Finding value: frequent flyer point redemption value (Part 2 of 2)

This article was published some time ago and content may be out-of-date.  Airlines are continually changing their loyalty programs. Always double-check with the airline. 

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The redemption value of a point

The key to getting the most value out of your frequent flyer points across the main programs, is understanding two things:

Part 2: A point’s redemption value

Naturally you want to redeem your points for a value greater than their cost. In this guide we calculate how you can assess your own redemption value.

Part 1: The cost of a point

In Part 1  we look at the real costs involved in acquiring points.

In theory, when the cost of a frequent flyer point is less than its redemption value (as appraised by you), you’re in front. This is the first of a two-part guide. Click here to launch the second, which looks at placing a value on the product or flights that you redeem.

‘Guide Redemption Value’ (GRV)

The ‘Guide Redemption Value’ (GRV) is our ‘ball-park’ value estimate of a specified points redemption item derived from its price. In most cases the redemption item will be a reward seat (as flights are by far the best value redemption option) and the price will be the flight’s cash fare.

Our GRV is a guide only, it does not take into account your personal situation.

How do we source the cash price?

To calculate our GRV, we assign a cash price on a particular fare. The methods are a little different between Economy and Business Class. We’ve described them in detail below.

Economy Fares We base our Economy reward seat redemptions at (or in some cases slightly lower than) an airline’s mid Economy fare (between their most discounted ‘Sale’ fare and their most expensive ‘Flexible’ fare. We do so as Reward seats are generally quite flexible, with changes and cancellations much cheaper than discount Economy fares.
Business Fares We always base our Business cash fares at an airlines cheapest Business ‘Sale’ or ‘Discount’ fare due to the high price of Business tickets. In your personal case this may still over-estimate the value, so to run your own numbers via our Perceived Redemption Value calculation here.

 

The following formula displays how we calculate our GRV.

GRV = ( (Cash Fare/ points required) * 100 )

 

But, this value yardstick is always going to be different for each person. Take the following examples:

“I would never pay full price for a Business Class fare, even when on-sale.”

Like many people, you may never pay for a Business Class cash fare, even on sale. Therefore, if you were to redeem your points for a Business Class seat, the GRV would over-represent the value received.

“I need to book a domestic peak economy flight at short notice and I value this opportunity.”

High-demand domestic Economy legs like Sydney – Melbourne can be obscenely expensive only days-out from the departure date. Let’s say you have points and need to book one of these flights at short-notice. Domestic reward seat availability with both Qantas and Virgin is normally quite healthy, so it can be a good way to secure a seat, as the cash fare would likely be high. The GRV would most likely under-represent the value received.

‘Perceived Redemption Value’ (PRV)

Your ‘Perceived Redemption Value’ (PRV) is pegged from the value that you place on a flight, not our rudimentary GRV.

To calculate the your PRV, use the following formula.

 PRV = ( (price valued by you/ points required) * 100 )

Redemption value examples – GRV vs PRV

Let’s compare the two redemption values with a Qantas reward seat example below, looking at a Sydney-Perth Business Class Sale fare in the new Qantas A330 lie-flat suites.

(1) Guide Redemption Value (GRV)

In this particular booking query, a Sydney-Perth Business Class seat will set you back a hefty $2,351. You’d have to pay $41 in taxes with this fare so we’re subtracting the taxes from the listed price (this equals $2,310).

This reward seat will cost 36,000 Qantas Points. Let’s calculate this flight’s GRV.

 GRV = ( (Cash fare / points required) * 100 )

= ( ($2,310 / 36,000) * 100 )

= 6.4c/point

(2) Perceived Redemption Value (PRV)

But, you might not normally be willing to hand over $2,300 cash for this flight. You may in fact only value the Business Class fare at the Flexible Economy price ($699).

Let’s recalculate.

PRV = ( (Price valued by you/ points required) * 100 )

 = ( ($699 / 36,000) * 100 )

 = 1.9c/point 

Earlier, we indicated that our points-earn examples placed a cost of approximately 1.1c on each point. With our (personalised) PRV reaching 1.9c/point, we are getting value!

This is the second of a two-part guide. Click here to launch the first, which looks at the cost of a frequent flyer point.

 

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