Demystifying Fixed Value Points

I’ve been having a (private) love affair with fixed-value airline miles over the past few months, and I even went so far as to sign up for the JetBlue credit card in wake of the ridiculous promotion they were offering (from which I netted 75,000 JetBlue miles for a round trip flight that cost me $75). Doctor of Credit explains it well, but the appeal for getting the card was the combination of an (unlimited) 10% points rebate as well as the opportunity to earn Mosaic status after spending $50,000 on the card in a single year. Mosaic status offers unlimited free cancellations of both cash (refund to voucher) and award flights, which is amazing for planning domestic travel since I can speculatively book flights without fear of either not being able to take the flight or finding cheaper flights later on.

A natural question to ask is “how much are JetBlue points worth?” And more generally, how valuable are other fixed-value currencies (where the miles cost of an award flight is based on the dollar cost of the flight rather than some fixed amount)?

Value is “Cents per Point”

The most common way we think about the value of airlines miles is in terms of how much cash value we get for each point. The higher this value is, the better. This valuation is what gives traditional airline miles their appeal — for premium cabins in particular, it’s possible to get values north of 10 cents for every point redeemed. Typically we take some blended average of these real redemption values, the purchase values of the miles (typically they can be purchased for 2-3 cents each), and the value of economy class redemptions. Regardless of the benchmark, though, the high upside is what gives traditional airline miles their appeal, because the number of points needed for a flight, rather than the value of those points, is the thing that’s fixed.

Value is “Points Needed per Dollar”

The other way to think about value is to specify how many points you need for each dollar of airfare cost. This is a harder quantity to reason about because it doesn’t immediately correspond to a useful benchmark — it’s hard to instinctively compare the worth of two currencies where one needs 50 points per dollar and the other needs 60 points per dollar. It’s counter-intuitive precisely because the smaller number is better, but even with that information, it’s not a practically useful term.

The one domain in which it is useful is for understanding fixed-value airline miles. Take Southwest as an example.

When Southwest devalued its points last year, the new redemption values ranged from 70 points/$ to 80 points/$ ON THE BASE FARE depending on the flight. That means for, say, a flight costing $140 plus taxes, you would need either 9800 (at 70 points/$) or 11200 (at 80 points/$) points to redeem for an award. After factoring in the money you save on taxes, you end up with a ‘traditional’ value of 1.4-5 cents per point.

Although Southwest’s points scheme is fairly well understood, Virgin America’s and JetBlue’s have for whatever reason remained black boxes. So naturally, we ask: is there a fixed conversion value for Virgin America points? For JetBlue?

Take a DAL-LAS flight on Virgin America on a random date:

The total for the flight is $128.10, from which, based on the number of points needed (below), we would get a “value” of 2.2 cents per point (subtracting the $5.60 cash fee).

If we just look at the base fare, we get a value of about 1.8 cents per point. However, even this number varies because we pay a fixed $5.60 in taxes. So more expensive flights will have a value closer to 1.9 cents per point based on the base fare, and values closer to 2.3 cents per point based on the all-in fare (this number is higher because we’re replacing a larger percentage of taxes with a flat $5.60 fee).

What if we value points the Southwest way? Is there a function that determines exactly how many points a flight should cost?  That magic function is…..

# Points = Base Fare * 52.5

Here’s my work:

Obviously, this isn’t immediately useful, since it makes it harder to compare Virgin America points against typical airline miles (i.e. it’s easier to reason about how many cents of value you get per $ with something like Alaska miles). However, it does illuminate the program a bit and will hopefully allow us to pattern match with other programs (Delta, I’m coming for you) better in the future.

Running the same analysis for JetBlue, we find that you need 80 JetBlue points/$ of base fare for economy class and 83.5/$ for Mint. JetBlue rounds down to the nearest 100 after computing the number of points, which explains the slight deviations:

What do you think of the points/$ valuation? Does it make more or less sense than $/point?

Happy hacking!