Before we can understand how to use points and miles to be able to travel, we have to have a conceptual understanding of what they actually are. When I first got heavy into the points and miles game, whenever I discussed my new found hobby, I always heard, “Well, that’s cool, but I just don’t see any value in that.” There’s even a famous lifestyle celebrity who is known for saying, “You’ll never be a millionaire off of points and miles.”
While that is true, you can use points and miles effectively to make your life richer in a way that, I would argue, makes life more meaningful and impactful. I have use miles and points to travel all over the world and create incredible memories that I will never forget. Whether it’s visiting a medina in Morocco with one of my closest friends or going to Flamingo Island in Aruba on my honeymoon, I never would have been able to afford these opportunities without points and miles.
With that, let’s discuss the question, “What are points and miles?” At the end of class, feel free to leave a comment addressing the question I have posted!
Note: While I do partake in some programs that give points and miles for shopping in a store or at a restaurant (like Chick-fil-a rewards), I will be focusing on travel rewards. However, the principles I discuss going forward will also apply to store or restaurant points.
Points and Miles: What are They?
At their core, points and miles are a unit of currency. You perform an action, are given points or miles, and then can use those points and miles for “free” travel, depending on the type of points or miles that you have.
In my mind, there are three types of points and miles:
- Airline miles: Obviously, these are given when interacting with an airline or its various partners. For example, when I fly on American Airlines, use an American Airlines credit card, or use the American Airlines shopping portal, I am given airline miles that I can redeem for flights with American Airlines or its various partners.
- Hotel points: Similar to airline miles, these are given when interacting with a hotel or its various partners. When I stay with Hyatt or use the Hyatt credit card, I am given hotel points that I can redeem for free nights at Hyatt, its subsidiaries, or its various partners.
- Bank-issued points: Points and miles are billion dollar enterprises. Indeed, the number one buyer/receiver of points and miles are actually banks that issue co-brand credit cards. (Think about how many people just in Atlanta have a Delta card and get 1 point per dollar spent. Now think about how much money people spend in your average month. The numbers add up year-over-year.) Because many banks often issue cards for multiple brands, these banks have developed their own rewards ecosystem that allow you to redeem your points either through a travel portal or by directly transferring points to their partner programs.
Special case: A special case of points and miles are certificates. These are typically given out for reaching a certain level of status with an airline or hotel or holding a certain credit card. Basically, these are worth a certain number of points or miles. Think of points and miles as akin to coins, while these certificates as the bills, since points and miles form the base currency, and certificates represent multiple units of the base currency (like 1 cent vs. 1 dollar). I’ll go into these more in-depth in a future class, but know that these exist.
Where Do They Exist?
Like real money, they exist within a given economy that can only buy things for sale within that economy. For example, take the US dollar. When I go to Europe, no European establishment will take the US dollar; they require the Euro. The US dollar is only viewed as legal tender within the USA.
On a similar note, airline and hotel-issued points are only valid within their specific loyalty ecosystems (a topic which I will dive into my next post). I cannot use an American Airlines mile to purchase a United flight; I can only purchase an American Airlines flight or through American Airlines channels to buy things with its partners.
The one exception to this rule is with bank-issued points. Because these points are not tied to any specific travel brand, you have more flexibility in how they are used.
For example, Chase issues credit cards by United Airlines, Southwest Airlines, Hyatt, IHG, and Marriott, where people can earn points for that specific brand (and that specific brand only) by paying for their everyday purchases with the co-brand credit card. Chase has also developed their own ecosystem of rewards (Chase Ultimate Rewards), where individuals can a.) redeem their points for cash, b.) book travel through an online portal (think Expedia) at better rates than cash, or c.) transfer those points directly to a travel partner (i.e., I can transfer my Ultimate Rewards to Hyatt and redeem them for stays at Hyatt).
These points are earned by using special bank credit cards that distribute their proprietary rewards. Within their ecosystem, Chase has made the conscious decision to allow you to have more flexibility with your points and miles in hopes that you will use their Ultimate Rewards products. As we will learn in a later lesson, this makes them more valuable and increases flexibility with booking travel.
What is a Point or Mile Worth?
Now that we understand that points and miles are a unit of currency, it begs the question: what is a point or mile worth? Given that it is a strange unit of currency (in that it is only used in certain circumstances, and it’s not a currency that most of us deal with on a day-to-day basis), it’s an interesting thought experiment to think about how we value that currency in terms of something we are used to (i.e., the US dollar).
If you have looked at other travel hacking websites, many have tried to make a systematic effort at valuing what a point or mile is worth. I’m not going to comment on the assumptions of these various websites in this blog, but I think all of them really have an underlying principle that drives many of the calculations:
Because travel is meant to bring joy and wonderment, points and miles are worth whatever you think they should be worth. Do you think that spending 30,000 points to stay at a hotel next to grandma’s house across the country is a good deal? Go for it! Do you want to spend 110,000 miles to fly first class to Asia? That’s great! What really matters is that YOU are happy with your decision.
While airline deregulation occurring in 1978 (in the US) has democratized travel, allowing competition and making flying generally cheaper, when people use points and miles, they are generally using them for leisurely trips. When people buy things that are wants, the value of the item that is being purchased has a different valuation of worth that things that are needs.
To give you a better idea of what I’m talking about, consider the show Pawn Stars. People bring in unique things all the time that, given their rarity, makes people think that they have a million dollar item. However, that’s not what the market is willing to bear. That is not what people are willing to pay. Almost all of the items brought in to the pawn shop are discretionary, or individuals buy them because they want that specific item because they like it. Just because it’s unique does not that someone is willing to pay a ton of money for it. Things are valued based upon what someone is willing to pay for it.
I think the same rule applies for using points and miles. You use your points and miles for how you want, and that’s ok. We probably will use them differently because we are different people (indeed, I have flip-flopped myself, using them differently through different periods of my own life). Regardless, if it makes you happy, then do it.
Note: I’m going to go ahead and answer the question of how I personally value points and miles. I take more of a cognitive approach to points and miles by assigning value to my points. Over 90% of the points and miles I earn come through credit cards. I value my points as the number of points I earn for one dollar spent multiplied by 2%. For example, if I were to spend on an American Airlines which has a base rate of 1 point per dollar spent, I want to get at least 2 cents worth of value from that point. If I spend on a Marriott card that has a base rate of 2 points per dollar spent, I aim to get at least 1 cent worth of value from that point.
Why? Because I personally try to maximize each point for luxury travel. The minimum that any person should get on spending on a credit card is 2%, given that the Citi Double Cash card gives you back 2% on all purchases. However, I sometimes break my own rules, using my Hyatt points for less than 2 cents per point. Why? Because they’re mine, and that’s what I want to do.
Conclusion
In this lesson, I reviewed what a point and mile is and how they should be valued. We learned that points and miles are units of currency that can be redeemed for travel and points and miles should be valued at whatever brings you joy.
In our next class, I thought it would be fun to present a case study to demonstrate how points and miles can allow travel without having to pay a lot of money.
Has this class changed how you view points and miles? What are points and miles worth to you?
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