Should the collapsing £ make you re-assess your points valuations?

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If you have been keeping an eye on the state of the Pound over the last few months, wincing as your Summer holiday in Europe or the US became more expensive by the day, you will know that things are not looking too positive.

The $ is now 25% below what I considered the ‘norm’ of $1.60 over the last decade.  The Euro is off by almost 20% if you assume a medium-term ‘norm’ of €1.35.

I thought it was worth having a look at how this might change your approach to your points.

How may the currency collapse have impacted your points collecting?

It is easier to look at hotel points rather than airline miles because the dynamics are more straightforward.

A few things can be stated as fact:

Hotels priced in $, Euro or indeed any other overseas currency are now more expensive to a £ earner than they were

Because the major hotel companies operate in $ or € (Accor), there is no pressure to revalue reward pricing

Your hotel points are now more valuable than they were as long as you redeem outside the UK because you are getting a more expensive room (when converted back to Sterling) for the same number of points

For example:  a $160 hotel room, redeemable for 35,000 points, would have cost £100 a few years ago but now costs you £130.  Your points are going further.

pound

These leads to other observations:

Hotel credit cards are now more attractive than they were since the value of the points has probably increased by 20%-25% (unless you only redeem hotel points in the UK)

But:

If you earn the bulk of your hotel points via UK hotel stays, you won’t notice any benefit when travelling.  This is because the points you earn are based on the $ equivalent of your room bill.  Points may be worth more but you are receiving fewer of them with each stay.

It doesn’t benefit you to redeem at home.  If you earn the bulk of your hotel points via UK hotel stays, you are also now worse off if you only redeem them for UK hotel stays.  This is because you are earning fewer points per £ spent (since your £ spending is converted into $ and you get points based on the $ amount) but the cost of UK hotel redemptions is unchanged.

For example, if you earn 10 points per $1 in a hotel scheme, a 35,000 point redemption in the UK now requires you to spend £2,900.  When it was £1 to $1.65, you only had to spend £2,100.

What about airline miles?

The impact on frequent flyer miles is less clear cut.  The number of Avios or other miles you earn is NOT based directly on what you paid for the ticket.

You won’t be earning fewer Avios for your flights, even though you will be earning fewer hotel points for your stays.

If the price of cash airline tickets from the UK continues to fall due to weakening travel demand (although incoming tourism may pick up the slack as the UK becomes cheaper) then your points are worth less in comparison to the cash cost.

Airline economics are far more complicated than hotel economics though – you have the impact of fuel ($ priced) and the cost of the loans or leases on the aircraft (usually $ based but interest rates are also at historical lows).

The easiest conclusion to draw is that the fall in Sterling has increased the value of your hotel points if you redeem them outside the UK.  It may make you want to reconsider whether you should prioritise them over your airline miles, which have not changed in value and will be worth less if cash ticket prices from the UK continue to fall.

Redeem a lot of Hilton Honors points for a McLaren track day
Now official: British Airways updates its guidelines on getting Avios and tier points for strike-affected flights

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Comments

  1. A further concern – if this is a longer term value shift for the pound – is potential impact on UK Amex MR to hotel scheme conversion ratios.

    (Although I’m aware I say this against the backdrop of a rare (targeted) conversion bonus to Hilton)

    • Yesterday I had a chat with Amex twice (on my account and hubby’s). They both said the offer is not targeted. It’s available for all with green, plat, prg, centurion and another credit card that I can’t remember the name. With this I transferred and saved both chats.

      • It isn’t on any of our cards and we weren’t offered it last time.

        Fortunately I have the Jimmy Choo offer so if you see a 6ft 2in bloke walking through the cabin wearing a grey suit and 4inch high diamante encrusted heals don’t forget to say ‘Hi!’

  2. Do you think if the current UK climate of 0.3% credit card fee cap and weakening economy , will miles and point companies start to reassess if it’s worth sticking around or just calling it quits as not much profit margin left and focus on other areas (north america)?

    • Outside of the readership of this blog, reward CC are very profitable for a number of reasons. I think the card companies will stay.
      1) Many people do pay interest and when they go abroad pay 3% FX not knowing it can be done for less
      2) Many people spend points on undervalued redemptions (think 20k Avois for a £100 voucher etc)
      3) If margins are being squeezed they can simply up their annual fee
      4) The value to these companies of having their logo in your wallet is significant
      5) Allows the firms to produce aspirational adverts which drives more people to spend on them money they can’t otherwise afford. (i.e. your more likely to buy the expensive TV you later pay interest on if it gets you the miles you need to take you to that exotic location you’ve just seen advertised)

      • Memesweeper says:

        Correct. The ‘margin’ for the CC companies in a month’s interest is huge. They can take a small loss on the ~50% that pay in full each month.

    • I think it’s important to put things into perspective, the UK is the worlds 5th biggest economy still.

      India’s economy is broadly the same size but with 1.3 billion people as opposed to 70 million.

      I think such an affluent economy with respect for law and order will always be a huge appeal to any commercial enterprise. If you have a lot of customers, as long as you are not running at a loss today, there will always be an opportunity to profit from them at some point, nothing stays still for very long (Except interest rates it would seem!)

  3. Hilton’s dynamic pricing actually helps here. The pound has strengthened this week and a redemption I was looking at decreased by 1000 points when the internal valuation hit some threshold.

    Basically you should really be valuing points in US dollars rather than £ (except for accor, Nordic choice etc.) But to be honest points are so inflationary it doesn’t really matter, all the UK 10K Hiltons are now 20K or more, Hilton Salalah is 400% up etc.

    If you have lots of spend in USD-linked or EUR-linked currencies you should just get a USD/EUR account even if it earns no points. Earning 1% rebate in the form of points doesn’t mean much if the exchange rate fluctuates by more than that.

    • Quite right John but you can actually still get points. I have enough $ and Euro liabilities to justify having accounts in each of these currencies. I then have Amex currency cards which give points, even the free cards make sense as long as your spend covers the points fee.

      • Puzzled by the reference to a free card with a points fee? Are you saying it’s possible to enrol a Basic international currency card in Membership Rewards?

  4. As one of your older readers, I remember $2.80/£ when I was at school. This rate stuck for years as the official rate. Oh, and the early € valuations required 2 DM/€ when the pound was worth 6 DM, implying a cross rate of €3./£. (it was about 14 DM/£ implying €7/£ when I lived in Germany.)

    I try not to think too much about previous rates – it hurts too much! I’m happy to rely on Rob’s valuations. As somebody who only redeems outside the UK, today’s post looks like good news. It means my South African Marriott and Hilton redemptions remain good value in 5-night chunks. I think.

    • Do you remember the mortgage interest rates from back then, too?

      • When my parents bought their first house in 1958, Pa got a subsidised morgage through his employer of 4%. It rose to 6% when he left in 1969. When I bought my first house in 1991, I was on a 2 year fixed rate of 11.99%, just as it dropped again!

    • In 1890, £1 was fixed at 4.85 US dollars

  5. Memesweeper says:

    Thanks for this Rob — you’ve saved me doing the maths in this. Earlier this year I switched my main attention away from Avios and Virgin to Marriott, IHG and Hilton. Might have lucked out just for once 🙂

  6. Melonfarmer says:

    I recently had a promotional email from Accor which mentioned that 2000 points is now worth £36.95 (or €40).

    I think it used to be earn at €1.28/£ spent & redeem at €1.15.

  7. OT: how is premium economy for long haul? I am tossing between buying cash tickets for around £900 to Canada or redemption using BA 2 for 1 in business. I have never traveled premium economy.

    • The Savage Squirrel says:

      Better than economy; not as good as business class? 😀 :D. There are plenty of internet reviews/blogs that will give you a good idea exactly what you get.

      Seriously – it depends on you (not least on pricing, but also Avios-richness, future plans etc). If you have lounge access from other sources and it’s a 6 hour day flight, then it’s going to be absolutely fine for any normal sized and normal expectation person – there’s plenty of leg room; in a good PE (Virgin?) and your experience will not be dramatically worse than a poor business class like old Club World, and if travelling as a group it is better in some ways if you like to chat with the rest of your party. In those circumstances no way would I pay a huge differential for business on that leg. Night flights obviously are a totally different ball game if you want to sleep.

      • Agreed. Westbound transatlantic flight, you really aren’t missing out on that much being in Premium Economy when you consider the usual price differential.
        I tried AA Prem Econ for the first time in May. It was actually on an eastbound, overnight. It was quite a low fare, business was a lot more (I appreciate it’s a flat bed overnight etc in business but realistically on a relatively short flight such as that, it’s probably only going to get you a couple more hours’ sleep overall).
        Anyway, I thought it was great (as Premium Economy goes). I thought the service was particularly good, better than I’ve experienced in Club World sometimes. What’s more, if you’re on a One World carrier, you’re getting 90TPs per leg and a minimum of one avios per mile flown which isn’t bad for the lower Prem Econ fares.

    • There is also a good chance you will be upgraded to business class when in premium economy. Last time I flew back from YVR to LHR about 30 people were upgraded to business class (low business class demand and economy well oversold).

  8. Ashic Mahtab says:

    Are air fares getting cheaper though? As an example, a year or so ago, an Asia (so 4 hop) Qatar business flight could be had during promotions for 4.8-5.5k all in for 2 adults and a child. Now, the outbound is at least 3.2k,with the return 2.7k with more common flights going above 6.2k all in. I imagine non UK airlines are priced in USD (or maybe QAR, etc) and the falling Sterling has indeed made them more expensive on our shores.

  9. Is there weakening travel demand from the UK ?
    Is there evidence of this ?

  10. Paul Pogba says:

    On the subject of hotel credit cards, is there any news on new Marriott or Hilton visa/mastercards?

  11. Definitas says:

    Redeeming Avios for AA internal flights is great value at the moment due to the weak £Pound

    • Agreed, we got 2.2p/ Avios on a Main Cabin flight in December – that was based on cheapest practical option (Delta to Newark). On that specific flight would have been close to 5p.

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