Frequent Flyer Points - Flights or Gift Cards/Cashback?

Frequent Flyer Points - Flights or Gift Cards/Cashback?

Last Updated: 27 Aug 2017

Should you use Frequent Flyer Points on Flights or Gift Cards?

Summary/TL;DR

If you generally have an appetite for travel, you should use them on flights.

If you want certainty, stability and an obvious return on your money, there is nothing wrong with using them on Gift Cards/cashback. Similarly, if you never fly, then you should obviously use them on Gift Cards. I would highly recommend that you use the points on a versatile Gift Card like Coles, Woolworths or Prepaid EFTPOS/Visa/Mastercards, as this is likely to result in you making purchases for things you needed to buy anyway.

Avoid toasters, vacuums, iPhones and any physical merchandise. These rarely ever offer you good value for your points unless the points cost is discounted. This is because you would probably be able to purchase the item with cash for a better price (think of sales, promotions, price matching). Don't forget that by paying for an item yourself (with a Credit Card) in addition to earning even more points (which is probably negligible), you potentially gain others benefits such as being able to obtain Extended Manufacturer's Warranty which would not be an option if you used points to purchase the same item.

It's also important to note that it is not necessarily always best value to use points on long haul travel. I find that a common thought for those unfamiliar with points is to "save them up for a big trip to Europe". It may be equally, or more efficient (better value) to use these points on a short trip like a Sydney to Melbourne. Not to mention it'll be easier to accumulate the necessary points!

In my next post, I'll provide you with some hard figures to support what I've said above. In the meantime, just understand that it's usually better value to use them on flights - even Economy Class (despite it often being said that points are "best used in Business/First Class").


Should you use Frequent Flyer Points on Flights or Gift Cards?

This is a commonly asked question which I touched on briefly in my last post.

This question is actually fairly difficult to answer as there is no easy answer. This would be my summary:

  • If you do not fly due to circumstances (unable to take leave, lack of interest, children, condition, fear, circumstances), then Gift Cards are better, well, because flights aren't even an option for you!

However, if you..

  • Have a tendency to plan last minute travel (particularly domestically in Australia), often travel on routes with only one airline (Sydney to Lord Howe Island on Qantas)
  • Genuinely enjoy flying in Business Class, First Class and would pay (somewhat) a premium for it
  • Are somewhat flexible with travel dates (particularly if planning for long haul travel far in advance)
  • Or if any of the above 3 points are a situation a family member is in and you are willing to use their points on them

then flights are almost always better.


Let's dive deeper into this. Warning: This is long!!

Why Valuing Flights is relatively Complex

  • Points are like currencies. Just as $1 AUD is not the same as $1 NZD, 1 Qantas point is not the same as 1 Velocity point.
  • Just as the value of one currency in terms of another currency can fluctuate (e.g. 1 AUD = $0.80 USD today, but could drop to $0.79 USD tomorrow), the perceived value of each of the points currencies relative to each other also fluctuates with changes to each of the respective programs and/or new additions (new ways to "spend" your points). Even something seemingly as obscure as a partner airline launching a new route can cause the perceived value of a Frequent Flyer program to increase whilst the opposite would cause a decrease
    • I use the word "perceived" because the actual value should not change. The value of points is subjective - and therefore your perceived value of one program could be much higher than mine because it suits your lifestyle a lot more than mine.
  • Points are worthless if you can't use them. What if you are willing to book a flight with points, but there are no seats available on the dates you want.. and you are not flexible with dates?
  • Different programs have different rules around points expiry. Qantas and Velocity have pretty generous expiry policies, whilst Asia Miles and KrisFlyer have relatively fixed expiries (which cost an arm and a leg to extend)
  • Some programs allow you to book flights in other people's names (Velocity) whilst others are more strict (Qantas).
    • Qantas do allow bookings in someone else's name, but they must be a direct relative
  • Some programs allow you to transfer your points (American Express Membership Rewards) whilst others do not (Qantas/Velocity), unless they are a related family member
  • Some point currencies are convertible into other currencies
    • FlyBuys can be converted into Etihad Guest and Velocity Points
      • 2000 FlyBuys = 870 Velocity Points
        • 2000 FlyBuys = 800 Etihad Guest Miles
        • 2000 FlyBuys = $10 off your shop at Coles
    • Velocity Points can be converted to KrisFlyer Miles (Singapore Airlines) and vice versa
      • The rate is 1.35:1 - regardless of the direction (you "lose" value either way you transfer). Transferring from Velocity to KrisFlyer is more likely to make sense than the other way.
    • American Express Membership Rewards cannot be used to book flights (at a good rate) directly, but can be transferred to Velocity, KrisFlyer, Asia Miles, Air New Zealand, Emirates Skywards, Etihad Guest, Malaysia Airlines Enrich, Starwood Preferred Guest, Hilton Hhonors, Thai Royal Orchid
      • It's important to note that there are multiple variants of American Express Membership Rewards: Ascent Premium, Ascent, Gateway, David Jones - all of which have slight variations.
        • Ascent Premium transfers to all the partners listed above plus Qantas, and transfers at a rate of 1:1 to most of the partners
        • Ascent transfers to all the partners above at a rate of 1:1 to most of the partners
        • Gateway is the program of the AMEX Explorer, which transfers to all the partners above at a slightly reduced rate of 4:3 (i.e. each AMEX point equates to 0.75 of a Frequent Flyer point)
      • Starwood Preferred Guest have an extensive list of airline transfer partners. This means your American Express points are really convertible to more than just the list of airlines above..!
  • Different programs have different rules/fees around cancellations/changes for redemption flight bookings
  • If you often fly a route served by a cheap budget carrier, it could significantly reduce your perceived value of points (e.g. SYD-SIN served by Scoot, SYD-KUL served by AirAsia) if you are the type of traveller who is simply happy to travel from A to B for the cheapest price possible
    • This is mainly applicable if you are the type of traveller that simply wants to fly for the cheapest price and you are not picky with airline. You can often get airfares for less than $500 return including food and luggage on these airlines, so using your points on such a route would be a somewhat less efficient way of using your points
    • Adjust the dates above using the "Price graph" feature which simply shows you the airfare with a set departure and return date for a trip of X number of days (you tell it how long you want your holiday to be!)
  • Whilst you might find two programs charging the same amount of points for the same route, you may find one charges less in tax (e.g. SYD-LAX on American Airlines vs Qantas - 45k Qantas points and $254.41 vs $112.28 respectively)
    • Yes, Qantas will cost you more for the same route despite using their own loyalty program to pay for this with their points!
  • Whilst you can use Qantas points to book on either Qantas or Cathay Pacific (plus more), the points cost is not the same. It is more expensive to use Qantas points on Cathay Pacific flights.
    • Similarly, you can use Asia Miles to book on either Qantas or Cathay (plus more), but the cost is the same (if the routing is the same).
  • Using Qantas Points as an example, there may be a different points cost for the same direct route on two different airlines.
    • Example for SYD-HKG return using Qantas Points in Economy Class:
      • Flying on Qantas: 56k Qantas Points
      • Flying on Cathay Pacific: 70k Qantas Points
  • Using Asia Miles (Cathay Pacific's program) as an example, the cost of a return flight is not double the cost of a one-way flight:
    • Example for SYD-HKG using Asia Miles:
      • One-way: 25k Asia Miles regardless of airline (as long as flight is direct)
      • Return: 45k Asia Miles regardless of airline (as long as flight id direct)
  • Different programs give you access to book on different airlines. Notable partners of Qantas include Emirates, Cathay Pacific, American Airlines whilst Velocity allows you to book flights on Singapore Airlines, Etihad.
  • Valuing flights with points requires you to understand redemption tables, and in addition to that you need to factor in a tax component which is unavoidable
    • Even though a SYD-HKG return redemption flight costs 56k Qantas Points, you still need to factor in taxes as an additional cost.
    • You are sometimes given the option to pay for the entire flight with points, but it is often poor value of your points to pay for the tax component with points. It is therefore better to separate the cost into two components.
  • Paying for a flight with points often means you will not be able to accrue Status Credits which have some value - however, if you are after Status Credits (and you know what they are), I would assume you are a little more familiar with the nuances of point valuations
  • There is often the thought that points are best used for peak periods of travel (think Christmas, school holidays) - whilst this thinking is absolutely logical, it is during these periods that it is more difficult to find availability for flights
  • If you were to pay cash, would you be ok with a transit in another city to save several hundreds of dollars? If so, when ultimately calculating the value of your points (on what would likely be a direct flight) to what you would pay in cash, you should really be comparing it to your transit option that you would be otherwise be happy to pay (because that is what you would actually take!)
    • As the reason you would choose to fly with a transit is cost, you could argue that you would be happy to pay a bit of a premium to fly direct. Therefore, if you wanted to be a bit more accurate with your valuation, you should then think of what you would be willing to pay extra to fly direct and calculate the value of your points relative to this figure you come up with.
  • To realistically maximise the value of points, you need to be relatively flexible. Whilst doing research for an example flight below to explain how to calculate points value for flights, I was only able to find flights on a Thursday departure and Thursday return. Would you otherwise be willing to fly on such days if you had to pay cash (with the consideration of leave?). You need to consider this as having an impact on your ability to use the points.

As you can see from this extensive list of points above, valuing points is extremely complex as there are so many variables. I would generally agree that using points on flights is the better option (whether Economy or Business) - but it really depends. There is often the argument that points are best used on premium cabins (Premium Economy, Business Class, First Class). Ultimately, you should decide whether you value a seat in the premium cabins enough at the expense of being able to purchase more flights out of your points (by booking in Economy Class). My personal opinion is that aiming for Business Class seats is good value, but First Class could be aiming a little unnecessarily high/luxurious.

One other way to "cash in" your points is through a "black market" for points. Velocity Points and Qantas Points can be sold and are generally valued at 1c/pt - but it is very important to be aware that both programs do not allow selling of points and you may lose your points if you are caught doing this. I am just pointing out that it is something that can be done and is a potential option to consider. Selling your points this way is guaranteed to give you a better return than gift cards.

In a future post, I will teach you how to work out how to calculate the value you are obtaining out of your points - both from a Gift Cards point of view and a flights point of view.

Any comments, questions? Don't be shy. Post away.

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