How (and why) to calculate award redemption values
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Consider two scenarios for booking an award flight to Europe. In the first, you pay 60,000 miles for a round-trip United award in economy class; in the second, you pay 70,000 miles for a one-way United award in economy class, 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 — since it costs fewer miles 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 $300. 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.
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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.
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 of your award — expressed 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, let’s say that you wanted to book the Park Hyatt New York for the first weekend in May. At the time of writing, you could pay $1,831.52 for a standard room with one king bed.
The same room is available for 60,000 World of Hyatt points.
Using the above formula, you’d multiply the base rate by 100, then divide that by 60,000 points. This particular stay results in a redemption value of roughly 3.05 cents per point.
So … is that a good award? The answer depends on how it compares to the typical World of Hyatt redemption, and fortunately, we have a resource to help you identify what that is. While everyone has their own thoughts on what makes for a good (or great) redemption, we publish a list of monthly point valuations you can use as a benchmark to assess your own award bookings:
- If you calculate your redemption value to be higher than our valuations, lean toward booking as an award.
- If you calculate your redemption value to be lower than our valuations, lean toward paying cash instead.
- If you calculate your redemption value to be equal to our valuations, some of the other factors discussed below may help sway you one way or the other.
Given our most recent valuation of 1.7 cents apiece for World of Hyatt points, the above award at the Park Hyatt New York offers an outstanding return, since the redemption value is significantly higher than our benchmark.
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:
In this version of the formula, the numerator (Cash Price — Expenses) represents the actual cash amount being covered by your points.
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 the following one-way Southwest flight from Oakland (OAK) to Las Vegas (LAS), 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 dreaded resort fee that many hotels tack on to their rates. For example, consider a classic king room at the Ritz-Carlton, South Beach for a Saturday night in May. At the time of writing, I could choose between the Marriott Bonvoy member rate of $489 and the standard, Category 7 award rate of 85,000 points.
When I click through to the reservation screen, I see that the true cash price — including the property’s $45 resort fee — is $608.76. However, since Marriott typically doesn’t waive resort fees on award stays, you need to factor that added expense into your calculation.
As a result, here are the two booking options:
- Redemption stay: 85,000 points + $45 resort fee
- Paid stay: $608.76
Again, using the formula above, you take the cash price ($608.76) and subtract the expense you’d incur for the award stay ($45) to arrive at the true cash you’re saving by using your points ($563.76). When you complete the calculation, this yields a redemption value of around 0.66 cents per point — which falls below where we’ve pegged Marriott points in our most recent valuations.
Finally, be sure to take into account other carrier-imposed surcharges, as these can offer an even more pronounced example. I priced a round-trip British Airways economy flight from Philadelphia (PHL) to London-Heathrow (LHR) at $557. The same flights could also be booked as an American Airlines AAdvantage MileSAAver award for 45,000 miles and $579 in taxes and fees. You read that correctly; the award fees cost more than buying the ticket outright.
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 Park Hyatt St. Kitts in the fall and found a Park King room available at the World of Hyatt member rate of $367.83 per night including taxes and fees. I could book the same room as a free night award for 30,000 points or as a Points + Cash award for 15,000 points and $122.61 per night. (Note that the advertised rate is 15,000 points and $101, but it ends up costing more because the cash portion is taxed.)
Subtracting $122.61 from the original $367.83 and dividing by the award price of 15,000 points yields a redemption value of roughly 1.63 cents per point — superior to the 1.23 cents per point I would get by booking with points alone.
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, so check out his guide 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.
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 (SEA) to Phoenix (PHX), 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. However, let’s say 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 out-sized 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. A suboptimal award can make for a great redemption if you’re points-rich and cash-poor, and there are a variety of ways to use your rewards for unique experiences for which it is difficult (or impossible) to peg a true value. It’s up to you to decide whether a given award makes sense.
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!
Featured photo by Zach Honig / The Points Guy
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