the value of an aeroplan point

in my previous post, i looked at the value of the cash back credit card. the return value is very transparent: you will get x% back in cash or y% back in travel dollars. you know the exact rate of return, which is not such a bad thing. my current card, the no-fee MBNA world points mastercard gives 2% cash back. the other card i was talking about, the capital one aspire travel world mastercard, gives 2% back in travel dollars with an effective annual fee of $20.

what's harder to calculate, however, are those that give travel reward points, especially for airlines. the big question is: what is an aeroplan point (or whatever point you choose to collect) worth? so i chose to do a quick estimation of worth using aeroplan. i chose a sample date, and i chose awards that closely approximated what i could buy using cash (i.e., a revenue ticket). of note, there are some limitations:

• various programs will charge fuel surcharges on certain airlines, while others won't
• various programs charge differing numbers of points, although they tend to be similar
• reward seats are much, much, much more limited than revenue seats
• to use reward seats, some sacrifices may have to be made within reason to scheduling
• low season vs. high season rates affect rates of return
• there are possibilities for open jaws, stopovers for points, but usually you can build those into your revenue tickets yourself for not that much more
• revenue seats can earn points that can be re-invested into booking future reward tickets

the international traveler on air canada:
route: YVR-HKG, sample dates oct 23-30, 2013
economy revenue ticket: $946 + $344 in taxes = $1,290
economy reward ticket: 75k miles + 344 in taxes.
by booking a reward ticket, you use 75k miles to save $946, which is a return of 1.26c per point.
miles not earned due to using a reward ticket: 6,378 (status miles)

business revenue ticket: $5234 + $344 in taxes = $5,578
business revenue ticket: 125k points + $344 in taxes (note: you connect via PEK)
by booking a reward ticket, you use 125k points to save $5,234, which is a return of 4.19c per point.
miles not earned due to using a reward ticket: 15,893 (status miles)

the domestic traveler on air canada:
route: YVR-YYZ, sample dates oct 23-30, 2013
economy revenue ticket: $418 + $133 in taxes = $551
economy reward ticket: 25k miles + $152 in taxes. (they charge an extra fuel surcharge!)
by booking a reward ticket, you use 25k miles to save $399, which is a return of 1.60c per point.
miles not earned due to using a reward ticket: 1,038 (non-status miles)

business revenue ticket: $2,946 + $260 in taxes = $3,206
business revenue ticket: 50k points + $152 in taxes
by booking a reward ticket, you use 50k points to save $3,054, which is a return of 6.11c per point.miles not earned due to using a reward ticket: 6,231 (status miles)

overall rates of return
from the comparison here, for domestic travel, one can get 1.26 to 1.60 cents per point. for business travel, one can get 4.19 to 6.11 cents per point. the value for the business redemption is slightly inflated because it assumes that you would be willing to pay that much to fly business. i'm not sure if i would pay $5,578 to book a business ticket to hong kong. these redemption rates are also assuming that you can actually book a ticket. if you're unable to find/book the ticket that you want, then it brings the rate of return to a disappointing 0 cents per point.

implications for mileage reward cards:
the vast majority of mileage reward cards have a $120 fee. there are some exceptions (bank of america's alaska airlines = $75, royal bank's cathay pacific card = $150). if you earned 24,000 points per year from the card, each point that you have earned cost 0.5c per point due to the annual fee. if you earned 36,000 points, that cost per point earned drops to 0.33c. so you would need to readjust the value per point by subtracting the cost per point earned from the potential value of each point.

when is it best to use a mileage reward card?
if you're planning on using it only for domestic travel, it's best to use the capital one aspire travel world mastercard or something that gives you 2% return. if you're planning on doing business travel, and are willing to hunt for business seat availability, then by far, the mileage reward cards are the way to go. even if you halve the cost that you were willing to pay for a business class ticket, the potential rate of return would still be 2.09% to 3.05% -- values much better than the simple cash back cards.

(note: if you choose to apply for the capital one aspire travel world mastercard, book through great canadian rebates to get an additional $30 rebate via paypal).