Yesterday I talked about how to calculate the intrinsic value of your points. One of the mistakes I often see is that people use points to discount the cost of a cash ticket.
This is usually a fatal mistake.
The problem with using points to reduce the price of a cash ticket is the exchange rate sucks.
It’s a well-known fact that when you go on holiday, you do not buy your Euros or Dollars in the airport currency exchange because it’s a rip-off. This is the points equivalent!
Here is an example using British Airways Avios. As we discussed in yesterday’s article, BA Avios have a base value of 1.1 pence. So when you spend them, you should aim to get at least that if not more value.
Let’s say you take £210 off your ticket and pay 46,750 Avios as shown in the image below. That’s an exchange rate of around 0.0044.
Effectively you’re losing half of the value of your Avios by doing this.
The exchange rate is usually a sliding scale too, taking a small amount of cash off is often OK. For example, £15 off for 1500 Avios is not far from the 1.1p of value. But as you take more cash off, the exchange rate gets much worse.
Unless you are a points millionaire and you do not care for their value, do not use them to discount the cost of cash flights.
It’s almost always a huge waste of them. Save your points for something that’s far better value – like an upgrade or reward flight.