A simple way to tell how much value you’re getting for your points is to use Cents Per Point or CPP. The formula is simple. CPP = Cash Price of Award (in cents) ÷ The number of points or miles required. If you want to book something that would cost $250 or 25,000 points, you’d be getting a value of 1 CPP.
That’s it. Only two variables in the equation. Figuring out the cost of redemptions is easy. Things get complicated when you try to assign an arbitrary value to a point for a hypothetical stay. These values help you know if you’re getting a good deal for your points based on an “average” redemption.
Websites, like One Mile at a Time, keep an updated list of what they feel each type of loyalty currency is currently worth. Points are devalued when programs start charging more for awards or make some awards harder, or impossible, to redeem.
I use these charts as a guide but they’re not one size fits all. What one blogger thinks is an excellent use of points might be useless to you. More importantly, all of those point values are currently meaningless until we know what will happen once we’re on the other side of the curve.
Many hotel programs put properties into categories that cost a set number of points for a free night. While the reward cost will remain constant, the cash price charged for a room is undoubtedly going to change.
Let’s look at two examples.
Hilton (No point chart)
One of our trips that were canceled was to New York. We were going to stay at the Hampton Inn JFK
When I booked the room, our three-night stay was going to cost $529.74
A reward stay would have required 84,000 Hilton Honors points
The CPP value if I would have used points would be 52974 ÷ 84000 = 0.63 CPP. Based on the OMAAT value of 0.5 cents per Hilton Honors point, this would have been a decent use of points. I’ve gladly spent Hilton points for similar redemptions before, like my stay in Tampa.
What happens when hotel prices drop? That same reservation now costs only $335.70.
The CPP value has dropped drastically. 33570 ÷ 84000 = 0.4 CPP. If the prices of hotel rooms are down for a prolonged period, does that mean a Hilton point is now worth less than before? Probably? If so, Hilton could always lower the number of points needed for a redemption bringing the CPP back up to an average of around 0.5. Since they do not have award charts, it’s easy for them to do so.
What about a hotel that has a more static award chart, like Hyatt.
Hyatt (Static point chart)
I’m really looking forward to our trip to Japan and when it happens, I want to stay at the Hyatt Regency Hakone. We have a room booked right now using points. It’s a category 6 hotel that costs 25,000 World of Hyatt (WoH) points per night.
That’s expensive but not so bad considering the cash price was 64,200 JPY per night.
Using today’s conversion rate of 108 yen per dollar, that works out to 59257 ÷ 25000 or 2.37 CPP. OMMAT values WoH points at 1.5 CPP, so on paper this looks like a fantastic redemption.
However, with high-value hotel rooms, you have to consider if you’d really ever pay the cash rate. Am I the type of person to shell out $600 a night? Probably not, so this valuation isn’t real but I’m just using it as an example.
Rates at this hotel, even months out, have taken a dip.
The value of this redemption is now 50950 ÷ 25000 = 2.04 CPP. That’s still a good value and I’m more comfortable about paying 25,000 points than $500.
Hyatt is trapped a bit by their chart structure as it’s not easy just to have hotels change categories. People have already booked at the listed prices and programs usually (but not always) give notice when a hotel is changing from one category to another.
So there are two examples of where points become less valuable when the cash price falls and the points required stays constant.
There is a silver lining in this. Fixed value points get more valuable.
Fixed Value Points
Some airline programs that peg their awards to the cash price of a ticket, like Southwest and JetBlue. The CPP value is constant, with some variability. You know that a Southwest point is going to be worth about 1.3 CPP.
Mixing around our equation (remember algebra), The number of points needed = Cash price ÷ CPP.
If your Southwest ticket costs $250 ÷ 1.3 CPP = 19230 Rapid Rewards points. If that ticket now costs $150, you’d only need to use 11538 points. It’s the same flight, but the number of points you need to use goes down.
The same is true for using credit card points to book travel. You get 1.5 CPP value for Ultimate Rewards if you have a Chase Sapphire Reserve, so when the cash price gets cheaper, you’ll use fewer points. The same for any fixed point travel card like the Arrival+ or Capital One Venture.
Until we know where prices will stabilize, trying to give a valuation to points is an exercise in futility. Sure, some points will be worth more than others but the old values we gave no longer paint an accurate picture of the world we’re in.
Loyalty programs with fixed points will try to bring this equation into balance. We’ll get a better idea of what programs think their points are worth when they start discounting prices to buy points. How much they’re discounting is approximately how much we can shave off the previous value. Until then.
#stayhealthy #stayathome #washyourhands
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This post first appeared on Your Mileage May Vary