Business/First Class is the best use of points - True or False?

Business/First Class is the best use of points - True or False?

Summary/TL;DR

Is Business/First Class really the best way to spend your points?

  • There is no simple answer. I would say usually yes.
  • However, would you "waste" (using Sydney-Melbourne return as an example on Qantas) an additional 16k points on Business Class for a 1.5 hour flight? I certainly wouldn't. SYD-MEL, Qantas return:
    • Business Class: 32k Qantas Points
    • Economy Class: 16k Qantas Points
  • Conversely, would you spend an additional 64k Qantas points on a SYD-HKG (~9 hour flight)? SYD-HKG, Qantas return:
    • Business Class: 120k Qantas points
    • Economy Class: 56k Qantas points
    • This is probably more tempting than spending the extra 16k on a SYD-MEL return!
  • To put it another way, would you "forego" Business Class on 4x SYD-MEL return fares to be able to redeem SYD-HKG in Business Class instead of Economy Class?
  • When comparing points cost of Business/First Class airfares to the cash cost, you will tend to get a higher mathematical valuation for your points when comparing this to a similar comparison of Economy Class points fares vs Economy Class cash fares.
    • The simplified reason for this is that the tax cost of redemption fares does not fluctuate much, regardless of class of travel, whilst the points cost generally doubles/triples for Business/First Class (relative to Economy Class points fares)
    • This is compared to cash fares, where Business Class and First Class tickets often cost five to ten times more expensive than Economy class airfares
  • I believe this mathematical way of calculating the value of your points is a little misguided. Most importantly, it does not factor in your own willingness to purchase the airfare at the actual ticketed price
    • In other words, you should value the points based on what you would actually be willng to pay. Not what the ticket sells for.
    • Calculating based on the ticket price is similar to buying Evian water for $4 (down from $5) and saying you saved $1. You could actually argue that you actually overspent by $3, because you could've bought Mount Franklin water for $1.

Is Business/First Class really the best way to spend your points?

There is no easy answer, but I feel that there is a lot of misguidance, particularly with how a lot of blanket statements are made that "Business Class and First Class give you the best bang for buck" (for your points). I'm not saying it is absolutely not true, but it really varies from individual to individual and it is not as clear cut as a lot of blogs and articles make it out to be.

The reason why these statements are made is because the calculations made (in my experience) are always based on the actual cash fare of a ticket. If a Sydney to Hong Kong Business Class fare was priced at $3000, have you just got yourself $3000 value by swapping your 60k Qantas points + ~$300 tax? I would argue no, because you would not have paid $3000 for it. If you would have paid $3000 for it anyway, then this post is not relevant to you and yes you did just get $3000 value out of your 60k Qantas points + ~$300 tax! :)

To use a different, non-airline example, let's say you're thirsty so you want to buy water. You see "Water from the French Alps" (Evian) normally $5, but currently selling for $4. You think, "Oh, I'm saving $1 by buying this". I would argue that you are actually overspending by $3, because you could've bought Mount Franklin for $1 and you would've otherwise been perfectly happy with that.

Sure, you could argue that you do think Evian water is better, but what would you have actually been willing to pay for it? Lets say, $1.50? This means you've overspent by $2.50 instead of $3.50.

Don't get me wrong - I am not discouraging you from buying Evian water if that's what you actually want but my point is you need to put things into perspective. If you were not realistically going to buy it at its ticket price, whatever it may be, you should not think that you just obtained the ticket price worth of value if your own valuation for that item is lower!

Here's an example..

SYD-MEL Business Class Example

This search was done on 27 August 2017 for SYD-MEL return, Business Class for travel departing 15 September 2017 and returning 17 September 2017.

 $1507 for Business Class on a 1.5 hour flight? Would you  actually  pay that?

$1507 for Business Class on a 1.5 hour flight? Would you actually pay that?

The cheapest fare is $1507. I want to remind you that this is a 1.5 hour flight, so the question I ask you is considering the flight time of 1.5 hours would you actually pay $1507 for this in cash? The answer is probably an easy and resounding no.

Let's continue with the methodology for calculating the value of your points for flights from last week's post to understand what value your points would supposedly give you now.

I head over to Virgin Australia's website and enter the search parameters as follows, ensuring the "Use Points + pay" option is selected (see red box).

 Ensure "Use Points + Pay" is selected, otherwise you will be shown cash fares

Ensure "Use Points + Pay" is selected, otherwise you will be shown cash fares

On the results page that follows, I will be shown a series of flights, their relevant points cost and tax costs (where a seat is available).

VA SYD-MEL J Selection.png

Notice some flights have no Business Class (middle column) available? This is part of the complexity of valuing flights with points. Just because you want a seat doesn't mean it is actually available.

However, just a quick reminder. In most programs, if there is availability, the points cost is the same and does not fluctuate (unlike cash fares). For SYD-MEL in Business Class this is 15500 points + $23.39 in tax one way (correct as at time of writing, 27 August 2017).

Again, using last week's methodology, I will deduct $23.39 * 2 ($23.39 each way) from the total cash fare cost of $1507. This gives me $1460.22.

I am now "substituting" the remaining $1460.22 for 15500 * 2 (31000) Velocity points. Divide $1460.22 (the "denomination") by 31000 (the points required) to obtain a point unit valuation of 4.7 cents per point.

This is higher than the 0.94c per point valuation for Qantas points from last week's post for the Economy Class flight for Sydney to Hong Kong return. This is also, in fact how a lot calculations are done when articles are published on how "Business Class gives you the best value for your points". I understand this post is 2 years old, but the method of calculation remains the same. See the paragraph, "Redeeming points for Virgin Australia business class".

The purpose of this post is to highlight that a 4.7 cents per point valuation on Velocity points for a flight of this nature is unrealistic. Most people paying cash would not pay anywhere near $1500 return for a premium seat for a 1.5 hour flight. It is in fact arguable that most individuals would probably have a tendency to pick the cheapest flight possible that will get them from A to B. If you value Business Class for a flight of this nature at $500 return for the extra perks you get (priority boarding, priority luggage, extra check-in luggage allowance, lounge access, better seat, better food), then you should actually be basing the points valuation on $500 and not the actual cost.

With this being said, I would even argue that the ideal way to value points for a flight of this nature would be to compare the fare to Tiger Airways or Jetstar who would most likely be cheaper. It is important you factor in the inclusions of your potential redemption flight and what you actually value. Think check-in baggage, food/snacks/drinks which ordinarily cost additional on Jetstar/Tiger. If you do not actually need check-in luggage, then you should not include it in your calculations even though it is included.

The above should apply provided you would actually realistically fly Tiger/Jetstar as your realistic cash alternative. Of course if you would not fly them (whatever your reasons may be - commonly lack of punctuality, lack of service/food) then you'll be back to comparing the flight cost to Virgin/Qantas, in which case you will probably end up with a higher valuation of your points.

In summary - using points on flights in premium cabins does mathematically give you better value for your points, but you really need to consider how much you would ordinarily be willing to pay to determine how much value you are actually getting out of your points. You should also consider the duration of the flight(s), the airline(s), the number of transits, the duration of each transit, the ability to select stopovers, and the refund/cancellation/change policy of the ticket.


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