Is the ‘use more Avios but just pay £1 of taxes’ pricing policy a mistake?

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• mark says:

  8 Feb8 February 08:15

  The cashing in for nectar points route only makes sense on certain items though.
  If I cash in my Nectar points and use them in Sainsbury’s for our regular weekly shop my bill at checkout is always at least 15% higher than when I use Lidl and pay cash.
  Also I find that the food itself is far better quality in Lidl and I get about £15 per month back on top in Lidl cash rewards.
  I’d say I’m taking about a 20% haircut in value by using Nectar in Sainsbury’s vs cash in Lidl so it’s not that simple if you have other cheaper food shop options locally.

  • tony says:

    8 Feb8 February 08:28

    And presumably Sainsburys are exploiting this consumer behaviour in the same way as Avios is. I’d stop short of saying there’s no such thing as a free lunch, but markets are efficient. If someone offers me a 12% guaranteed, risk free return on my money, I know it’s not risk free.

    But then I use Sainsburys for home delivery. Which itself is a steal as it saves me £5 in petrol plus an hour of my life. And I know in-store shoppers are subsidising this.

    The bulk of readers here know to run through the opportunity cost of using those Avios today at 1p each vs maybe using them next year at 3p each and as a result can make a more informed decision. The vast majority of Avios collectors however seem to be of the “oh look, (almost) free shiny things…..” genre.

  • John says:

    8 Feb8 February 08:34

    Yeah and the value of avios you get for redemptions is actually the price of the flight you’d have taken (on any airline and any route) if you had no avios, not what BA wants people to pay for the flight you redeemed.

  • lumma says:

    8 Feb8 February 14:46

    It’s not just groceries that you can redeem for 0.8p per avios, so the “I can get my weekly shop cheaper at Lidl” arguement doesn’t really work. Argos and Amazon are usually pretty much the same price on most products these days and you have clothing and electronics in big Sainsbury’s, plus eBay.

  • yorkieflyer says:

    8 Feb8 February 16:19

    or Argos?

• Jon says:

  8 Feb8 February 08:16

  ‘Maths ability if a gnat’, following ‘mugs’ the other week for letting vouches expire. Can you do away with the petty insults?

  • Andrew J says:

    8 Feb8 February 08:27

    +1

  • Will says:

    8 Feb8 February 08:48

    I like it. Who exactly is insulted?

  • sayling says:

    8 Feb8 February 08:52

    -1

    The human side of the author comes through with such phrases

    • Rob says:

      8 Feb8 February 09:06

      If you can’t work out that £72 of Nectar points is better than saving £34 then there isn’t a lot of hope for you, let’s be honest.

      • apbj says:

        8 Feb8 February 09:54

        Intelligence presents in different ways. Some people have logical and mathematical skills, others have empathy and insight. Insulting readers who have different abilities (or, frankly, different priorities) suggests a lack of acuity. It’s also a very jarring sentence.

        • Rachel Robinson says:

          8 Feb8 February 16:02

          Exactly. And you’re not a morally superior being because you’re better at maths.

      • Jeff77 says:

        8 Feb8 February 11:18

        There’s probably people who could work it out if they cared enough to.

        I’d imagine most people have better things to do with their time (yes I know it doesn’t take long)

      • Andrew P says:

        8 Feb8 February 11:55

        I read a book once that talked about how people compartmentalised money so people might think I have weekly food money and holiday saving money but they won’t trade the 2 pots, but like having a savings account and a balance on a credit card

        • Rob says:

          8 Feb8 February 12:01

          And it’s true, which is why it took me so long to switch to using Nectar points in Caffe Nero, where I go at least twice per week, despite the value far beating anything I can get from Avios.

      • Jeff77 says:

        8 Feb8 February 12:17

        You’re assuming that people know how much a nectar point is worth.

        If they don’t (which many normal people won’t) then it’s got nothing to do with maths.

      • yorkieflyer says:

        8 Feb8 February 16:22

        Perhaps if Martin Lewis was successful in getting basic commonsense around money taught in school we would all be better off?

      • Erico1875 says:

        9 Feb9 February 07:09

        Same as buying points to save £500 on a supposedly £1000 a night hotel room.
        Who in their right mind spends that kind of money?
        It’s the “Emperor’s New clothes”.
        I’m the boy telling you your being gouged

        • Rob says:

          9 Feb9 February 08:41

          Even forgetting the bankers, the average Google salary in the UK is well into six figures. Trainee lawyers in the City start on over £100k. You have millions of older people with hundreds of thousands (in London, often millions) of equity in their homes they want to spend. Filling a hotel at £1000 per night in peak season isn’t hard.

          (I was talking to a cruise expert at a lunch yesterday who was telling me how many older people are dropping £50k on multi generational cruises, for example.)

        • Londonsteve says:

          9 Feb9 February 10:50

          The profligate spending of cashed-up boomers never ceases to amaze me, all the while they harangue millennials about ‘irresponsible’ spending on avocado on toast. Some of the purchases they make, having individually become de facto millionaires off the back of meteoric rises in the value of their house, are of an ilk they would never have considered while paying the mortgage and would have rightly castigated as a ‘waste of money’ when one can stay in a perfectly good hotel for a fraction of the price. There is a sense of entitlement to the vast piggy bank they have acquired through luck rather than skill without a commensurate empathy with younger people who will not only never be able to avail themselves of such a plush retirement, they’ll never own the roof over their head unless they do something really drastic. Clearly this doesn’t go for all boomers, some realise they have been exceptionally lucky but really very many feel entitled on the basis that they’ve ‘worked for it’, as if the younger generations don’t also have to work the same but remain satisfied with far less. There is also a perception that iPhones and £30 flights compensate the loss of having a home of your own because ‘they never had such things’.

        • Rob says:

          9 Feb9 February 10:59

          I actually know someone who made a £2m profit selling their West London house and downsizing (they had lived there since the 1960s, same size house would cost £135k in Rotherham) and was later moaning to me about a joint younger friend of ours who was bemoaning his inability to buy a property ….

• Mirp says:

  8 Feb8 February 08:16

  I believe BA are catering to the people who want to spend miles on “free” flights while BA wants to keep their high taxes and fees on long haul redemptions. The maths confuse people and provide cover. I am a frequent reader of HFP and other points blogs and it is difficult for me to explain to my family which redemptions are “worth” using miles for. The average person is just happy to be able to use miles and save some cash. They may not be looking for the optimal redemption opportunity.

• John says:

  8 Feb8 February 08:17

  I buy these because of the flexibility it affords – I can cancel and only pay 50p or £1 per person penalty with full Avios refund.

• AJA says:

  8 Feb8 February 08:23

  I find this article very timely as i read a very interesting example of confusion regarding this over on FlyerTalk last night and again this morning.

  I am trying to help someone who is trying to redeem Avios for a routing FRA-LHR-JFK and is given the default price of 65000 Avios +£389 in taxes.

  Normally you’d expect it to cost 58250 in Avios being 8250 Avios for the FrA-LHR sector and 50000 Avios for LHR-JFK. Business class off peak

  However on the next page the various options are
  Default 65000 Avios + £389 or 59250 + £559 or 48250 + £749 or 41000 +£919 or 35250 +£1,014 or 30250 +£1,109.

  The closest option to the “old”pricing is the 59250 Avios + £559 choice but if you value Avios at 1p then the default is actually the best value! All other options are more costly.

  In terms of a strategy for flexibility this ability to pay different amounts of Avios and cash is very useful BUT it is terribly confusing.

  And if someone who is a regular on FT gets confused we can only conclude it’s a bizarre marketing choice by BA. What we want is simplicity and easy to choose options. Anything that requires a maths degree to decipher the best option is not a winning strategy!

  • John says:

    8 Feb8 February 08:49

    You wouldn’t even get accepted onto a maths degree course if you can’t work this out. It’s not actually that hard, just annoying as you need a big piece of paper or a spreadsheet and everyone likes to do things on a 7 inch screen now.

    Just pick several ideal valuations of avios, maybe 0.8p, 1p and 1.25p, then work out the total £ value of each option, then obviously the lowest number is the best value for each chosen valuation.

    • AJA says:

      8 Feb8 February 09:12

      I was being slightly sarcastic ‘re the need for a maths degree but I do think customers shouldn’t have to do a lot calculations just to work out the best option on a reward ticket. It’s bad enough comparing between different airlines but making choosing a reward flight more difficult than it should be seems counterintuitive especially if it leads to customer dissatisfaction.

      • Polly says:

        8 Feb8 February 15:57

        AJA,
        Agree.. you know, looking at the cash cost of my kids, OHs, grandkids flight prices in August, no choice, LCY to Bergerac meant l am still getting 2p per avios for those flights with the £1 option for 5 of them.. seriously that is a saving, not ashamed to say. As it’s our choice to fly them all out to us…

        OTOH, once got 8ppa in Dublin one foggy night to LCY, where the o/w flights went up to £100s. Offered my seat up as l could stay locally and fly next morning, but check in agents wouldn’t give me the choice. So, sometimes we win, but it is complicated. I rationalise it, on that cost basis, but most will see it as almost free flights…

• Rich says:

  8 Feb8 February 08:31

  I had a serious case of deja vu when reading this article. If only we could see the BA sales mix stats – sadly I bet it would show the £1cash plus Avios option being the strongest as cash is valued more highly than points, whatever the conversion rate. A psychologist should be able to explain why!! But Robbie right, it’s nuts.

• @alastairtravel says:

  8 Feb8 February 08:50

  IHG judging the £1 tax as a success would have a lot to do with what you lead with – i.e. the initial option to confirm has the £1 tax so when you click through as a casual user you are already thinking in your mind to confirm at that price (sale has been made), and it would be natural to continue at that level

• Tracey says:

  8 Feb8 February 08:52

  Not everyone values Avios equally. If you have a very low holiday budget or an abundance of Avios, then using Avios makes sense even if the equations make their value low.

  • Rob says:

    8 Feb8 February 09:06

    Avios are valued at no less than 0.8p because you can get (de facto) cash for them at that rate.

    • tony says:

      8 Feb8 February 09:55

      But, psychology, Rob!!!

      People say “oh the Avios are free so the flight is free”. We know that’s wrong mathematically, but their perception is – as I already said “oh, look, shiny things…”

      And to be honest, you should be glad of that, because if everyone was completely rational and as a result the market was perfectly efficient, there would be no need for anyone to offer promotions – and consequently no need for HfP to exist!

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