Fair Trading Prices for Points and Miles

Thinking of buying points and miles? Make sure to pay a fair price.

Overview

Lately I’ve been doing some pretty strange things. I checked into a hotel without any intention of staying there. I bought gift cards and sold them for less than I paid. And, I ordered products that I have no interest in ever using. Why have I done all of these crazy things? For points and miles, of course! Hotels, banks, and airlines regularly hold promotions in which you can earn bonus miles by staying, buying, flying, etc. Often it is possible to effectively buy miles and points at a very low rate by meeting the terms and conditions of these promotions even if you have no use for the hotel stays, products, or flights.

I and other BoardingArea bloggers regularly write about schemes that amount to buying points and miles at low cost. Here are a few examples from my blog:

• Top 5 Reasons to Buy Delta Miles for 1.1 Cents Each
  
• Mileage Run Shopping: Buying 162,000 Miles for $500
  
• Buy miles for 1.2 cents or less
  

The question you should ask before doing any of these crazy things yourself is whether these opportunities are really good deals. Is 1.2 cents a fair price to pay for Ultimate Rewards points? Is 1.1 cents a good price for Delta miles? If a blogger says something is a good deal, does that make it so? What if Lucky says it’s a good deal?

Read on and I’ll introduce an approach for answering these questions without having to make a “lucky guess” (pun intended). For simplicity, from now on I’ll refer to points and miles as simply “points”.

Fair Trading Prices

A common assumption many people have about buying points is that as long as the value exceeds the price paid, then you got a good deal. For example, if you pay $100 to buy enough points to cover your stay at a $400 hotel, then you got a good deal. Right? Not so fast; read on:

It is absolutely important that the value you get from points exceeds the purchase price, but another factor is also important: the current going rate, or what I’ll refer to as the “fair trading price”. As an example of why this is important, imagine if someone offers to sell to you a coupon for $100 that will give you a free night at a $400 hotel. That sounds like a great deal unless you happen to find that same coupon selling other places for $25. So, even though the value you would get from the $100 coupon far exceeds the cost of the coupon, it is not a good deal because there are better deals to be had. The same thing is true with purchasing points.

To the extent that there are straightforward and reproducible means for buying points, then the fair trading price is the lowest price available of those means. Most airlines and hotels will happily sell you points if you really need them. Unfortunately, they also often charge more for those points then the value you are likely to get from them. Unless a special rate is available, it usually only makes sense to buy points directly when you have a specific redemption in mind and you need a small amount to top off your account.

Another option people have for acquiring points is to use point earning credit cards. It is true that, unless you are a very big spender, using a credit card as the primary means to earn points is a long and slow road. However, the use of credit cards for acquiring points has become incredibly common (at least in the US) and I believe it is a useful tool for estimating fair trading prices.

The Cost of Credit Card Points

Yesterday, I asserted that using point earning credit cards is not free. In that post, I argued that there are several cards that offer 2% cash back (or equivalent) and that rate should be the standard by which we measure all other credit card returns. Using this measure, if your credit card gives you only one point for each dollar you spend, then you are effectively buying points for 2 cents each whenever you make a purchase. Therefore, 2 cents per point should be considered the high water mark for purchasing points. In other words, any “deal” in which you must spend more than 2 cents per point is no deal at all.

While 2 cents is a useful and easy to remember high water mark, it is not an accurate measure of fair trading price. Most points earning credit cards offer double or triple points for spend within certain categories. With those cards, the more you spend within those categories, the less you pay per point acquired. That is why, for several cards (SPG, Amex Premier Rewards Gold, and Sapphire Preferred), I estimated the blended rate cost per point for using those cards. Here is a table with the results:

Fair Trading Prices by Program

Each of the cards listed above are considered best in breed travel rewards cards. Each also allows points to be transferred to airline or hotel programs. This then allows us to build a chart of fair trading prices for common airlines and hotels:

* MR points can only be purchased to “top up” a specific redemption
** To transfer MR points to Hilton, it is necessary to first transfer to an airline (such as Hawaiian Airlines) and then transfer to Hilton Hhonors at a rate of 2 points for each mile.

Let me point out a few details about this table. The “Buy Direct” column is the advertised price to buy points or miles directly from each specific program. The price does not include any specials that may be running. The “Credit Card” column lists the best price you could get by trading points from one of the three listed flexible points programs. In each case I tried to find the transfer option that led to the lowest cost. Numbers in bold represent fair trading prices for each program. It is interesting to note that all listed airline programs get their fair trading price from credit card points, but for three out of five hotel programs the price to buy direct represents the fair trading price.

How to use the table

The table above does not answer the question of whether you are getting a good deal for a particular opportunity, but it does give you a benchmark to check against. Take the current Delta promotion, for example, where you can buy Delta miles for 1.1 cents each. Find Delta on the table above and you see that the fair trading price for Delta SkyMiles is 1.29 cents each. Since 1.1 cents is less than 1.29 cents, you can tell that the Delta promotion is a good deal. Let me stress, though, that it does not mean that you will benefit from this deal. Benefiting from a point buying deal depends upon how you end up using the points. If you manage to use the points for travel that would have otherwise cost significantly more than you paid, then you will have benefited.

Now let’s take a look at a few promotions to see if they are good deals or not:

Holiday Bonus Miles From American Airlines
Points, Miles, & Martinis wrote about this deal in which you can buy American Airlines miles for 2.1 cents each.
Deal price: 2.1 cents per mile
Fair trade price: 1.56 cents per mile
Good deal? No

100% Bonus on Purchased US Airways Miles is Back for December
View from the Wing reported that US Airways has brought back the 100% bonus on purchased miles.
Deal price: 1.75 cents per mile
Fair trade price: 1.56
Good deal? No

Club Carlson 50,000 points for Radisson stay Nov 10-Dec 30, 2011
Loyalty Traveler showed us how to qualify for this promotion. By staying one night in a Radisson after registering, Club Carlson will give you 50,000 Club Carlson points. If we assume that a night at a Radisson costs about $100, we can calculate the cost per point: $100 / 50,000 = $.002 = .2 cents per point.
Deal price: .2 cents per point
Fair trade price: .7 cents per point
Good deal? Yes!!!

Mileage Run Shopping: Buying 162,000 Miles for $500
In this post, I suggested a way to take advantage of an Ultimate Rewards promotion to effectively buy 162,000 Ultimate Rewards points for $500. In the details, though, you will see that 50,000 of those points were from a credit card signup bonus, so shouldn’t really be counted. The deal then is really 112,000 points for $500. We can calculate the cost per point: $500 / 112,000 = .0045 = .45 cents per point
Deal price: .45 cents per point
Fair trade price: 1.31 cents per point
Good deal? Yes!!!

Please keep in mind what I wrote earlier: just because something is a good deal when compared to fair trade prices, that does not mean it is a good deal for you. Only you can predict how you will ultimately use the points you buy. And, how you use the points will ultimately determine the value you get from them. Also, keep in mind that there are times where paying above the fair trading price is the right thing to do. For example, you may have an opportunity for a fantastic award redemption, but you don’t have enough points and you can’t wait to build up the points slowly. In that case, do the math to see if it the cost to buy points quickly is worth paying for the redemption you have in mind.

What’s Next

The table shown above is a point in time snapshot of what I believe to be fair trading prices for points and miles. I will soon add the table to a permanent page on this site. As I receive feedback from readers, I’ll update the table as needed. Also, I’ll continue to evaluate various credit cards and I’ll make that information available to you too. Beyond this, I intend to analyze a few credit cards that offer not just regular miles, but elite qualifying miles as well. From these cards we may be able to begin to estimate fair trading prices for elite qualifying miles. Please stay tuned.

Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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