This is how TPG is changing points and miles valuations for the better

Dec 3, 2021

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What’s a point or mile worth? That’s an important question that, for years, TPG has made it a priority to answer.

After all, it’s impossible to know if you’re getting a good return for your hard-earned points without knowing roughly what each one is worth.

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We take pride in giving you accurate points and miles valuations, and we’ve been making some major decisions surrounding the way they’re calculated.

Until now, our valuations have been determined by a mixture of elements, including the editorial staff’s expertise; test redemptions; how much we would pay to purchase a particular type of point or mile; and new loyalty programs developments.

In recent years, however, more airline and hotel programs shifted from set award charts to dynamic pricing, with volatile fluctuations in the number of points you need to redeem depending on when you try to use them. Airline award pricing, in particular, is getting more and more unpredictable, but almost all the major hotel programs have also started moving away from award charts with fixed redemption values, too.

Essentially, the points game has changed a lot in the last few years.

Now, we too must change how we look at value, removing subjectivity wherever possible, and instead leaning into a more data-driven answer as to what points and miles are really worth. We’re just humans, so our individual experiences with the programs — and perceptions of the programs — aren’t always completely representative of the whole picture.

So, we teamed up with some of the best data minds at TPG’s parent company, Red Ventures, to create a more objective, unbiased way of valuing points and miles. This new methodology involves using real-world cash and award pricing across thousands of data points and refreshing these findings regularly.

Our updated valuation methodology has been in the works for a long time — years, in fact — as we wanted to get this right. It took several tries and months of running tests to be sure because it’s that important to us. And while we feel confident with what we have to share today, we will continue to update and evolve our methodology as the programs change, as we get access to additional data and as we collect and integrate more feedback.

This isn’t a perfect science. After all, as the saying goes, “Your mileage may vary.”

Today, we’re excited to unveil the first round of airline frequent-flyer mile valuations for the “Big 3” U.S. carriers (American, Delta and United) based on our new data-backed methodology. This will allow us not only to give you the most accurate and up-to-date points and miles valuations you can find anywhere, but also to spot trends and changes as our findings mature.

That last part is essential in a post-award chart world where many of the loyalty programs make tweaks and changes that are never formally announced; by running data on a large enough scale, we are likely to discover and predict patterns that are lurking and likely to affect the value of your points.

Our plan is to soon add more airlines to the mix, then hotels and ultimately update currencies like American Express Membership Rewards. We are doing this slowly and deliberately because, frankly, it’s a tough thing to get right — and we know our readers trust us to perfect the process.

Here’s how we got to this current set of numbers, and how we’re going to use our new methodology to project points and miles valuations with more programs in the future.

In This Post

How to calculate the value of a points redemption

(Photo by Zach Griff/The Points Guy)

Before we jump into our new valuation methodology, let’s start with the basics: how to find the per-mile or point value of a specific airline award ticket or an award night at a hotel.

Let’s say you want to fly from New York City to Chicago by redeeming Delta SkyMiles. On the date you choose, the flight costs 6,500 SkyMiles in economy or 24,000 in business class, plus $5.60 in taxes. Or, you can pay $84 or $219 for the same economy- and business-class ticket, respectively.

LGA to ORD SkyMiles award ticket
(Screenshot courtesy of delta.com)

To figure the cent-per-mile value of this specific award, you’d take the cash price and subtract the taxes, and then divide that dollar amount by the number of miles required for the award. Then, take that number and multiply it by 100.

The formula looks like this: ((Cash Price – Taxes) / Miles or Points Required) * 100 = cent-per-point value.

In this example, we would take $84 – $5.60 and then divide that by 6,500 SkyMiles to get a per-mile value of 1.2 cents for the ticket in economy. For first class, you’d take $219 – $5.60 and divide by 24,000 SkyMiles for a value closer to 0.89 cents per mile. So you see, even on the same flights, the value of your miles can vary.

While in Chicago, say you want to stay at the Chicago Athletic Association for a night using your World of Hyatt points. The award rate for your desired night is 12,000 points with no out-of-pocket expense, while a paid stay is $317.33 after taxes and fees.

In this case, you’d divide the cash rate by the points required (and multiply by 100) for a value of 2.64 cents per point. If staying at a hotel with resort fees or other taxes that you’re liable for paying, make sure to subtract that from the cash cost before dividing by the points required.

What that does not factor in is the number of points and miles that you potentially aren’t earning by redeeming. That amount varies significantly by program, fare, elite status level, etc. so isn’t captured here in the valuations presented here, but it may need to factor in your own personal decision making.

Introducing TPG’s revamped valuations methodology

(Photo by Zach Griff/The Points Guy)

TPG’s revamped valuations fundamentally maintain our tried-and-true “cent-per-point” notation. But now, we’re running this calculation based on thousands of routes over the course of a future three-month period.

For instance, we are publishing numbers today for the three major U.S. airlines (American Airlines, Delta Air Lines and United Airlines) based on data from Dec. 1, 2021, through Feb. 28, 2022, and drawing upon award and cash prices for roughly 27,000 flights.

When we release new valuations in early January 2022, those numbers will be based on flights from January to March 2022, and so on.

Here are all the steps we take to crunch the numbers.

Find the cent-per-point value of thousands of routes

First, our data collection process finds both the lowest cash and award prices for a seven-day, Thursday to Thursday round-trip itinerary. We do this for each week and on each route over the three-month period.

We picked a rolling three-month period to see how prices change over time (and this may change as we refine our process). Further, Thursday was picked as it captures both leisure and business travelers.

We pull both standard economy- (excluding basic economy) and business-class awards and cash pricing for all routes we test. Domestic and international flights are included, with the split being determined by the Bureau of Transportation Statistics comparison of international and domestic travel demand for the most recent available month.

Next, we divide the cash cost by the number of miles required for each route to determine a weekly cent-per-point value.

From there, we take the median of these numbers (one from each week) from the entire three-month range as our valuation for each route. This helps us ensure that a temporary pricing spike, say, over Thanksgiving or spring break, doesn’t skew our numbers drastically for standard dates.

Weighting values by popularity and class of service

We also weight the cent-per-point value of each route by demand using passenger traffic data from the BTS for the most recent available month of data. We weighted the routes this way to provide an accurate look at how travelers might actually use their airline miles for specific flights.

For example, we wouldn’t want a route like Santa Fe to Phoenix to have the same effect on our data as Atlanta to Orlando since significantly more travelers fly from Atlanta to Orlando in a given month than Santa Fe to Phoenix.

Many of us dream of flying in the big, fancy seats to faraway lands. That is the highest-value use of miles, and one favored by TPG’s staff and many other travel enthusiasts.

However, we also wanted to be realistic. Airlines tell us that the overwhelming majority of redemptions are for domestic coach tickets. And these days, with the changes in how programs work, we’ve been finding shockingly good values for such redemptions. (Think: 5,000 miles to fly coach from New York to Florida.)

So, while it might not be the trip we are all saving our miles for, it’s still a great value.

To reflect this, we’ve weighted business class to make up 20% of each valuation while economy makes up the remaining 80%. This is somewhat subjective as there are far more economy seats than business-class seats in the sky. However, we know that aspirational airline rewards are a part of the strategy for a significant proportion of points and miles enthusiasts, so we wanted our numbers to reflect some of that weighting.

After tabulating all these results, we come to our final monthly valuation for each airline program.

Formulating this methodology, process, data collection and analysis has taken a good deal of time and has undergone many different iterations. We will likely continue to refine the process in the future, too, as additional information becomes available and post-pandemic travel patterns evolve.

Because we’ll run these numbers again based on tens of thousands of data points every month, you may see our valuations change more frequently than in the past, and there might even be some seasonal fluctuations due to demand.

What our valuations don’t yet do

While our valuations are capturing a large amount of real-world data, there are some limitations we want to be upfront about.

As an example, it’s worth knowing we’re not currently factoring in award space availability. With these three programs, specifically, that’s not a huge issue at present as awards are more dynamically priced making them usually available — even if the cost is high. However, it’s something we’re looking into integrating as we roll out revamped valuations to other award currencies. It will be especially important for programs with a fixed award chart, so expect to see more on this as we iterate and improve our process.

Additionally, and at least equally important, our current methodology doesn’t account for partner award space. While we know most redemptions occur on the airline’s own metal, some of the best redemptions do lie with partners. This is an important layer of data we hope to integrate in the future, especially as the world hopefully becomes more connected once again.

The first round of data-backed valuations

Delta Planes at JFK
(Photo by Zach Griff/The Points Guy)

Without further ado, we’re excited to kick off our data-backed valuations by rolling out numbers for the “Big 3” U.S. carriers: American Airlines, Delta and United.

We found each of these values using the above methodology with real-world pricing data for Dec. 1, 2021, through Feb. 28, 2022. Here’s how the programs stacked up:

Airline program Data-backed valuation Old valuation
American Airlines AAdvantage 1.68 1.4
Delta SkyMiles 1.48 1.1
United MileagePlus 1.13 1.3

As you can see, our new numbers are different from the previous versions. Most notably, United dropped in value while American and Delta both rose a fair amount.

We have also decided to take our valuations out from the tenth place to the hundredth to give us an even greater level of specificity.

We’ll let the data speak for itself, but the heightened value for AAdvantage over the others could be in large part because it continues to publish and follow award charts with set redemption values for partner flights, and frequently offers excellent Web Special deals with discounted award tickets that require fewer miles than usual.

On the other hand, Delta is known for often discounting domestic award tickets. Given that domestic routes make up the majority of our data, just as they make up the majority of flights taken by those in the U.S., it would make sense that domestic deals help the airline achieve a higher value than United, which offers mileage deals less frequently.

Looking ahead

This is just the first step in TPG’s transition to more data-backed points valuations.

Over the coming months, we hope to transition the rest of the major airline mileage programs to this system in batches. This gives us more time to test and perfect our updated methodology and build the necessary tools to gather pricing data across international airlines. In the meantime, loyalty programs that have been evaluated according to our new methodology will soon be denoted with asterisks in our monthly valuation announcements.

Next year, we hope to bring hotel currencies into the mix and continue to update our transferable point currencies that build on all the hotel and airline valuations. We’re still testing and finalizing our methodology for these programs, but will publish the detailed explanations when they’re ready to go.

Bottom line

We hope you’re as excited about data-backed valuations as we are. This isn’t just fun math for the sake of math; it’s essential for spotting otherwise unannounced program changes and ensuring you are getting the best return possible for your rewards.

We are very excited to be using more real-time and real-world valuations for the loyalty currencies for the three major U.S. airlines and look forward to bringing you even more data-backed information and analysis in 2022.

Feature photo by Thiago B Trevisan/Shutterstock.com

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