When is an award night a good deal?

UPDATED 4/24/2012 TO REFLECT RECALCULATED FAIR TRADING PRICES

Previously, I attempted to answer the question of €œWhen is an award flight a good deal?  In that post I suggested a simple formula to use to help decide whether it is better to pay for a flight or to use miles.  In this post, I hope to do the same for hotel stays.  

Suppose you are looking for a a hotel room and you find that you can either pay $300 a night or redeem 25,000 hotel loyalty points for each night. Which should you do? The decision can be quite complicated. You need to know how much those 25,000 points are worth to you. Plus, if you redeem points, you won’€™t earn points from the stay. And if you’re looking to earn hotel elite status, you need to consider that with many chains you won’t earn night or stay credits when you book award nights.

In order to try to wipe away most of that confusion, I’€™ve put together a three step guide to help you figure things out. The formulas are far from perfect and they won’€™t match everyone’€™s needs or beliefs about hotel points, but I know that I need something like this so maybe you do to. As much as possible, I’ve kept to nice round numbers and easy formulas.  Here goes:

Step 1) Take the # of points you would need to redeem, chop off the final two zeros, and add a dollar sign in front. Example:
25000 Points -> $250

This is the value of your points if each point was worth a penny. For Hyatt points this is a reasonable target since the Fair Trading Price for their points is just a bit above 1 cent each.

Step 2) Adjust the formula up for SPG, and down for everyone else:

Starwood (SPG):

Starwood points, according to the Fair Trading Prices chart, trade for about 1.95 cents each. For Starwood hotels, multiply the number calculated above by 2:

$250 x 2 = $500

This is your estimated cost for redeeming Starwood points.

Other Chains besides SPG and Hyatt:

For most other chains, the fair trading price is close to .5 cents per point.  So, simply divide the number calculated above by 2:

$250 / 2 = $125

 

Note: you may want to round down for Club Carlson points (e.g. round $125 down to $100 due to the lower fair trading price of Club Carlson points.

 
Step 3) Compare

Take the value you computed above ($250, $500, or $125 in the examples) and compare to the paid hotel option. If the calculated amount is less than the paid hotel option, then redeem your points.  Otherwise pay for the room directly.

Example A: The estimated cost of redeeming points ($250) is less than the cost of a room ($300), so: redeem points

Example B: The estimated cost of redeeming points ($500) is more than the cost of a room ($300), so: pay for the stay.

Notes:

  1. The formulas above do not account for the potential loss of nights or stays towards elite status.  With Hilton and SPG, you will continue to earn nights and stays even for award redemptions so the formulas should work reasonably well.  With other chains, if you are chasing elite status, inflate the formula results by the amount you think each stay/night is worth for getting you closer to the next level of status.
  2. Don’t forget to use your own common sense here. If you’re low on cash, or you don’€™t think you’ll ever be able to use your points for a high value redemption, or you simply don’€™t value your points, then by all means use the points despite what the formula says! Conversely, you may be working towards hotel elite status, or you may be holding onto your points for much higher value redemptions. In those cases, it would make sense to err towards paying for stays.


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About Greg The Frequent Miler

Greg is the owner, founder, and primary author of the Frequent Miler. He earns millions of points and miles each year, mostly without flying, and dedicates this blog to teaching others how to do the same.

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Comments

  1. Hotel loyalty members will be sitting on a lot of points withthese valuations. Hilton Hhonors at $500 for a Category 7 hotel for 50,000 points is going to be a small set of hotels.

    Category 6 HHonors @$400 even smaller

    Of course these are easier values to find using 6 night VIP rewards with 25% off. $375-cat 7 and $300 cat-6 will be easier to find.

    This works better for high-end hotels.

    I don’t consider $140 a good value for 7000 SPG points.

    I’ll look at this more closely later. I am typing on my phone.

    • Ric: Thanks for your input! I think I did make a mistake with Hilton. Since the Fair Trading Price for HHonors points is just .48 cents each, I’m inclined to reduce the multiple down to .6 (higher than .48 so as to account for the points not earned with award stays). With SPG, meeting a 2X multiple tells me that you are at least getting the Fair Trade Price (1.95) from your points. With some points programs (such as SPG) it is very easy to get the Fair Trade Price or much higher. With others it can be quite difficult. My goal, with all of these is to come up with simple formulas that people can keep in their heads to make quick decisions. So 1X, 1.5X, and 2X calculations are all doable. .6X for Hilton will be a bit of a challenge, but can be done I suppose by saying “cut in half and add a wee bit”.

  2. Given that Priority Club points can be bought for $60 per 10k, the math is pretty simple: don’t pay more than $150 including taxes for a 25k redemption, $240/40k, $180/30k, etc. This can be further refined by factoring in elite and promo bonus points that could be earned on paid stays.

  3. This guide and the airline award guide are very useful. After getting people to collect miles, which is hard enough in and of itself, the next hardest thing is getting them to figure out what redemptions are good. I’m going to link them at my blog too 🙂

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