When booking award flights, it may not be as simple as choosing the cheaper option. To determine the true value of booking with miles, you need to calculate the award redemption value. This involves considering the award price, the cash price of the same itinerary, and any additional costs associated with booking an award.
To calculate the redemption value, follow these steps:
1. Subtract any added award costs from the cash price.
2. Multiply the result by 100 to convert to cents.
3. Divide by the award price.
The redemption value will usually fall between zero and five cents per point or mile. It’s important to factor in any added costs, such as taxes and fees, to get an accurate redemption value. Ignoring these costs can distort the value of award redemptions.
Additionally, when booking award travel, consider the opportunity costs of not earning points, miles, or elite credits that you would normally earn when paying cash. This should be factored in as an added cost when calculating the true value of booking with miles. In order to do that, you’ll need to evaluate the worth of those incentives.
For instance, a Choice fare on a Southwest Airlines flight from Nashville to Phoenix is priced at $191 and earns 978 points. Alternatively, you could secure the same fare for 15,000 Rapid Rewards points and $5.60 in fees.
When not factoring in rewards earned on the cash fare, the redemption value amounts to 1.24 cents per point. However, opting for Rapid Rewards means forfeiting the 978 points offered with the cash fare.
According to BW’s valuations, Rapid Rewards points are valued at 1.3 cents each; hence, 978 points equate to $12.71, which can be subtracted from the cash price alongside the $5.60 security fee. This results in a reduced redemption value of 1.15 cents per point.
The same concept applies to elite credits, although their value is more subjective and dependent on circumstances. Missing out on these credits could be significant if you’re nearing elite status qualification, or inconsequential if reaching a higher elite tier is improbable.
Moreover, in addition to expenses like taxes and surcharges paid directly at the time of booking an award, indirect costs must also be considered. These costs, while paid separately, are essential for making your itinerary feasible. For example, if booking a first-class award necessitates a positioning flight or an additional night in an airport hotel, these supplementary travel expenses diminish the redemption value.
On the flip side, it’s important to consider any value gained from booking an award. A common example is a more flexible change or cancellation policy, as numerous loyalty programs permit modifications to award bookings at no cost. Other instances include booking an award flight that allows for a free stopover and evading resort fees at hotels that waive them for award stays.
Lastly, while award redemption value typically compares the cash and award prices of the same itinerary, it can also be beneficial to compare rates between similar (but not identical) itineraries. For instance, if a hotel room costs either $200 or 20,000 points, booking an award yields a redemption value of 1 cent per point. However, if the neighboring hotel is equally luxurious and priced at $180 per night, then booking an award for $200 may not offer full value. In such cases, opt for the cheaper option when calculating redemption value.
Calculating award redemption values is crucial to determining the desirability of booking an award. To this end, you’ll need a benchmark to define what constitutes a favorable deal, such as BW’s points and miles valuations. For example, American Airlines AAdvantage miles are valued at 1.3 cents each by BW, so an AAdvantage award with a redemption value around this figure indicates a fair or average deal. A significantly higher redemption value signifies a good or excellent deal, while a notably lower redemption value indicates a poor or subpar deal.
Consider an AAdvantage award from Seattle to London on British Airways, a Oneworld partner. The one-way cost in Business class is 57,500 miles and $733 in taxes and carrier-imposed fees. Comparatively, the cash price for the same itinerary is $3,028. Accounting for award taxes and fees, but excluding opportunity costs and other considerations, this award presents a redemption value of 3.99 cents per mile.
This exceeds BW’s AAdvantage miles valuation by more than threefold, indicating that this award is an exceptional deal despite the relatively high surcharges.
Redemption value is also beneficial for evaluating different award booking options. For instance, a World of Hyatt stay could be booked as a Points + Cash award for 14,500 points and $392, a Standard Room Free Night award for 29,000 points, or at a cash rate of $759. Crunching the numbers reveals a redemption value of 2.53 cents per point for the Points + Cash award and 2.62 cents per point for the Free Night award. Both options are favorable deals based on BW’s valuation of 1.8 cents for World of Hyatt points, with the Free Night award slightly edging out as the better choice.
Investing time in calculating redemption values like these can help you maximize your points or miles and secure the best deals on your travel arrangements. text as follows:
“The quick brown fox jumps over the lazy dog.”
Rewritten: The fast brown fox is leaping over the sluggish dog.