Which of these 2 formulas do you use to calculate value of your FF redemptions?

[smit0847]

Was having this debate with my best mate yesterday. He proudly told me he had just redeemed VA points for an EY J seat and had obtianed 4c pp value because he calculated the points required against the asking price for a revenue seat on the same flights.

I said 'yeah, but you wouldnt ever pay the asking price would you. I say the value of those points is calculated agaist the price you would be willing to pay for that revenue seats, not some arbitrary price set by an airline that you would never pay. Things are worth what you are willing to pay for them'.

How do you calculate worth? If you'd only ever pay a max $5k for an F ticket yet the airline wants $10k what is your points redemption for that F ticket worth? The price set by the airline or the price you'd actually pay?

Another example - say you go to a house auction and the agent wants $800,000 for the house feeling thats what it is 'worth'. You bid $700,000 and it is eventually accepted. Isnt the value of the house what you paid for it rather than the price the agent hoped for?

 

[andye]

Easy trap to fall into. Sometimes makes people do illogical things to acquire points. The other aspect of the calculation that people often forget is the points foregone by not buying a revenue ticket.

 

[drron]

As we redeem for premium longhaul travel I have an easy method.
J awards are valued at a discount J fare-which we do pay for.
F awards I price at the normal J fare which we would pay if no other choice.On those sectors with seasonal pricing it would be at low season rates.

 

[zainman]

I compare it to retail price because thats what I would had to pay had I not redeemed points if I wanted the same flight. Regardless of whether I had paid that amount or not. Its' the "cost" of the same experience.

 

[footy99]

Was having this debate with my best mate yesterday. He proudly told me he had just redeemed VA points for an EY J seat and had obtianed 4c pp value because he calculated the points required against the asking price for a revenue seat on the same flights.

I said 'yeah, but you wouldnt ever pay the asking price would you. I say the value of those points is calculated agaist the price you would be willing to pay for that revenue seats, not some arbitrary price set by an airline that you would never pay. Things are worth what you are willing to pay for them'.

How do you calculate worth? If you'd only ever pay a max $5k for an F ticket yet the airline wants $10k what is your points redemption for that F ticket worth? The price set by the airline or the price you'd actually pay?

Another example - say you go to a house auction and the agent wants $800,000 for the house feeling thats what it is 'worth'. You bid $700,000 and it is eventually accepted. Isnt the value of the house what you paid for it rather than the price the agent hoped for?

I've been grappling with this myself recently.

Here's a useful data point on the earn side for comparison. With Bankwest transaction ac, we can earn 0.4 points per $100 per day. With their saver, we can earn 1c per $100 per day. So earning 10000 pts costs $250.

So do you send money to the transaction or saver ac? Ie is 10000 pts worth more or less than $250?

The answer is it depends on the individual, for the reasons you outline.

As far as I can see, 10000 points is almost never worth over $250 flying economy, even at non-sale rates and awards are almost always booked out when the discount rates are booked out, negating any extra value they might have had on busy flights. So for anyone happy to fly economy, points really aren't that valuable.

At the same time for someone who currently pays rack rate to fly business, 10000 points is virtually always worth more than $250. Even compared with most business sales, they usually represent some value, albeit more marginal when points earned back from those revenue flights are deducted from the equation.

I've often thought of the 280K oneworld award as being the most valuable use of points. At $250 for 10000 points, that award is now $7000 + 6k points for phone booking and cash taxes etc., so effectively costs $8000-8500. Is that good value? Would you pay it in cash?

I gotta admit I'm having an awfully hard time trying to justify 10000 points being worth more than $250. Even my favourite points value example is borderline. Very happy to be convinced otherwise!

 

[MEL_Traveller]

I think it's a mixture of both calculations.

For some routes (like HKG/BKK/SIN/China) the business class fare is around the $4000-5000 mark for the majors - so that's the value of the points.

But I think the calculations of a RTW ticket where some people price sectors individually, flying to their exact preferred city, and say their 150K mile award was worth $32,000 per passenger... that's a tad on the optimistic side...

I don't know anyone who would buy a RTW for $32000 when you could pick up a star alliance or OW RTW for a lot less. Sure you might have to amend you itinerary to fit the alliance you are flying and maybe take buy short side tip to reach your preferred city if the airline doesn't fly there direct... but you're not going to pay an extra $15,000 simply to fly non-stop to your preferred city when a one hour side-trip could be added on to your AONE.

 

[dajop]

A couple of alternative views to consider:

1) value at cost of a reasonable alternative, perhaps not on same airline or even all the way in J For example going to Europe would an economy to Asia be ok and then I from there?
2) cost of buying miles to make same award or similar awards using say Aadvantage or Life Miles

Just because an airline is charging $9k doesn't mean the awards is worth that if I can get a competitor (or combination of competitors for $4-5k. Of course don't forget the surcharges associated with awards as well. For some airlines they can be significant.

 

[gogo419]

I normally look at both. It really depends on what route you are flying. But saying that. I don't really think it is that valuable to look at either.

An alternative view...
My parents recently booked 5 J seats PER-CDG return for the family. When i was helping get heaps of bonus points last year through cc's etc. I took the view to ignore all the points you acquire through everyday transactions and flying that is paid by your employer (can be seen as costing you nothing to acquire them).

My view is that its only worth looking at the points your "buying" through signing up to CC's. So then calculate the total cash outlay you made to acquire the bonus points sum that with the taxes you will pay for the award. Then look at that total cost and compare it to the maximum you would be willing to pay for the J or F fare on that route.

I don't believe its possible to make an objective decision on what the exact figure is that your willing to pay as a maximum price. There's to many bias's in a hypothetical situation...

In our case it worked out at about $2500 per person return for taxes and points that we "bought" So it was no brainer to go ahead and do it over sitting in Y.

thats my 2c..


gogo

 

[OzEire]

A well written and logical proposition put by the OP, on a topic every AFFer would have grappled with at some point in their FF 'career'. Good analogy too.

My method is to compare actuals.

1. Obtain a quote for a points booking, include 'lost' points that wont be earned, note $ co-pay. Search is guided by availability of seats on my available dates and limited by carriers I am happy to fly, taking direct/indirect as i am happy to do.

2. Forget that points exist. Using the same parameters (dates, airlines, award availability) obtain a revenue quote on any suitable carrier or combo.

3. Adjust/equalize both quotes for lost points/co-pay.

4. Assess which option is a better use of my $ or my pts? Usually its the pts/$ calc that is most significant because I fly often enough to use the points at another time.

[this usually takes about 5-10mins for a basic J int with no more than 1 transit/stop]

My baseline pts/$ calc is a SYD-MEL in Y- (eg. 6,900 pts vs say $109) since this is a route I can easily use to liquidate my points into $ saved.

 

[Mattg]

I would compare it to the lowest generally available retail price. And I always subtract any taxes or YQ surcharges from the retail price before doing the point-value calculation.

An F seat selling for $10K is not worth $5K in my view if it would be impossible to actually obtain it at that price (even if that's what you're prepared to pay).

 

[medhead]

Comparing to the asking price provides a consistent measure. Comparing to the price that you would pay, but can't pay because they don't offer that price, is hand waving magic that is entirely uncomparable between people. As per my comment later on I would happily pay $1 for any J flight. I just think that asking for a subjective assessment of value is not a valid point of comparison.

SWMBO always compares to the price that you can/will pay to do the flights. So if the only fare that I can get in my price range is Y then she wants me to value the points against that Y fare. Again this is consistent and provides an externally measurable pricing level. We've recent got J awards to AKL. We wouldn't pay for J on the route, but would've paid for discount Y that was available for $334. So the 36000 points have a low achieved value. But then we are traveling in J, which would have cost much more.

Btw the real estate analogy doesn't really work as that is the price you've paid not the price you wish to pay. If I purchased a house valued at $800k for $700k I can guarantee that I'd want to have paid only $1.00 for it.

 

[AL1CE]

I've had this debate with my ex many times, and IMO it comes down to how much you paid for the points in the first place?

For example, when QANTAS offers 10points/$1 for flight vouchers (which is money you would spend anyway) or David Jones 8-10/$, Iconic 4-8/$ Ebay 2-4/$, Gift Vouchers 5/$, WW Bonus points 250-1000. Sometimes these equate to 19.9 cents/point! instead of the standard 0.5-1.5. (which I haven't included the CC % as it is futile in this forum.

So, although I m not answering your question, as I don't think it can be answered so easily without all factors and variables in place. I am making the point (which I believe, to be very valid) How much did those points cost you in the first place??

Only then can you really know or equate what you have paid for that award seat. Having said that, IMO I think the only good value for points in my situation, in my life is INT Award seats.

 

[Captain Halliday]

I'm far less scientific and use a method a bit like OzEire. I look at a sector like BNE-SYD, check the price and the points in Y and go from there. Rule of thumb 8,000pts=$100.

I do very little international travel and don't have the status to be considered in the upgrade lottery so simple work for me.

Meantime, where are all the spreadsheet people? They must be busy designing some whiz-bang spreadsheet that allows you to input your points, destination and class of travel and it spits out he answer with a fancy little black and red circle clock that shows if points or cash is the better option.

 

[farstar]

Here's a useful data point on the earn side for comparison. With Bankwest transaction ac, we can earn 0.4 points per $100 per day. With their saver, we can earn 1c per $100 per day. So earning 10000 pts costs $250.

You need to take into account your marginal tax rate as you pay tax on interest but not on FF points, it still may not be worth it but needs to be take account.

 

[Jeffrey O'Neill]

A lot of my flights are now with purchased miles from USDM > AAdvantage and Lifemiles. I doubt I'd every be willing to pay for a business class seat, but could stump up for around the cost of premium economy.

I'm probably spending a bit more than PE for my J flights, and I'm getting to try F as well for not too outrageous amounts of $$$.

I get to and from my holiday in far better shape. Being 6'1 and crammed into a Y seat used to leave me with lots of back pain. Now I look forward to the J / F flight experience. How do you put a $ value on an experience / happiness? I know I'm spending more on my travel now that before I discovered USDM and LM, but I'm also enjoying my holidays a lot more, and happy to apy the price for that.

 

[burmans]

From a pure economics view, value is not equivalent to either price, cost. For me (and this is come what aligned with the economist view) value is a relative thing, good value is a high benefit/cost ratio, poor value is low benefit for cost.

Price and/or cost are purely what someone else says it worth, value is what you think it is worth which may be less, equal or greater than that figure. Aside from the fact that this is the economic "definition", basing your own "value" of a good on what other sell/price it at, is in my view just somewhat lazy and indicative of those who can't/won't think for themselves.

Of course this is only my opinion but as a general rule those who do well (financially) in life are those who don't just accept other price /cost as the true value of a good but nevertheless are very aware of that price/cost (because after all even if you value something at $100 you'd be pretty stupid to pay that if you know Joes Bloggs down they road will sell it for $50).

 

[medhead]

The problem with adopting the economic theory is that Joe Bloggs isn't down the road selling Qantas first class for $50. Only Qantas is selling that product.

I find the inconsistency of this concept of value to be strange. If value is a subjective measure that depends on each individual, then economics truly is magically jiggery pokery. But I think we find the answer in the suggestion that value is benefit:cost ratio. If I want to buy a Qantas first class seat from A to B, I can either pay $15000 or 200000 points. The benefit remains the same either way. So really we're comparing the cost. That suggests comparing the points cost to purchase price for the same seat or the purchase price of an alternative seat that can be purchased.

I don't see much usefulness, or much more importantly comparability, in saying if Qantas sold their $15000 seat for $5000 I'd buy it. Fundamentally that is just about comparing the buyer's purchasing power.

 

[Jeffrey O'Neill]

I don't see much usefulness, or much more importantly comparability, in saying if Qantas sold their $15000 seat for $5000 I'd buy it. Fundamentally that is just about comparing the buyer's purchasing power.

I have the purchasing power to pay $15K for an F ticket, but I don't see the value of it. If I can buy the miles and get an F flight for say $2500 o/w then I see amazing value in that, or getting a J return for $4K is also good value.

For many the ability to fly in J is outside their purchasing power, but there's also plenty who can't see the value of paying $7K for a flight in J to Europe return when they could use the money saved to stay in say 5 star instead of 4 star hotels. There's also th relative decline in difference between F and J with much of the J product offering a lay flat bed. The extra frills in F may not be worth that much to someone who doesn't drink.

Depending on where I'm going, how old my body is feeling when I book, the distance to be travelled, and if I'm breaking up the long flights or just getting a 2 hour transit to recover, will have effects on the way I calculate value at that point in time.

With the AUD down a fair bit to last year the value proposition is changing for me, with F less desirable than J, but I still see plenty of value with miles for flying in some comfort and style when using miles. If we weren't paying the Australia tax on flights ex OZ then I'd prob see value in revenue J flights too.

 

[footy99]

The problem with adopting the economic theory is that Joe Bloggs isn't down the road selling Qantas first class for $50. Only Qantas is selling that product.

I find the inconsistency of this concept of value to be strange. If value is a subjective measure that depends on each individual, then economics truly is magically jiggery pokery. But I think we find the answer in the suggestion that value is benefit:cost ratio. If I want to buy a Qantas first class seat from A to B, I can either pay $15000 or 200000 points. The benefit remains the same either way. So really we're comparing the cost. That suggests comparing the points cost to purchase price for the same seat or the purchase price of an alternative seat that can be purchased.

I don't see much usefulness, or much more importantly comparability, in saying if Qantas sold their $15000 seat for $5000 I'd buy it. Fundamentally that is just about comparing the buyer's purchasing power.

I think the method you describe is the only way to do mass comparisons or convey the closest we can get to an "objective" value comparison.

It works alright in economy. If I'm flying SYD-LAX rtn, there is a minimum I'm going to have to pay to do that. So estimating the value at less than that minimum is arbitrary.

It becomes more subjective in the other classes because the economy ticket is a valid alternative. There might be a minimum I have to pay if I want to fly business, but if that minimum is more than I'm willing to pay, I can just fly economy instead and pocket the difference. Anything extra paid has nothing to do with a need to get from a to b anymore. It's about service/convenience/comfort/yadda yadda, which everyone values differently.

How do you calculate worth? If you'd only ever pay a max $5k for an F ticket yet the airline wants $10k what is your points redemption for that F ticket worth? The price set by the airline or the price you'd actually pay?

The latter. If I would never pay it, it's not a relevant measure of value for me. How much would I pay for that seat determines its value for me.

That's why I like the example of bankwest transaction ac, where you can effectively buy as many points as you like by parking money there at the opportunity cost of whatever they'd make in savings/term deposits/wherever else over the same period. Really tests how much I'm willing to pay for a point. At market rates in J, the value seems outstanding. But the real question for me is whether the intangible advantage of better service/convenience/comfort/yadda yadda vs economy is worth more or less than $x in hand.

 

[11sjw]

For premium FF seats I compare it to what it would cost me at the time of booking.

Eg. 3 x CX J PER-HKG-JFK return at the time of booking (through QFF) was showing at AU$30K, we paid 834k points plus app $2,300 giving 3.3c/pt. The CX pricing dropped over the year however given I had to book them ASAP I figure that was the value I obtained at the time.