Pitting Airline Against Hotel Rewards

By Tim Chen. Last updated 8 September 2010. 0 comments

If you've ever hesitated before redeeming your airline miles and wondered if you're getting a good deal, you're in good company. Redeeming reward flights is akin to transacting in a foreign currency where you have no idea what the exchange rate is, which is never an advantageous position. To give you a leg up, NerdWallet has put together a comprehensive airline rewards infographic for valuing your miles so that you can comfortably decide whether to redeem them or simply use a cash rewards card instead.

Extracting every last drop of value out of your airline miles can be hard work because so many variables are at play. As you're planning your trip, factors such as when you travel, how close you are to your travel date, your flexibility around dates of travel, whether you have elite status with your airline, and plain old random chance can all affect the value you're getting. After analyzing hundreds of flights, we found that mile values can vary anywhere from one-tenth of a cent (or less) to 2 cents per mile. In other words, if you had 100,000 miles lying around in your account, those miles could be worth anywhere from $100 to $2,000 towards your airfare, depending on when you use them.

We also believe the future for miles is looking decidedly bleak. According to IdeaWorks, reward seat availabilities currently range from 11% to 99%. However, even Southwest Airlines, the industry leader in reward seat availability, may not be able to keep its performance up as the overall number of seats decline. "There are about 17% fewer seats now available than there were a year and a half ago," says BudgetTravel.com senior editor, Sean O'Neill.

To top it all off, airlines are charging fees for everything from bags to blankets. These fees can make a substantial difference in the cost of your flight and are often overlooked by consumers when choosing airlines. Southwest and JetBlue are the last two major airlines that allow passengers at least one free bag. While most airlines will make you pay handsomely for that third, fourth, or tenth bag (to the tune of $100 or more per bag), Virgin America has an unusual but potentially valuable offering with its $25 per bag for up to ten bags policy. If you are planning a cross-country move or simply have trouble traveling light, Virgin America might offer the best value for you.

So should you write-off all those miles you've carefully earned over the years? We don't think so. While we believe travel rewards go-getters are better off spending future dollars towards earning points in a hotel rewards program such as Starwood's Preferred Guest program, savvy consumers can follow a few simple steps to get the most value out of miles already banked.

What type of credit card are you interested in?
How much do you spend per month?
Do you carry a balance?

First, identify the lowest price of the itinerary you're looking for, before taxes and fees, using a site like Kayak. Then check the site of your own rewards program to find out how many miles it costs to fly a similar itinerary on your airline, as well as on any partners in your airline's alliance. Lastly, compare the dollar cost on the other airline to the rewards cost on your airline to calculate the cost per mile, and see how that ratio stacks up against the numbers in our infographic. If you're getting a better-than-average deal on your own airline, cash in those rewards and book it. Otherwise, use your cash rewards card to book the cheaper flight.

Hotel Rewards: Where are you sleeping tonight?

We at NerdWallet also scoured redemption rates at eleven of the world's largest hotel networks and found that, on average, hotel points offer better value for money than airlines rewards, which we demonstrate in our hotel rewards infographic. And unlike the sickly airline industry, we don't see an industry-wide decline in the near future for the number of hotel rooms available. On a cents-per-point basis, we found the most value in Starwood's Preferred Guest program, covering such household names as Sheraton, Westin, and the W. At 2.3 cents per point and no blackout dates or extra point charges on standard rooms, SPG tops our list among all hotel rewards programs.

In addition to offering higher average point values compared to airline mileage programs, hotel rewards programs are also better at showing their appreciation for your loyalty. NerdWallet estimates that consumers can earn a free night with as few as ten nights at chains such as Carlson and Marriott. And Starwood often has "Stay 2 Nights, Get 1 Free" promotions. Plus, let's face it: When was the last time you associated "service" with the airline industry?

As a caveat, bear in mind that while certain hotel networks may offer higher value per point, they may not necessarily suit your travel profile best. Also, hotel rewards programs tend to be very similar in features, so we believe the best practice is to pick one or two hotel networks that suit your travel habits best and stick with them. In other words, don't spread your wallet thin with too many hotel programs. Use our infographic to identify the program that suits you best, and let it reward you for your loyalty.

This is a guest post by Tim Chen of NerdWallet. Tim was formerly a hedge fund analyst specializing in credit card networks and technology companies, before becoming a victim of the financial meltdown. NerdWallet is the Kayak for credit card search, and seeks to become the number one source for unbiased online credit card information. Here are more resources from NerdWallet:

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

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