to fly American Airlines?
Duration of Flight
A flight of 650 miles or less (for the 4500 Avios sweet spot) is approximately 2hrs and 30 minutes in length max. As such you are doing it to get from A-B a positional hop to join another flight, or a quick getaway. Regardless of your intention it is clear that such short journeys can be ‘suffered’ in pretty much any cabin, and there is no real difference between coach class experience in the major airlines. Therefore another factor to price in when valuing the points is can you achieve a goal cheaper, when goal is A-B travel.
Low cost airlines could seriously drop the price, and should be factored into value. In the CVG example there isn’t much like for like, since you would have to fly indirect on US Air for $280, which is comparable with just buying the Avios and flying non stop. However if you look at some other routes, such as this one from NYC – Detroit.
Cost of Flight on American Airlines (Date Random in Future 2/12-2/19 Round Trip)
- Route – Detroit (DTW)-New York (LGA)
- Duration 2hrs nonstop
- Price (from Kayak) $284
Same flight booked on BA.com using Avios:
- 9000 Avios and $5 in fees!
Using Old Logic would be 284-5/9000 for 3.1 cents value almost the same price as buying the Avios.. but there is a big difference here: If you bought the ticket for cash you would actually earn approximately 1200 AAdvantage miles, which themselves have value. These would also count towards Elite Qualification for Status. As such, although the cost is the same to buy the flight or buy the airmiles buying the flight is better value and should be used in the equation for value:
Lets assign a value of say… 2 cents per mile for AAdvantage (the arbitrary nature of this number does demand a future post on it also) so that would be $24 in value, new calculation:
- $284-$24= $260/9000 = 2.889 Cents per Avios value
But wait… it gets worse. Because of the short nature of this trip it would be unfair to exclude the competition, Spirit Airlines (who I know has a poor reputation) is offering the same route for just $183. Since this is a A-B hop it must be the price point we use.
- $183-$5= $178/9000 = 1.977 Cents per Avios Value
Conclusion
Buying Avios is a terrible idea, they are so overpriced, unless you actually look at the numbers above and realize that in some cases, such as the Cincinnati you can fly for less money by purchasing points rather than buying the ticket. As such, you cannot discount the value that can be found in buying points, and must remember when calculating actual value that you need to price in the lowest way to get the job done, whether it be on like for like metal such as American Airlines, or getting from A-B to achieve your goal. Either way, picking the arbitrary number that an airline would quote you for a revenue ticket is not an accurate measure of value.
This can be seen in much wider extremes when you get purchase miles offers, and redeem on long haul Business class. Keep your wits about you folks!
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