How (and why) to calculate award redemption values
Editor's Note
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 should you book?
You may be inclined to say the first scenario — since it costs fewer miles and includes the return trip — but 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 $400. 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.
There may be better or worse options in either case; the gist here is that the mileage cost of an award is not enough by itself to tell you whether that award is a good deal. Although many programs use dynamic pricing or off-peak/standard/peak award pricing, redemption value remains the metric award travelers use to settle the question. So, understanding how to calculate your redemption value is an important step toward maximizing your rewards.
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Awards vs. cash calculator
Getting value from your points and miles starts with knowing what they're worth. Every month, TPG publishes valuations for all the major loyalty points programs. We also update our awards versus cash calculator with the most recent valuations, so you always know what your points are worth.
Using the calculator is easy. Select whether you would like to calculate the value of airline miles or hotel points and then choose a program. Enter the fields completely, especially the fees column, as some travel providers have hefty surcharges.
For example, let's say that you wanted to book the Waldorf Astoria Los Cabos Pedregal, one of the most expensive resorts in Hilton's portfolio, for five nights in April. You could pay $11,294.83 for a Pacific Ocean-view room with one king bed and a plunge pool at the time of writing.
The same room is available for 480,000 Hilton Honors points and $0, thanks to Hilton's fifth-night-free elite benefit.
You then input the points and cash prices into the calculator. On the award side, since there are no fees associated with this redemption, I am leaving "fees" at $0.
Select the "Calculate" button once you've input your data.
In this case, TPG values 480,000 Hilton Honors points at $2,880. Since the cash price of the hotel is (far) greater than $2,880, book with points.
You can also calculate the award rate by multiplying the cash price ($11,295) by 100, then dividing that by the award price (480,000 points). This particular stay results in a redemption value of roughly 2.35 cents per point, almost four times TPG's valuation of Hilton Honors points at 0.6 cents per point.
Whenever you're considering a redemption, you'll want to ask yourself: "Should I use my points and miles now, or am I better off saving them?"
Of course, only you can make this decision based on your own situation. But, if you are in a position to either use cash or your points and miles, use the following guidelines:
- If you calculate your redemption value to be higher than our valuations, lean toward booking 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.
Related: 8 ways to maximize Hilton Honors redemptions
Accounting for award fees
When calculating award redemptions with TPG's calculator, use the total cash price, including taxes and fees.
Taxes are often set by a percentage of the cash rate. For example, Washington, D.C., adds a 14.95% occupancy tax on hotel reservations. So, if you're paying $200 for a hotel, you can expect around $30 in taxes. Using points, on the other hand, your cash rate is $0, so you would incur no taxes. Points and miles can be a great way to avoid paying dreaded hotel-related taxes.
Unwanted resort fees are trickier. For example, consider a deluxe king room at The St. Regis Bahia Beach Resort, Puerto Rico, for a night in April. At the time of writing, I could choose between the Marriott Bonvoy member flexible rate of $1,538 and 80,500 points.
Marriott doesn't typically waive resort fees on award stays, and it's interesting to see how the hotel has made this particularly clear when booking a room by stating, "Please note - Daily resort fee of USD 99 plus tax will be added to room rate and applies to all stays including Bonvoy redemptions."
When I click through to the reservation screen, I see that the true cash price — including the property's $99 resort fee — is $1,784.33. But again, we need to calculate the award price with the resort fee for a proper calculation.
As a result, here are the two booking options:
- Redemption stay: 80,500 points plus $107.91 fee (yes, you have to pay $8.91 in tax on the $99 resort fee).
- Paid stay: $1,784.33.
To correctly calculate the award redemption, you would add taxes and fees on the award booking ($107.91, in this case) into the "Fees" box on the calculator. The calculator subtracts any taxes and fees from the cash price of the hotel. After all, we're ultimately comparing $1,676.42 to 80,500 Marriott Bonvoy points.
TPG values 80,500 points at $644, so you're better off using points in this example since the cash rates are much higher. We can also multiply the cash price ($1,784.33) less the award taxes and fees ($107.91) by 100 and then divide the result by the award price (80,500 points). That calculation reveals that we're getting 2.08 cents per Marriott point, which is higher than TPG's valuation of 0.8 cents per Marriott point.
Finally, be sure to consider other carrier-imposed surcharges, as these can offer an even more pronounced example. On a round-trip Virgin Atlantic economy flight from New York's John F. Kennedy International Airport (JFK) to London's Heathrow Airport (LHR), the cash price is $469.
You can book the same flights using an economy classic award with Virgin Atlantic Flying Club for 20,000 miles and $495.77 in taxes and fees. You read that correctly — the award taxes and 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 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.
Related: How to avoid fuel surcharges on award travel
Points-and-cash awards
You can also use the above approach to calculate the redemption value of mixed points-and-cash awards. 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 this fall at the Andaz Singapore and found a king room available at the World of Hyatt member rate of $439.87 per night, including taxes and fees. I could book the same room as a free night award for 20,000 points or a Points + Cash award for 10,000 points and $231.51 per night.
Subtracting $231.51 from the original $439.87 and dividing by the award price of 10,000 points yields a redemption value of roughly 2.08 cents per point — which is below the 2.19 cents per point I would get booking with points alone.
Related: The most award-friendly hotel program: Everything you need to know about World of Hyatt
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 is 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 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. Deducting the value of unearned points and miles is straightforward — 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.
Other considerations
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 San Francisco International Airport (SFO) to Los Angeles International Airport (LAX), 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 pertinent 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. I'd lower the redemption value to 1 cent per mile in that scenario.
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 whether itineraries are similar enough to be interchangeable. Still, my general rule is if the schedule is close and I expect the inflight 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 outsize 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, is it really "worth" the sticker price?
I think this debate is frivolous unless your sole objective is to maximize redemption value and not to get where you want to go. These calculations aim to evaluate whether you're getting a good return, but that alone shouldn't dictate whether you book an award. A suboptimal award can be a great redemption if you're points rich and cash poor. And there are various 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. Eventually, it will be. But until then, TPG's awards versus cash calculator is here to help you.
Additional reporting by Peter Rothbart.