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Consider two scenarios for booking an award flight to Europe. In the first, you pay 60,000 miles round-trip for a United economy saver award; in the second, you pay 70,000 miles one-way for a United Everyday economy award, and you still have to sort out how you’ll get home. Which one is the better deal? You may be inclined to say the first scenario — after all, it costs less and includes the return trip — but the truth is it’s a trick question. Both scenarios lack the context you need to evaluate whether either represents a good deal, much less which one is superior.

Specifically, you need to know the return you’re getting from your miles. As far as awards go, 60,000 miles tends to be a good price for a round-trip ticket to Europe, but it’s not so enticing if there’s also a fare sale and you can buy the same ticket for under $500. Similarly, 70,000 miles seems steep for a one-way economy ticket, but it could be a great deal if you need to fly in an emergency and the alternative is spending thousands of dollars on last-minute airfare.

There may be better or worse options in either case; the gist here is that the nominal mileage cost of an award is not enough by itself to tell you whether that award is a good deal. Redemption value is the metric award travelers use to settle that question, and understanding how to calculate it is an important step toward maximizing your rewards.

The Basics

At its core, calculating award redemption values is simple multiplication and division. Start with the cash price of your itinerary in dollars. Multiply that number by 100 to convert from dollars to cents. Then divide by the number of points or miles needed to book the same itinerary as an award. The result is the redemption value in cents per mile or cents per point (commonly abbreviated as CPM or CPP, respectively). The basic equation looks like this:

The cash price should reflect the full amount you’d pay out of pocket for a similar itinerary. For example, consider a double queen room at the Kimpton Hotel Palomar in Chicago on a Saturday night in November. At the time of writing, I could choose between the IHG member discount rate of $353 and the standard award rate of 50,000 points:

Using the formula above, we get a redemption value of around 0.71 cents per point. However, that rate doesn’t include taxes, which don’t show up until you click through to the reservation screen. The true cash price is $415, yielding a higher redemption value of around 0.83 cents per point. That’s an increase of more than 14%, and means the difference between a nearly dead average redemption and one that’s clearly better than average based on TPG’s valuations.

As another example, consider a Hilton award at the Waldorf Astoria Las Vegas on a weeknight in April. A city view king room was available at the Hilton Honors discount rate of $259 (after tax) or the standard award rate of 64,000 points, yielding a redemption value of just over 0.4 cents per point. But similar to the previous example, this itinerary involves a hidden cost. The Waldorf charges a nightly resort fee of $51 after tax, so the true cash price is $310. Since Hilton generally waives resort fees on award bookings, that yields a more attractive (though still subpar) redemption value of just over 0.48 cents per point.

Accounting for Award Fees

While the cash price in the equation above should include the full dollar amount of a paid booking, it should exclude any added expense incurred as a result of booking an award. In other words, if you have to pay a $100 fee to book an award for travel that would normally cost $1,000, then you’re really only getting $900 of value from your points. To account for such expenses, deduct them from the cash price before you divide by the award price:

The most common example is the $5.60 security fee added to domestic flight legs, which is bundled into revenue fares but tacked on separately to awards. That fee is small enough that it won’t affect your calculation significantly in most cases, but it can impact the redemption value of cheaper fares. Consider a one-way Southwest flight from Oakland (OAK) to Las Vegas (LAS) in February, which at the time of writing was available for $49 or 2,524 Rapid Rewards points:

Without accounting for the security fee, that award yields a redemption value of roughly 1.94 cents per point. After subtracting the fee from the cash price, however, that number drops by roughly 11% to 1.72 cents per point, which more accurately reflects the redemption value.

Another example is the last-minute booking fee many airlines charge on award bookings made within a certain window of time (generally 21 days before departure). At the time of writing, I found round-trip, nonstop economy service on United from Denver (DEN) to Newark (EWR) for $479 one week out from departure. The same flights were available at the saver award rate of 25,000 miles round-trip, but they included a $75 close-in booking fee on top of the $11.20 security fee. Subtracting those fees from the cash price leaves $392.80 in the numerator of the equation above, which yields a redemption value of just over 1.57 cents per point.

Other carrier-imposed surcharges offer an even more pronounced example. I priced a round-trip British Airways economy flight from Philadelphia (PHL) to London-Heathrow (LHR) at $557 in January. The same flights could also be booked as an American Airlines AAdvantage MileSAAver award for 45,000 miles and $594 in taxes and fees. You read that correctly; the award fees cost more than buying the ticket outright.

Fuel surcharges and other fees can ruin your award redemption value. Image courtesy of British Airways.

If the appalling result doesn’t jump out at you, run the numbers and you’ll see that redeeming miles for those flights actually yields a negative return. In this scenario (and the others above to a lesser extent), failing to account for fees would paint a distorted picture of the redemption value.

Points and Cash Awards

The approach described above can also be used to calculate the redemption value of mixed points and cash awards. Simply input the cash price of your itinerary like normal, deduct the cash portion of your award as if it were any other fee, and divide the remaining amount by the points portion of your award.

For example, I searched for a room at the Palacio Duhau — Park Hyatt in April and found a King Deluxe room available at the World of Hyatt member rate of $495 per night after taxes and fees. I could book the same room as a free night award for 20,000 points, or as a Points + Cash award for 10,000 points and $151.25 per night — the advertised rate is 10,000 points and $125, but it ends up costing more because the cash portion is taxed. Subtracting $151.25 from the original $495 and dividing by the award price of 10,000 points yields a redemption value of nearly 3.44 cents per point — superior to the 2.48 cents per point I would get by booking with points alone.

(NOTE: It appears that World of Hyatt will be changing Points + Cash in November 2018, where the cash portion of the award will shift to 50% of the standard rate instead of a flat copay. This would result in the redemption value for this particular award dropping closer to the value of a full award night.)

This also holds true for programs that offer multiple points and cash payment options for a given redemption, like the Avios program shared by British Airways, Iberia and Aer Lingus. TPG Senior Editor Nick Ewen wrote an in-depth analysis of Avios & Money Rewards earlier this year, so check out his article for a primer on calculating redemption values for those options.

Accounting for Other Expenses

In addition to fees, your calculation should include other costs induced by booking your award, even if they don’t pertain to the award itself. These generally fall into one of two categories. The first are any travel-related costs necessary to make your award itinerary operable. The most common examples are positioning flights and airport hotel stays (to accommodate an early departure or late arrival), but if you want to be thorough, include any expense you wouldn’t have also incurred on a paid itinerary.

The second category is the opportunity cost of unearned rewards. Depending on how you book your award, you might be ineligible to earn points and elite credits, and you might also be denied elite benefits you’ve already earned. Deducting the value of unearned points and miles is straightforward — just use TPG’s valuations (or your own) to figure out what they would have been worth, and subtract that amount from the cash price as you would other expenses. The value of elite credits and benefits is more nebulous, so you’ll have to come up with your own estimate.

Some Newark Marriott rooms offer a view of the airport. Photo courtesy of the hotel.
Include airport hotel stays and other related costs in your calculations. Photo courtesy of the Newark Marriott Hotel.

Other Considerations

So far I’ve compared apples to apples when calculating redemption values, but you don’t necessarily need to base your assessment on identical itineraries. Suppose you want to fly from Seattle to Phoenix, and you can buy an Alaska Airlines ticket for either 10,000 miles or $150. That would give you a redemption value of 1.5 cents per mile, but suppose Southwest has a similar flight for $100. Setting aside factors that aren’t strictly germane to the calculation (like bag fees, seat selection and elite qualification), it no longer makes sense to use Alaska’s price as the basis for your calculation, since you can book essentially the same itinerary for less. In that scenario, I’d lower the redemption value to 1 cent per mile.

Of course, if that cheaper Southwest flight includes a layover or has an inconvenient departure time, or if you have Alaska Airlines elite status and a shot at getting upgraded, then it’s not a fair comparison. You’ll have to decide for yourself whether itineraries are similar enough to be interchangeable, but my general rule is if the schedule is close and I expect the in-flight experience to be comparable, then I base my calculation on the cheaper option.

Finally, one controversial question in the award travel community is whether it’s reasonable to base redemption value on a cash price you would never actually pay. For example, you could get an outsized return on a premium award for a flight that normally costs tens of thousands of dollars, but if you would only be willing to cough up a few grand for it, then is it really “worth” the sticker price? Personally, I think this debate is frivolous unless your sole objective is to maximize redemption value, and not to actually get where you want to go. The purpose of these calculations is to evaluate whether you’re getting a good return, but that alone shouldn’t dictate whether you book an award.

I encourage you to practice calculating award redemption values until it’s second nature. If you need help, please share examples and questions in the comments below!

Know before you go.

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