Why Establish Dollar Values for Points?

I started writing up a few posts that attempt to value frequent flyer miles and points in programs that aren’t covered as well as others. As I did that, it dawned on me that the approach and uses for point values may be a bit obscure and the utility and limits of it not obvious. For me, it started years ago when I simply pegged 25,000 Northwest miles to a $400 domestic round-trip and thus said a Northwest mile was worth $.016. Given my nature, this was just a natural thing to do! But if you’re new to the points/miles community, this might not be so obvious. In fact, many of us cringe when we hear our friends and family use points/miles as though they have no value. But if they don’t have “no value” then what value do they have?

I’ll start with the basics but I think it’s actually more important to examine the unstated assumptions that are often made and when the use of point valuations fail.

Questions Which Beg for Point Values

Let’s explore some of the questions that come up in the points/miles world all the time.

  • Should I redeem my points for a flight (or room) or save them for another day?
  • Is it better to use my cash back card or my points reward card?
  • Does it make sense for me to transfer my hotel points to my airline?
  • Should I choose to receive miles for my car rental, despite the $1-4 charge they add? And which points should I take?
  • Which online shopping mall should I use for a given purchase?
  • Would it ever make sense to buy points?

You just can’t answer these and many more without assigning values to the points and considering some of the intangibles. So you know in advance, I’m not going to answer the questions above in this post.

A Simple Example

I’ll start with an example from our life. We live in New Orleans but often make it up north to visit family. Whether we had miles or not, we would do this. For the sake of argument, let’s assume that a typical round-trip that we’d purchase out of pocket is $375/person (likely with one connection) and that we can generally get a ticket for 32,500 Delta skymiles (this is more or less true).

Suppose that it was September and we were looking to book our Thanksgiving travel and saw that we could either pay $450 or 32,500 + $10 Delta miles. Using those 32,500 skymiles would save us $440 or $.0135/skymile. Given that I value a Delta Skymile from an account without status at $.012, it makes sense to use the miles here.

Conversely, if that ticket were $335/round trip or 32,500 + $10, I’d be getting just $.01/skymile and would argue I should pay cash and save the miles for another day.

Examining the Assumptions

In the example above, there are some big assumptions.

First, I’m comparing to something I’d pay money for if points weren’t available. I think this is critical. By making that assumption, I really am saving hard cash and as Ben Franklin (supposedly) said, “a penny saved is a penny earned.” On the other hand, if I use points to do something I’d never pay for like fly British Airways First Class to Africa (which could be a $20,000 round-trip ticket), there’s value to be sure but I’m not saving anything over what I’d have paid to go to Africa, if I’d pay anything at all for it. So, keep point values rooted in what you’d actually pay for.

Second, it assumes you can monetarily value points. Sometimes you cannot. Imagine that I simply didn’t have the cash at all but that this was probably the last Thanksgiving with a close family member. No monetary valuation could possibly incorporate the intangible value there. As an aside, the miles and points community is often pretty well off. Sometimes our family and friends aren’t and this situation can be very real for them (or us).

Third, it assumes that points and miles are reasonably in balance. We maintain a household budget for travel rooted in what we have to do (absent points/miles). Imagine that our household budget had $500 in cash but 1 million miles and points. Would I really pay $450 to save those 32,500 miles above?  In my experience, as you cross 250k points and approach 1m in all your programs, it becomes very difficult to argue that the marginal value of points doesn’t decline unless there’s some floor where they can be converted back into cash.

But What If Points Are Abundant?

As you can see from this site and the many others like it, with a bit of effort miles and points can become so abundant that the third assumption is broken entirely. Just go look at this thread at flyertalk. Person after person posts that they have hundreds of thousands if not millions of miles and points, often earned faster than any reasonable person could spend them. Some have been doing it for months while others have been doing it sustainably for years. Nonetheless, it’s still useful to apply values to the points. Consider the following examples…

Some Points CAN be Converted to Cash

Grant me some leeway here point-a-holics to make a, ah-hem, point… Suppose that you have 50,000 United Airlines miles and 250,000 Delta Skymiles. Let’s also say that an acceptable plane ticket can be bought for 40,000 Delta Skymiles, $500, or 25,000 United miles. It’s pretty clear that I’d probably use my United miles.

Let’s change the assumption so that we have 50,000 Chase Ultimate Rewards (UR) instead of 50,000 United Airlines miles. Chase UR may be instantly converted into several different programs. You could thus transfer 25k to United and book the same ticket as above but then again, Chase UR can also be converted into cash. Take a look at this screen shot:

So, if points are abundant and cash is scarce, then perhaps I’d be better off using 40k of my abundant Delta Skymiles and holding on my Chase UR since they’re worth at least $250 of scarce cash. Having the option of converting them to something more useful later, like cash or points in another program, is a very difficult attribute of these points to value. The same applies to other programs with multiple transfer partners, notably American Express Membership Rewards and Starwood Preferred Guest.

As another simple example, Best Western points can be converted into gift cards to Target, KMart, Amazon.com and others at a rate of $25 per 6,500 points. Gift cards like that are nearly as good as cash to me.

I’m not saying that converting Chase UR or BW points into cash or gift cards is your best use (it’s something I’d really try to avoid) but it does provide a floor to the value that you need to remember.

Points are Not Fungible (or are they?)

Ok, I couldn’t resist the word fungible but it just works so well here. Gasoline is fungible. You can put Shell, BP, or Sunoco gas in your car. Substituting one gallon for another really doesn’t matter to your car. One might argue that flying Airtran or Delta between New Orleans and Atlanta is fungible too. You’ve got similar time choices, similar planes (e.g. Airtran 717 and Delta MD-88/90’s), etc. I doubt my mom would notice the difference. The points though are not fungible. I cannot transfer my Airtran credits to Delta Skymiles and the alternative choices I have (e.g. Delta miles could take me to Alaska while Airtran credits never could) make them fundamentally different even when I’m comparing a New Orleans to Atlanta route where the final product is really the same.

Let’s imagine that I’m looking at booking a hotel in a given city and have 25k Starwood points, 100k Hilton HHonors, 125k Club Carlson, and no Marriott to work with. Suppose that the costs are 7k Starwood/night, 25k Hilton, 28k Club Carlson, and 7.5k Marriott and that all hotels are very comparable (yeah, right…) and elite status wasn’t a factor. In that scenario, how would I pick my hotel?

From a value perspective, the Hilton, Starwood, and Club Carlson rates are all of a pretty similar value (~$175/night) based on consensus point values. Yes, this is a contrived example and I’m trying to avoid too much actual math in this long post so take me at my word.

The Marriott though is compelling in that I’d value those points at $75. Remember that I said all the hotels are comparable so this is like getting a $175 room for $75. Great deal.

But I don’t have Marriott. My friend that travels to Ohio a lot does though. It might not be a bad idea to call him and see if he might just book me a room (which nearly every program allows). Perhaps I’ll do him a favor one day. It might be useful to know just how big a favor he did for me.

Alternatively, I might have some Chase Ultimate Rewards which can transfer instantly to Marriott. Is this a good idea? Well, that depends on how you value those Ultimate Rewards. As mentioned above, they can be easily converted to cash at $.01 each. That means I’m forgoing $75 in cash by transferring 7500 of them to Marriott. Still, that’s probably not bad. Another perspective would be that you could convert them to Southwest where they become worth $.018 each. If you were planning on using them for that (and didn’t already have a lot of SW points), it’d be fair to say that Chase UR are worth $.018 each. And in that case, I’m giving up $135 in value by transferring the 7500 points to Marriott.

Nonetheless, whether I value the Chase UR at $.01 each or $.018 each, I’m best off using them for the Marriott hotel most likely since it’s such a better use of the points than the 3 other hotel programs.


There are many more ways to effectively convert points and miles between programs, people, and cash despite what it seems at first. As soon as you realize that even with millions of points, you may not have significant points in all programs and that many points have hard cash values, then they clearly have value. Further, you can’t evaluate uses across programs and conversions between them without having a pretty good grasp of the conversion routes and values.

Ok, So Where Are These Point Values Coming From?

Ideally, from you! Seriously, your own situation may increase or decrease the value of certain miles dramatically. For example, 2 months ago Southwest points were worth $.018 to me (or maybe even less).  Today, they’re worth $.03+ because, assuming my Companion Pass comes through, I get to bring my wife along for free whenever I fly Southwest, even when using points. When that privilege expires on 12/31/2013, the value of any remaining points I have will fall back to around $.018 (so I better not “buy” too many at high prices). I mention that just to illustrate how personal the value can be.

One more example… I have Delta Diamond status (their top tier). When I travel on Delta, there are a lot of small things that make the travel experience a lot nicer. In that context, someone might fairly value Skymiles at $.012 but I might value them at $.015 or higher when used from my account or on my travel.

That said, determining a point value is a complex endeavor. I’ll be working through some programs soon to illustrate. In a nutshell, point values often consider the following:

  • Hard floors based on conversion to cash (E.g. Chase UR to cash at $.01 each).
  • Best transfer options to other programs that have been valued (E.g. 8000 Wyndham = 3200 US Air and if US Air is worth $.016 each, then 8000 Wyndham can’t be worth less than $51.20).
  • Award booking rules and charts, skewed to achievable but slightly higher than average cost awards (e.g. a common benchmark might be a 3 month advance purchase of a domestic holiday ticket) that defray expenditures you’d have reasonably made.
  • Factoring in sweet spots (E.g. 5th night free awards) or special characteristics (e.g. one-ways, free domestic stopover).
  • Discounting by pain points (E.g. Choice’s very limited booking window, change fees, etc).
  • Relative value. Despite both having access to the same award inventory, it’d be hard to generally value US Air over United while US Air miles have more restrictive official rules and higher fees.
  • Consensus values. There’s a regular ongoing conversation in the community about these values. Listen more to why a given valuation is what it is than what a simple number is.
  • Market pricing. Yes, there are places where travel resources are traded. Tread carefully doing that but as an information source it’s invaluable.
  • High scarcity. Some programs are much harder to earn in, have no credit cards to leverage, few or no transfer partners, etc. I don’t consider the same as trying to incorporate earning potential.

When all is said and done, a points value is simply a tool to facilitate decision making. Be wary of the limitations in it and how much your personal situation varies.

For an entirely different technical approach, check out the the Fair Trading Price methodology used the the Frequent Miler.

A Few Final Thoughts

I value points based on redemption value. There are many ways to “buy” points beyond directly from the airline/hotel. Tonight we’re staying at a Radisson solely to get the points, for example. I personally like the guideline that if you’re paying much over 33% of the point value, you’re likely making a poor choice. There are exceptions but I say this to note that despite valuing a Southwest Point at $.018, it’s extraordinarily unlikely I’d pay that much for one (on the other hand, show me a way to get one at $.006 each and I’m all over it).

People often want to include ease of earnings into point valuations. I acknowledge that when earnings are extremely difficult, it changes the value of points. On the other hand, the fact that you may earn massive numbers of Hilton points versus Starwood doesn’t change the value of those points. When you look at a program you want to engage with consider both the ease of earning AND the value of the points AND things that multiply those like ability to earn/maintain status.

Keep things rooted in reality. When I believed points were scarce, I tracked them as a household asset. Eventually, I was recording that we had over $20,000 of points before I stopped. I couldn’t liquidate that many in the next 2-3 years and pay down our mortgage so it was getting ridiculous as the balances grew.

Remember that points almost exclusively go down in value over time. Certainly, part of that’s tied to inflation increasing the dollar costs of the things you redeem miles/points for however there is no earning interest in your banked miles/points so inflation truly does devalue the points/miles over time, and in reality most agree that they do decline faster than inflation. I’m not predicting doom and gloom here but this is not a long-term investment. I can burn 1m points a year pretty easily. If I had over 5m banked, I’d start to really question gathering many more that couldn’t be converted to cash. We’re getting close to that number. Some would set the threshold lower but all agree that there is a limit where the marginal value of points is approaching the cash floor value.



  1. […] a series of approaches to booking cars inexpensively and separately a post about the sort of decisions that point values help with. Today brought the two together in the best possible way, while also giving me a chance to […]

  2. […] a very useful tool. Some time ago, I took the time to discuss why and how one goes through the exercise of valuing points in dollar […]

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