Why Should You Calculate Award Redemption Value
“Is this a good deal?” is one of the most frequently asked questions I see when it comes to points and miles. It’s a simple question but one that is so important to answer correctly because not all award redemptions are worth using points on.
If you don’t know how to calculate award redemption value, it’s easy to fall into the trap of thinking that using points automatically means good value. This is why it’s crucial you know how to calculate award redemption value so you can determine whether an award redemption is worth it or not.
How Do You Calculate Award Redemption Value
The most common way of determining award redemption value is by calculating the cents per point (CPP) of the redemption. You can calculate cents per point by using the following equation and rounding to the nearest hundredth.
(cash price / points price) * 100
Let’s take a look at a real life example. A one night stay in a standard king bedroom at the Hyatt Place in Times Square costs $264. If we check the cost in points for that same exact room on the same day, we see that it would cost 23,000 points.
Plugging those numbers into the equation above, we would get the following calculation:
($264 / 23,000) * 100 = 1.15 CPP
What Is Considered Good Value
Now that we have this CPP number, how do we know if we’re getting a good deal or not? Different people will have different thresholds on what “good value” means so this really comes down to each individual.
In my opinion, the absolute bare minimum for a good deal is 1.51 cpp. This is because you would be able to get 1.5 CPP on all award bookings if you have a Chase Sapphire Reserve and use points to book through the Chase travel portal. This gives us a baseline number that we should be trying to beat. So any redemption above this 1.5 cpp value would be considered a win.
However, if I’m being stingy, I’d say anything less than 1 cpp is a bad deal, 1.5-2 cpp is in the “ok” deal range, and 2+ cpp redemptions are considered “good” deals. Let’s take a look at some examples of good and bad redemptions.
Starting with a bad redemption, we can see that this Marriott hotel room costs 62,000 points per night. The cash price for that exact same room is $341 per night.
If we perform the CPP calculation, we’ll see that our CPP comes out to 0.55 CPP which is horrible. In this situation, you’re much better off just paying the cash rate or finding a different redemption.
Now for an example of a good redemption, we can take a look at booking a business class seat on Singapore Airlines from Los Angeles to Singapore. We can see that booking through Air Canada Aeroplan costs 87,500 points and the cash price of this flight is $5,009.30.
Once again plugging these numbers into our CPP formula, we will get a CPP of 5.72! That’s over 10 times the CPP we got from the previous example and is way above our baseline of 1.51 CPP. This redemption is easily a great deal and one that people should not hesitate to make.
How To Get High Cents Per Point Redemptions
Hyatt
Hyatt is one of the easiest ways to get high CPP redemptions. Although Hyatt doesn’t have as large of a footprint as Hilton or Marriott, many of their international and domestic properties offer great points rates that are easily higher than 2 CPP.
For example, the Andaz Tokyo is regarded as one of the best hotels in Tokyo and booking a stay there nets you 2.46 CPP!
Even domestically, a hotel like the Thompson in downtown Chicago will get you a fantastic rate of 2.71 CPP.
Flying Premium Cabins Internationally
On the airline side of things, the best way of getting high CPP redemptions is by flying international first class and business class. For example, booking Air France business class from Los Angeles to Paris will cost you $3,537 in cash but only requires 50,000 miles. This gives us an amazing CPP value of 7.07 CPP.
A more extreme example of high CPP is booking Japan Airlines first class from Chicago to Tokyo. The cash price of this flight is a whopping $14,871.90 but can be booked for only 80,000 American Airlines miles. This gives us an insane CPP of 18.59.
While flying premium cabins is the best way to get high CPP, you can still get some surprisingly decent redemptions flying domestically.
Many people view Delta Skymiles as a low value program (and rightfully so). However, booking basic economy flights with Skymiles can sometimes net you almost 2 CPP.
As seen here, booking basic economy gets us 1.79 cpp while the rest of the fare options are less than 1.51 cpp.
Caveats When Calculating Award Redemption Value
Before you get too excited and hold CPP as the holy grail metric of all redemptions, it’s crucial to understand some important caveats around these calculations.
Cents Per Point Can Be Inflated
CPP is a convenient metric but many people don’t like using it because it is easily inflated.
For example, one of the best times to book award tickets is within 2 weeks of departure. So while you can score some great flights by booking these close in flights, the final number when calculating the CPP will be inflated because flights get more expensive the closer you get to departure.
You can see the difference in prices between a flight departing in 3 days and a flight departing in 9 months. A fully refundable business class ticket for the same flight has a difference of $2000!
An easy way to account for this difference is to take the average of the price of a flight departing soon and the price of a flight far out in the future. This way you’ll be able to get a more accurate CPP number.
Another way CPP can be inflated is through booking one way flights. One way flights are very common in the award travel world because of the added flexibility they provide. However, airlines normally charge less for a round trip flight than they would for booking two one way segments.
Look at how two one way tickets in business class cost ~$12,500 in total.
Then looking at a single round trip itinerary, we see a ~$1500 difference in price for those same business class seats.
True Value
The best method for calculating award redemption value is a highly debated topic in the points and miles world.
Many people feel that CPP is not a good metric because is not indicative of the “true value” of the flight. It’s fair to say that the majority of people would never pay $14000 in cash for a first class ticket. Instead, the average person would only pay a fraction of that for an economy ticket to their destination. So claiming that you got $14000 in value is not something some people would view as accurate.
This is why people lean towards a metric that compares the point cost against the cash price that you were willing to pay. For example, let’s say you had to pay cash and were deciding between flying Cathay Pacific business class costing $3000 and flying Cathay Pacific economy for $600. Almost everyone would pick the cheaper $600 option. This sets the baseline comparison for the points price. So even though redeeming 89,000 points for this business class flight has a CPP of 3.37, if we compare it against this $600 value, it falls drastically to only 0.67 CPP.
While the logic here makes sense, I still think that CPP is a useful metric to consider. Although it’s not representative of the full story, it still helps give useful guidance on what a “good” redemption is.
I personally like the idea of having two values: CPP and “true value”. CPP is good for getting the objective value that is backed by numbers while “true value” can take into account various hypothetical factors like realistic booking options, time of booking, one way vs round trip, etc.
Ultimately it just comes down to what “value” means to you.
Should You Include Fees in Calculations
If we’re talking about pure CPP, then we usually don’t include the taxes and fees from the award redemption in the calculation. However, this can be deceptive if we are redeeming awards on airlines like Emirates that pass on high fuel surcharges. So while your award may only cost 45,000 points, if there are $1000 in fees associated with it, that should be noted as well.
People usually don’t factor in taxes when calculating CPP but will instead mention it as an add-on. It’s common to see something like “Redeemed 45,000 points + $200 in fees for a CPP of 2.5”.
However, if the taxes and fees are something minuscule like $5.60, I think it’s fine to omit or state that the fees were negligible.
Lesser Cents Per Points Is Ok
While striving to achieve maximum CPP on your redemptions is a good goal to have, it’s important to not get too focused on it. I often encourage people to not get so hung up on getting the highest CPP redemptions possible.
This is because points are a depreciating asset due to airline and hotel programs constantly devaluating over time. There’s a risk in holding onto your points without redeeming them because programs can and will increase their award rates.
This is why I emphasize that suboptimal redemptions are still better than not redeeming at all. It may not be the flashiest redemption out there but if you can avoid having to spend substantial cash for travel, that can still be considered a big win.
Conclusion
Calculating award redemption value is an important, but highly debated, topic in the award travel world. Cents per point is the most common metric for calculating this value and provides useful guidance on what is considered a “good” redemption. However, it’s also important to understand that CPP is not perfect and has some shortcomings.
What is your favorite way to calculate award redemption value?
