I’m certainly not the first person to re-evaluate Ultimate Rewards in light of recent devaluations by several of its transfer partners, but I will try to put my own spin on the topic as always.
By far one of the best uses of Ultimate Rewards points is to transfer them to other loyalty programs such as United’s MileagePlus, Southwest’s Rapid Rewards, Hyatt’s Gold Passport, and British Airways’ Avios. There are a few other partners, but these are typically the best values and also have the most extensive opportunities for redemption (e.g., Avios can be used to book domestic flights on American Airlines and Alaska Airlines). You also have the choice to redeem points at a value of 1.2 cents each through the Ultimate Rewards travel agency. A transfer often provides greater value, so let’s see if that’s still the case.
Southwest Rapid Rewards — 1.43 cents per point
Southwest Airlines was the first shoe to drop. With a fixed-value award currency, the best deal has been to redeem for their “Wanna Get Away Fares” at what was once a rate of 1.67 cents per point but will soon become 1.43 cents per point. I don’t have a Companion Pass, and I don’t travel often enough (or ever) on Southwest to get one. I could use credit card bonuses to get a pass, but that’s a one-year thing. I’m using 1.43 cents as my valuation; others may prefer to use 2.86 cents if they want to include the value of a Companion Pass.
United MileagePlus — 1.8 cents per mile
Then along came United’s Black Friday announcement. I previously assigned these miles a value of 2 cents each. I was comfortable with that because I have always been able to find domestic flights that cost $500+ but only 25,000 miles. This part of the award chart is not changing. But the main thrust of my strategy with United is to pay for my domestic flights and redeem miles for international premium cabin travel, particularly on their excellent Star Alliance partners. Before the devaluation, and at 110,000 miles for business class to Europe, among other good deals, I could see myself defending 2 cents. Such tickets often go for $4,000 and up, but I *might* be willing to pay around $2,200 if they were available for cash.
So how to compromise between domestic value staying the much the same while international utility decreases?
I explained earlier that I can still see myself using my United miles on international business class flights on United-operated planes. Their product is improving, and I actually look forward to flying on the 787 on some routes like LA to Shanghai and Seattle to Tokyo (delayed the last I checked). I will probably be fine relying on other currencies like Membership Rewards and Miles & More to fly on United’s partners.
I feel I should lower the value of United’s currency due to these added restrictions even though I still see myself finding plenty of opportunities to get around 2 cents of value. I will settle on a somewhat arbitrary valuation of 1.8 cents each.
Hyatt Gold Passport — 1.5 cents per point
I previously pegged these at around 1.7 cents per point, and obviously the new award chart has made free nights more expensive. One could argue that the cash rate at hotels are also more expensive due to inflation.
The price that Hyatt charges and the value I assign aren’t necessarily the same, but fairness requires that my valuation be subject to inflation, too. If before I would have used 22,000 points for a hotel that I valued at $374, and now Hyatt wants 25,000 points, they are implying that I should increase the value I assign to that stay to $425. Are they correct? I’ll defer making that call for now.
On the other hand, Hyatt has imposed their own restrictions, such as moving a handful of hotels to a new Category 7. (Actually, just 6 out of 543, or 1.1%.) I’ve never stayed at them, and only three actually appeal to me, but I do try to use my points for such aspirational stays. So I will lower my assigned value to 1.5 cents per point.
British Airways Avios — 1.5 cents per point
There have been no devaluations by British Airways this year. And I can very easily find awards for 2 cents or greater value per point. I often use Avios for short flights, especially those operated by regional jets. So if I’m paying 4,500 points plus $2.50 tax for a $120 flight, I’m still coming out ahead if I value these points at 2 cents each ($90).
That said, I am talking about a very select use case. It works often enough when I need it to. I never consider Avios for trips that require a connection, and at some point I will want to book an international award and will have to pay some giant fuel surcharges (e.g., British Airways first class from Seattle to London is 150,000 points + taxes, fees, and fuel surcharges). Given these deficiencies, I think 1.5 cents per point is a better long-term average.
Putting It All Together
We have here four primary redemption opportunities — all transfer options from Ultimate Rewards are 1-to-1 — that can be valued between 1.8 cents and 1.43 cents per point. The next question is “How do we reach a single value for Ultimate Rewards?”
I think a good place to start is with the value of the best transfer option. If nothing else, I can always transfer my Ultimate Rewards points to United Airlines and get 1.8 cents per point. There is not much reason to average down by including the value of other currencies. At least 95% of my transfers have been to United thus far, and if I were to transfer to another program it would only be for select cases where I believe I can get equal or better value than through United. That is, I think I have found a case where I can get greater than or equal to 1.8 cents through Hyatt, for example, rather than Hyatt’s average value of 1.5 cents.
One Mile at a Time wrote yesterday that he ought to assign a premium to his Ultimate Rewards points because of their flexibility. I am not so sure.
I just explained why I set a floor for Ultimate Rewards even when I might still transfer to a program that usually has lower value. Ben suggested that such flexibility gives added value to a loyalty currency. I think instead that it only means it can imply greater value for the currency on the receiving end of the transfer.
Look at it this way: If I value United’s miles at 1.8 cents, and I have to give a 0.1 cent premium to Ultimate Rewards points for the sake of their flexibility, then the final value of Ultimate Rewards would be 1.9 cents. If Ultimate Rewards are worth more than United, why would I ever transfer them to a less valuable program?
Matching the value of Ultimate Rewards to the most valuable transfer option available — and no more — makes more sense. I can transfer to United as a default choice or to other programs only in outlier situations where they offer United worthy competition. Hyatt Gold Passport may provide 1.5 cents on average, but there are certainly cases where it can approach 1.8 cents, at which time I would transfer points from Ultimate Rewards.
Update: Food Wine and Miles posted a comment suggesting a two-choice dilemma where I have to pick 1,000 UR or 1,000 UA. I would pick UR for the flexibility. But what if I was offered 1,000 UR or 1,001 UA? I would pick UA because there are more of them, and I don’t value UR more highly than UA. Each person has his or her own threshold, and this is a good way to test how you value a convertible currency like UR.
The Effect of Devaluations on Ultimate Rewards
Devaluations still have an effect on Ultimate Rewards. One reason to think a premium valuation is necessary is because if one currency goes down there is still another transfer option available. Yet the value of Ultimate Rewards doesn’t stay the same.
Instead, the value of Ultimate Rewards still goes down. In my model, it drops to the level of the new MVP (“Most Valuable Points”). That’s still United, so it drops from the former 2 cents per point to the new 1.8 cents per point. It could have been Hyatt, Avios, or someone else, in which case Ultimate Rewards might have fallen to 1.5 cents or lower. I don’t think United fell that far.
I admit I’m not an economist, though I don’t think Ben is either. But I have a really hard time assigning Ultimate Rewards any kind of premium for their flexibility. I still prefer to earn Ultimate Rewards over another currency but only because I know I have options. I know that if United’s miles were to drop again to 1 cent next Friday, my Ultimate Rewards would only fall to 1.5 cents — the next highest value among their transfer partners.
In that sense Chase can feel somewhat secure about the long-term value of their currency. They have a range of partners, and most of them remain good transfer options. I certainly don’t see the same value in Citi’s ThankYou points. But Ultimate Rewards are dropping closer to the level of Amex’s Membership Rewards. Even if that happened I think Chase would benefit from their good customer service and the relative ease of earning points. It would probably take some drastic changes to Ultimate Rewards itself before I would consider focusing on Membership Rewards instead.