I’ve enjoyed some fantastic trips and travel over the years thanks to the Hotel Points and Airline Miles I have collected, mostly through manufactured spending on cards and enjoying lucrative signup bonuses. However, in light of recent devaluations I have been thinking harder about the real value of these points and miles and if we should be using our skills for this hobby in a better way. Personally, I think Hotel Points and Airline Miles will always have a place in my portfolio, however I am already changing my habits in order to make the most from them and the ideas out there for manufactured spend.
This post explores some of the problems I believe exist within the Hotel Points and Airline Miles acquisition game, and how we can quickly lose sight of the big picture when chasing these points.
The Problem with Credit Card Miles and Points is that they must be spent quickly, before devaluation occurs
Carrying a high mileage balance is not a good idea, it is nice to have enough available to make a quick trip happen, as I just did for tagging on the trip to Dubai at the end of my Italy vacation – however any more than perhaps 300K per person per program or about 1M in total is probably a waste of resources. Since they are sitting in your account awaiting the next devaluation to occur. I dislike this attitude as it is not in line with my philosophy to save and be frugal. The points game encourages frivolousness and spending beyond your means. Whilst doing this for points rather than cash is obviously a great idea – you must ask again about opportunity cost.
The Problem with Credit Card Miles and Points is that they do not appreciate like other assets
As per above, not only are they awaiting Devaluation day to occur, they aren’t a tangible asset class that can grow in a savings or investment account in the same way that Cash does. Therefore they sit in stagnation until you use them, forget about them (and they expire worthless without account activity) or you forget about them for just a bit, they devalue and then you use them for half the price.
The Problem with Credit Card Miles and Points is that you are spending within a False Economy
People constantly try to put a firm valuation on a Point or Mile. I myself have my own value, but the value changes depending on your need for them.. If you are just acquiring them and not needing any more then in my mind their value decreases. Your first 300K or so Chase Ultimate Reward points are worth at least 2 cents each, but if you have a Million of these already, their value starts dropping since you aren’t using them. You are losing Opportunity.
People try to justify the price of a point with Business or First Class Flights, flights that they would never be in a position to pay for, even if they wanted to got to that destination. For your average person a trip to Tokyo would be once in a life time, suddenly they are doing it in Business Class or First Class, burning between 100K-125K on American Airlines or 120K-135K even at Saver Award Levels. These tickets retail at $7,000- $8,000 per ticket, and some First Class routes can be way into the 5 figure range. However, even with a $10,000 retail value on a First Class Ticket that you are flying for 100K AA miles, that doesn’t make each of your AA miles worth 10 cents – it makes them worth as much as it would take to actually get you from New York to Tokyo in the lowest class of ticket, often around $1,200.
Of course, I hear the argument that there is no comparison between First Class and Economy Class. Well, I just flew Tokyo-New York in United Business First, and most of the wine they offered me was under $9 retail price per bottle, the food came in a stupid little tray still and my glass and silverware were built for Hobbits. I admit the seat was more fun than in Economy, but not $9,000 better. Also, on my last flight to Newark from Tokyo they had NONE of the wines listed below, I am also pretty sure that the Champagne wasn’t there either, and some Cava was offered. Everything was substituted for wines of an even lower standard. So what am I paying for again? Their Cab, the Geyser Peak (which I may have mentioned they didn’t even have) retails for $9.99 a bottle… I don’t serve my neighbors Cat Cabernet at that price point.
Difference between flying Coach and Flying Business to Tokyo 50,000 miles on AA (in low season), 60,000 Miles on UA at a penny a point, that is $500-$600 Wasted Opportunity Money. At 2 Cents Per Point, as people value these miles at minimum that is $1,000, $1,200. For those that value higher..because points are so much better than cash to them… well then they are paying even more for the privilege.
So really, United Flyers if you are paying 120K instead of 60K to sit up front – and you think your points are worth 2 cents each, are you really OK with spending $2400 per ticket?
The Problem with Credit Card Miles and Points is that you are limited to a subsection of Hotels at each location
I think this is easiest to see with Hotel awards – if you start looking at Hotel prices for Starwoods you will see prices for rooms that are rather high, and really what is it that you are getting that is any different? Lets take a look at the hotel booking that I just made for Dubai, leaving signup bonuses aside for a moment people still really like SPG Points (heck I do still too, even though I know they aren’t as good as cash).
First Problem: By being Loyally within the Hotel Loyalty program you are limited to certain properties only, so you are blinkered for opportunities to stay in better locations, often for less money. In Dubai Starwoods has 14 properties, ranging from 7000 SPG per night for the Sheraton Deira to an undisclosed amount per night for the Al Maha Desert Resort and Spa (it has limited participation, so you know its gonna be more than 30K per night…)
In fairness, that is a lot of choice right there so perhaps not the best example. However Dubai does have an alarmingly high number of hotels that are of very good quality, many listed as 5 Star Properties. For my upcoming stay I need to be near the Dubai International Finance Center (DIFC) district of the city for meeings, so my SPG option would be the Four Points by Sheraton Sheikh Zayed Road. This is a Category 4 property, which I could stay at for 10,000 SPG points per night. Now, again, we have to say that these are worth AT LEAST 2 cents each. So that is $200 per night. I am staying 5 nights which means I get to use the Stay 4 Get one Free promotion that Starwood’s runs as standard, so 5 nights would cost me 40,000 SPG, conservative value $800.
Er, now I am in a Four Points, that is kinda close to where I need to be, but not ideal, and I am paying $800 for the privilege? And I think I got a deal as it is on points and I get one night free? How the mind works..in fairness though, this Four Points looks like a very nice property, the problem with it is that I would have to cross an 8 lane highway to get to the DIFC every day, so hardly ideal. Also, if I don’t want to spend my points I can get that property on Starwoods.com for $150 per night.
Instead, if I was to book into the Rose Rayatan Hotel using Hotels.com I can get a price of $105 per night, and on top of that Hotels.com has their own rewards program where you get basically 10% per booking in the form of 1 free night for every 10 you stay. And they are available on the Ultimate Rewards Portal for Shopping at 4x.. I could book the room through that portal with my Chase Sapphire Preferred and get 6x UR points for my trouble (or I could use my Fidelity Amex and get 2 cents plus 4x UR..which is even better, perhaps..) until this month this hotel was the tallest in the world, I am very excited about staying here and hoping for no earthquakes if I get a high (they have 77) floor!
The Problem with Credit Card Miles and Points is that you start believing that Breakfast on vacation really costs $50 per person per day.
Connected to the redemption are the great perks that Credit Card companies offer, for example if you are staying at a Hilton Property and have the Amex Surpass or Citi Hilton Reserve card you get automatic Gold Status, this grants you free Breakfast in the hotel. However, do you really need to spend every morning in the Hotel chowing down, often on a limited selection of Breakfast options (Continental only for example). There are times when this is a life saver for the budget, such as when you are in the Conrad Maldives, because other than going out and catching your own Fruit Bat or scaling a tree for a Coconut you have no other option. But what about when you are in Paris, or Rome, do you want to be trapped in the hotel for your $50 value? I mean really, when was the last time anyone spent $50 of their own money on Breakfast? You are in Paris, you walk down the street to the little cafe, order un cafe (yeah, ironic isn’t it?) and maybe a croissant and dare it be possible that you also get a side of culture whilst you are at it? Total cost, 4 Euro, at a swanky place!
The Problem with Credit Card Miles and Points is that you stop believing that the reason for travel is to experience new things, meet new people, learn about cultures
You get so wrapped up in the Journey that you forget the destination. Recently I have been reading about bloggers who write a trip report solely about the plane they flew First Class in- they flew basically around the world, changing planes accordingly, never leaving the airport, burning hundreds of thousands of miles and what do they have for it? You went to Malaysia? No actually I went to the First Class Lounge in Malaysia and tried the Dim Sum. C’mon!
Now, I love to brag about First Class as much as the next person, especially around poor people, and those with Kids who find the prospect of travel too much to handle, but come on, get out there and get back to basics about what travel is, and actually start breathing the air of a town again instead of sitting in the Hotel Lobby Restaurant, or Airport Lounge. That’s going to give you memories that you will take with you, not whether they served a nice Chardonnay in the Lounge or not (PS, most of the time its crap).
Travel can be so much nicer in First Class, and some of the Hotels might be beyond your means otherwise, but try to keep a check on the reasons why you are going somewhere, and if you are being hampered more by the concepts of travel being restricted to a brand, or changing your plans to make it a 5 night stay to leverage the SPG deal.
More importantly, think about how your earning habits fit into your overall financial situation. If you are struggling for money, have any sort of debt at all and aren’t using your Manufactured Spend schemes to earn Cashback then you are travelling frivolously and not taking responsibility for your actions. Can you really afford to pay $1200 worth of points for Coach? $2400 for Business? That is still a chunk of change. What about if you fly coach and put the spend on a 2% Cashback Card for other 50000 points – that’s a trip to somewhere like Japan PLUS $1,000 in your bank account to help pay the bills.
Points and Miles cards remain king for Signup Bonuses and some Category Spending (I would say 3x minimum is required to beat 2x Cash) but for everything else, you should be earning Cashback. Amazon Payments when not meeting spend – Cash Back, buying Gift Cards through Bigcrumbs= Cashback Card!
Disclaimer No Chase Sapphire Preferred Cards were harmed in the making of this article.