What is the dollar value of points? Our valuations

How and why to value your frequent flyer and credit card points

GUIDE: Earning Points
DIFFICULTY: Intermediate
TIME TO READ: 8 minutes
POSTED: July 3, 2018
UPDATED: July 3, 2018
LOYALTY PROGRAMS: Relevant to Multiple Programs

Knowing your rough value of a point is an important step up when it comes to thinking about earning and using points systematically and rationally.

With constant changes to the way points are being issued by programs, it is important to compare and consider their value.

Rather than seeing them as being ‘free’ and using them any time an opportunity comes up, knowing what you think they are worth allows you to make more informed decisions about the costs you are willing to incur to earn them in the first place.

There are a number of different methods out there for valuing your points but this is how I think about the subject, and how I currently value the major points currencies out there.

Straight to it

Here are my earn and redemption value thresholds—the maximum at which I’d likely pay to accrue points, and the minimum at which I would consider redeeming them.

Rewards CurrencyMy max earn thresholdMy redemption TargetChange since last updateNotes
Frequent Flyer Programs
Qantas Points1.5c2.1cAward seats now available online with all partners, including Japan Airlines and China Eastern
Velocity Points1.3c2.1c
KrisFlyer Miles1.9c2.2c
Asia Miles1.9c2.2cElimination of roundtrip discount and increase in RTW pricing, but new long distance sweet spot and mostly cheaper one-way redemptions
Airpoints Dollars$1$1.50Greater redemption value with partner award table vs any seat awards on Air New Zealand
Flexible Points Programs
American Express Membership Rewards1.0c
Fly Buys10c16.6cCan now be redeemed on all flights at helloworld

A more comprehensive explanation

Why care about point values?

If you are looking for a place to start (or to point someone else) to get on the road for earning more points from your day-to-day spend, check out my Earning Points email course here →.

I feel this is important—knowing your own value of a point allows you to make more informed decisions around earning and using points.

This lays the groundwork for you to assess all the different offers that are out there on a far more accurate basis, whether from credit card bonuses or points earned from ongoing spend.

I think understanding this stuff will help you earn and manage your points more effectively in the long run. Knowing how you value your points will greatly help you to assess different deals, products or services that can earn you points for their real value to you.

The two kinds of points values

There are two valuations I use consistently.

First, there is the approximate cost per point at which I am willing to use cash to earn some points, either by paying a surcharge with my credit card, or by factoring in bonus points earned on a purchase as a discount on the cost—we’ll call this the ‘earn cost’.

Secondly, there’s the ‘redemption target’, the value per point at which you say, ‘yes, this makes sense to redeem my points for this trip’.

To simplify as much as possible: your redemption value should be more than your earn cost.

Why? Otherwise, you are overvaluing your points and spending more to acquire points than you value them at when you come to use them.

Settling on values – what I think different points are worth

I personally try to set my earn cost threshold and stick to it but I consider my redemption values to be flexible given other factors, such as those I outlined before.

Some people like to go a step further and articulate a final, single-point value which sits around the upper bound at which they like to earn points, and a lower bound at which they tend to redeem them.

This can be useful but I personally do not like using this technique as I think there are too many other non-cost factors in making points redemptions, such as which airline has seats for the route you want to travel on, which offers you more readily available upgrades for your points, or which you actually prefer to travel with.

Emirates First Class A380

If you have a penchant for Emirates First Class, then you may value your Qantas Points more highly than other travellers do

Methodology: Considering your earn cost

We are constantly being presented with opportunities to earn more points, whether that is by switching our allegiance to a different retailer, paying a credit card surcharge instead of paying cash, or by buying a product or membership where a points bonus was used as a marketing tactic.

Our collective real-world behaviour gives an indication of what we are prepared to pay (or forgo) to earn points.

Some examples might help illustrate this:

  • A typical cashback card may offer a 0.5-1.1% (or 0.5-1.1c per $) return on all spend
  • American Express offers cashback straight to your account for using points of 0.5c per Membership Rewards point, or a purchase through Amex Travel for 0.75c per point

For anyone choosing points rewards over these hard cash benefits, we are all immediately valuing points at around 1.1c at the lower end—and I think this is a fair range for the lowest possible value of airline points.

Correlate that to the thinking around redemption value (which I’ll come to in a bit) and that tells you should almost never redeem your points for less than around 1.1c per point, otherwise, you are shelling out too much for them in the first place.

What does this mean in real life?

Well, so we are not seduced into handing over our cash without thinking about the decision in enough detail, if you have an idea of the cent per point (or CPP) cost to earn those extra or bonus points, you can quickly articulate to yourself exactly how much those points are costing you.

For example, if a retailer adds a surcharge for either or both of American Express or Visa/MasterCard payments, you need to be able to quickly figure out whether that surcharge is worth paying to decide whether it is still worth using your card while you’re at the point of purchase.

For me, if the choice is between using a card that earns no points or cashback, and a card that does, but at a 2.5% surcharge, I’m usually happy to pay the charge.

E.g. A $500 charge for hotel accommodation, with a 2.5% fee, is $512.50. I am effectively paying $12.50 for the benefit of earning points on that transaction.

  • If I pay with my EFTPOS, I’ll lose the cash from my savings instantly, and earn nothing in return.
  • If I pay with my Amex Platinum, I’ll earn the equivalent of 512 Qantas Points, which I would value at $15.36 – more than the cost of the transaction fee. I also get to keep my money in my interest-earning savings account until my card bill is due.

For me, the clear winner under the scenario above is paying on my Amex Platinum.

But if I only had the Amex Platinum Edge, I’d only earn the equivalent of $7.68 in points – and I’d choose to pay with EFTPOS instead.

This is why you’ll need to do some quick maths to decide what card to use, and when.

Remember, this is our lower bound. Points can be worth much more when you come to use them.

Considering redemption values

This is where personal opinion and subjectivity around the value of points comes in—as in, how we would be prepared to use points gives some variability in their personal value to each of us.

Your redemption value can be approximately calculated by considering your own hard preference for using points instead of cash. There are plenty of methods out there for doing this but my preferred tactic is to consider one or several real-world examples of trading off points versus cash and seeing what cent per-point value that turns out for you.

Redemption value example 1 – A Trans-Tasman Business Class redemption

Say I want to travel to Melbourne from Auckland in a few weeks’ time. The outbound flight I can fly during daylight hours, but due to prior commitments, I have to fly on a redeye back to Auckland.

Paid one-way Economy fares are up at the $260 mark, while Business Class is at least $860 in either direction. For travel on Qantas, I would have to redeem 18,000 Qantas Points + $70 in Economy, or 36,000 points + $70 for a Business Class fare.

I really want to travel Business Class for the return flight—so much so that I would consider paying around $400 cash to get a few hours sleep, but not the full price. Less the $70 in taxes, that means I would be valuing my 36,000 points at a value of 0.9 cents per point.

Qantas A330 Business

Qantas A330 Business Class product on select Trans-Tasman flights

The value of the redemption compared to the actual cash price is another indicator of the value of the redemption—compared to the $860 fare, I would be getting 2.2c per point in value.

But as I explained, I wasn’t actually prepared to pay $860 for that overnight flight, so 2.2c per point is not a true indicator of my redemption value—0.9c per point is. That’s below my 1.6c per-point earn cost, so I’m not going to make that redemption.

For the outbound, I’m OK with flying in Economy, and to get there I have to pay at least $260, otherwise, I can’t take the trip. So the redemption value can be calculated as $260 less the $70 in taxes I’d have to pay on a points redemption vs 18,000 points – giving a redemption value of 1c – not much better!

Say the value sat at around 2c. At this point, maths and rationality would dictate that I should make the redemption.

However, in reality, my willingness to redeem at this rate would be impacted by other factors outside of this valuation, such as how many more points I have in my account, what I would like to use them for—perhaps saving them up for a different trip—and whether I want to earn points and Status Credits with the flight as well. Given that, I would probably purchase the ticket and not use my points.

Redemption value example 2 – An international Business Class redemption on Singapore Airlines

Singapore Airlines KrisFlyer miles are some of the most valuable airline points/miles we have available in New Zealand. Redemption availability is generally good, their in-flight product is great and their pricing is competitive.

Here’s an example redemption – a return Business Class flight to Europe, from Auckland. Long-haul redemptions on Singapore Airlines, to say, London, Amsterdam, Paris or Frankfurt are some of the best-value uses of KrisFlyer miles from New Zealand.

Singapore A350 Business

Singapore Airlines A350 Business Class

An Auckland/Wellington/Christchurch – London redemption would usually cost 105,000 KrisFlyer miles one-way + ~$100 in taxes—that is pretty great value. Qantas would have you pay 128,000 Qantas Points for the same trip on Qantas/Emirates flights.

Onto redemption values. I personally would be happy with an out-of-pocket cost of up to, say, $2,000 for this Business Class flight to Europe. Beyond this, and I would start questioning either my desire to fly in Business or my need for the trip.

That means I am valuing those 105,000 KrisFlyer miles at $2,000 minus $100 for the taxes, or $1,900, which gives a cents per point redemption value of 1.8 cents. At a cash cost of around $3,500, I would be getting a strong cent-per-point value of 3.2 cents.

You can get outsized value from tickets that would be very expensive to book with cash. For example, Bevan got a very high 7.5 cent-per-point value from using 280,000 Qantas Points for a round-the-world Business Class redemption rather than forking out $21,000 in cash.

The cents-per-point math

For both the earn cost and redemption values, we are working in cents per point. These are pretty simple equations, which look like this:

CPP for Earn Cost = $ cost of points in cents / number of points

To factor in taxes on a redemption, use this:

CPP for Redemption Value = ($ value you assign in cents – $ taxes with redemption in cents) / number of points

Making the calculations easier

We have built a couple of calculators on the site that help with running some of these numbers.

The first is a simple points vs value calculator – take one example like the Sydney one above, or an upgrade, and compare points vs cash.

The second is a more methodical way to generate an average redemption value – taking 3 examples you input, you’ll get an average cent per point value back.

Use these to help get a feel of your own personal redemption values using some real world examples. Neither factor in taxes, you’ll have to add those into your numbers yourself.

What about credit card/flexible points currencies?

Flexible points currencies like American Express Membership Rewards are inherently harder to value given the large range of transfer partners but this absolutely makes them more valuable than their transfer partners too, given their additional flexibility and general lack of expiry.

As such, I would be willing to pay more—a higher cent per-point earn cost—to acquire flexible program points than a specific frequent flyer program’s points, and logic would dictate they are generally worth at least as much as the highest-valued frequent flyer transfer partner.

However, setting a personal redemption value is not so easy to calculate due to the wide range of redemptions available from flexible points currencies.

Summing up

  • Earn cost per point sets a maximum threshold at which you can acquire
  • Understanding your earn cost per point gives you an indication of whether a specific deal to earn more points is worth taking up—or not
  • Redemption cost per point gives you an indication of your value of points when you come to redeem
  • Working through some real-world values of redemption costs informs your thinking on how and when you are willing to redeem your points

Finally, do not get too hung up on all of this. It is a methodology—one of many—and not an exact science but getting your head around it ‘levels you up’ to the thinking and understanding of those running the programs and putting out offers for us to take up.

What is the dollar value of points? Our valuations was last modified: July 3rd, 2018 by Daniel Kinnoch