I love last seat availability

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I've written before about the lie of "no-blackout-date" policies at major hotel chains. By guaranteeing access to any standard room at a fixed redemption rate, hotel loyalty programs stave off open revolt from their most desirable properties by refusing to enforce those guarantees.

The US domestic air carriers avoid a similar problem by employing various forms of variable award pricing on flights operated by their own aircraft (partner awards are typically only available at the lowest level). With United Mileage Plus, American AAdvantage, and Alaska Mileage Plan that takes the form of a award chart with one price for a limited number of seats released, and then the ability to purchase all or some of the remaining seats at a higher rate.

Delta SkyMiles chooses not to publish an award chart, so award redemptions on Delta-operated flights cost whatever their website or phone agents say they cost.

Why I love last-seat availability

Many travel hackers seem to make it a point of pride that they will only book award tickets at the lowest award levels. I do not.

I travel hack for two reasons: I love to travel, and I cannot afford to travel as much as I would like to (thanks to all my monthly subscribers — you're doing your part to help!). I square that circle with travel hacking: if I can earn points cheaply enough, then I can redeem them for flights I want to take without paying anything close to the retail price of those flights.

The phrase here is "flights I want to take." If I'm traveling to the Western Montana Fair to catch the rodeo, then I sure as hell better get there in time to see those cowboys. If I want to attend a brother's graduation, I need to get there before he walks, whatever award availability happens to be (usually not great around cap-and-gown season).

Last seat availability on the domestic carriers allows me to take the flights I want to take to get where I want to go, when I want to go there.

I traveled before I travel hacked

What informs my attitude is that I traveled almost as much before I started travel hacking as I do now that I write a slightly popular travel hacking blog.

And it was horrible!

I once flew on Spirit Airlines between Los Angeles and Chicago because that was the cheapest flight when I hit "sort by price" on Kayak. No Big Front Seat, no assigned seating at all, in fact, and my knees drawn up so close to my chest for the 3-odd hours I'm still slightly surprised I survived.

Now I can pick the flights I want, and either pay for revenue tickets at a steep discount thanks to the miracle of price compression, or book award tickets, whether it's at the lowest award pricing level or not.

Know your trade-offs

Now, many readers no doubt object that booking at anything but the lowest award level is a "waste" of miles. After all, booking a 30,000 AAnytime one-way award ticket instead of a 12,500 SAAver award ticket costs an extra 17,500 AAdvantage miles — almost enough for a one-way award ticket to Europe during low season. If you don't have enough miles to pay for your award trip to Europe, you'll have to (insert gasp) pay with cash!

Those might be your trade-offs, but they aren't my trade-offs. When I run out of miles (God forbid, but let's entertain the possibility) and money, then I'll stop traveling until I have more. I have to prioritize the trips I really want to take, then use my leftover miles to jaunt around the world. Fortunately, I have a lot of leftover miles. But when I run out, I won't regret the fact that I took the flights I wanted to take, at a fraction of the price I would have had to pay in cash.

Earn cheaply

Ultimately this comes down to earning your miles and points as cheaply as possible. If you're earning 1 SkyMile per dollar spent with a Suntrust debit card, or 1 AAdvantage mile per two dollars spent with a UFB debit card, every flight operated by Delta or American will always be cheaper with miles than with cash.

By all means, book the cheapest flights that work for you! But what travel hacking has made possible for me is to have a slightly more expansive definition of what "works" for me (that was my last Spirit Airlines flight — and good riddance).

Bonus last-seat availability: I love Amtrak Guest Rewards

No discussion of last-seat availability would be complete without mentioning the wonderful Amtrak Guest Rewards program, which (besides some rather inconvenient blackout dates seeming mostly to do with the school year and national holidays) allows points to be redeemed for every single seat, every single roomette, every bedroom, and every family bedroom on every single train (and connecting Thruway Motorcoach) offered by Amtrak. There is no such thing as "award" availability; if you can buy it with cash, you can buy it with points.

Quick hit: Hotel Hustle Hot Rates

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I'm fond of saying that what travel hacking needs is more facts and less data. Much of affiliate blogging is taken up with listing transfer partners and earning rates, without concern for the ways that people actually earn and redeem their miles and points, and how to do so as lucratively as possible.

If there is a good argument for data over facts, it's the website of Seth Miller, the Wandering Aramean. He has developed a number of tools, some more and some less useful, but one I've been spending a lot of time on lately is Hotel Hustle. Hotel Hustle allows you to search, by airport or city, for properties in eight major hotel loyalty programs. It has a number of bugs which require it to be used in conjunction with another tool like AwardMapper, but it's a great resource.

The other day I noticed that Seth introduced what had the potential to be a very fun addition to Hotel Hustle: Hot Rates.

When I saw him post about Hot Rates on Twitter, I thought it might be an interesting way to see which hotel loyalty points are really worth earning for "aspirational" properties. My thought was that since cash prices have no upward bound (a hotel can theoretically charge any amount for a night), but award prices do have an upward bound (the top of the award chart), outsized per-point values would be most likely to occur at the most expensive properties.

Oddly, that proves to be not at all the case. Since the Hot Rates are powered by users' searches on Hotel Hustle, it's impossible to tell how representative they are, but the vast majority of Hot Rate properties are either airport properties or random mid- and low-tier properties in cities that happen to host one or more huge events each year.

Here's the entirety of the Club Carlson Hot Rate list. Besides the Radisson Blu in Beijing, these are not properties folks are sprinting to redeem their last-night-free benefit:

Anyway, this post isn't meant to be an endorsement or an indictment, just a quick hit making my readers aware of this potentially useful resource.

Hopefully Seth will continue to introduce new features that will eventually make it truly valuable to the working travel hacker, and prove me wrong once and for all about the usefulness of data in this hobby!

Trailing interest charges: the silent killer

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Every travel hacker knows that interest charges (and annual fees) are the flip side of credit card rewards. You may earn 2% on the front end when paying with a credit card, whether you're buying a cup of coffee or manufacturing spend, but if you don't pay off your entire balance in full by the due date on your statement, you'll give it all back and more as your remaining balance accrues interest. On my credit cards rates typically start at 12.99% APR annually and go way, way up from there.

All over the travel hacking blogosphere you'll find variations of the mantra, "if you don't pay your credit cards off in full every month, travel hacking isn't for you." There's an ironclad kernel of truth to that (your interest charges will far exceed the value of your rewards) but also a deep illogic: even if you have to pay interest, you're strictly better off earning the most valuable rewards possible on any purchases you have to make. So I'll skip the lectures and stick to the facts.

Warning: trailing interest is like interest, but worse

Just like the interest earned on your savings, the interest paid on your credit card balances compounds, which gives rise to a (deliberately) confusing concept: trailing interest. Trailing interest is the product of a mismatch between the pace at which interest accrues (daily) and the pace at which it posts to your outstanding credit card balance (monthly).

Here's the description of trailing interest given on my American Express credit card statements:

"About Trailing Interest

You may see interest on your next statement even if you pay the new balance in full and on time and make no new charges. This is called "trailing interest." Trailing interest is the interest charged when, for example, you didn't pay your previous balance in full. When that happens we charge interest from the first day of the billing period until we receive your payment in full. You can avoid paying interest on purchases by paying your balance in full and on time each month."

The takeaway from this statement is that, if you failed to pay for your purchases in full and thus have a balance that's accruing interest, the date your credit card statement closes is the only date when your outstanding balance accurately reflects the amount you owe. Every subsequent day, a hidden amount of trailing interest accrues which will only post on the following statement closing date.

To avoid paying interest, you have to pay your balances off on time. To avoid paying trailing interest, you have to pay any interest-bearing balances off early, preferably on the statement closing date, to avoid giving trailing interest a chance to accrue.

Bonus warning: know how your banks calculate interest charges

Since I pay off my credit cards in full every month (preferably before my statement closes, to ensure as low a credit utilization as possible is reported to the credit bureaux), I never took the slightest interest in how banks calculate interest charges.

Until a few months back, that is, when due entirely to my own negligence I paid $5 less than my statement balance on my US Bank Flexperks Travel Rewards Visa Signature card:

Mint, the website I use to track my bank accounts, credit cards, and investments alerted me that interest had been charged on one of my accounts, so I pulled up my statement and was horrified to see an interest charge of $20.35. Naturally my first move was to call in and ask a representative reverse the interest charge:

But while I was on the phone, I asked her to explain how it was possible that I was charged $20.35 in interest on a $5 unpaid balance. The representative explained that at US Bank, they charge interest on your entire balance if any part of it is unpaid on the statement's due date.

So in case you were wondering how credit card companies pay for the rewards they shower on us, this is how: by aggressively charging customers who are anything less than totally and utterly vigilant about paying off their credit cards in full and on time.

Conclusion

I hope credit card interest charges are an issue that will remain completely and utterly academic for all my readers. Realistically, that's not going to be the case, but the more information you have about the kinds of interest charges and the way they're calculated, the more lucrative I hope your relationship with your credit card issuers will be.

Blog housekeeping for March 26, 2015

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A few quick notes on the site, feel free to skip if this stuff bores you.

WELCOME SAVEROCITY READERS!

Matt, the benevolent dictator/head honcho over at Saverocity, recently reconfigured his site and generously offered to plug my RSS feed into his front page. I leapt at the opportunity and want to extend the warmest welcome to Saverocity readers discovering my site for the first time: make yourselves at home!

Should I re-enable the site's mobile theme?

I hate mobile themes. When I visit this site on my mobile phone, it's because I want to access one of the resources conveniently linked at the top of the page (like hotel promotions) or check an airline's alliance membership or flexible currency transfer partners.

But I understand my readers are more likely to just want easy access to blog posts. If you care one way or the other, vote in the following poll and I'll act accordingly:

Updated revenue disclosure

Reader Declan made an interesting point in the comments to this post about the old disclosure I had at the top of each page. He wrote:

"Do you know what "personal referral links" are - including links from Amazon Associates accounts? They're "third-party" (i.e. not you, not me) affiliate links."

In response I explained my reasoning, and still feel that my old disclosure policy (which explicitly mentioned Amazon Associates revenue) gave readers the information they needed to judge any possible conflicts of interest, but I've made it even more explicit so there's no mystery as to how I make (not very much) money from this site: Google Adsense, Amazon Associates, blog subscriptions, and personal referral links to sites like TopCashBack (the same links anyone else gets when they open an account).

I also decided to no longer include Amazon Associates links to specific products I'm reviewing (as far as I know, I've only ever included one, in my review of Pound Foolish, which I've now removed). The disclosure now reads:

"Disclosure: to the best of my knowledge, the only remuneration I receive for any of the content on this site is through my personal referral links, my Amazon Associates referral link, the Google Adsense ad found in the righthand sidebar, and my blog subscribers, who also receive my occasional subscribers-only newsletter. You can find all my personal referral links on my Support the Site! page."

I hope that makes sense, and if anyone has any other questions or concerns I'd be more than happy to address them.

Off to New Orleans

On Friday I'm heading to New Orleans for a weeklong vacation (look for an Anatomy of an Award Trip on Friday). The trip starts with a 20-hour Amtrak trip on the City of New Orleans, so my online presence will be limited over the weekend, but I anticipate keeping to a normal blogging schedule once there. We're planning a swamp kayak tour, so follow me on Twitter if you want to maximize your chances of seeing egrets next week.

How many Ultimate Rewards points do you stockpile?

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I recently saw Frequent Miler bemoaning his low Ultimate Rewards balances and had to chuckle to myself. Why? Because I do my best to keep my Ultimate Rewards balance at the bare minimum I'm likely to need in the immediate future.

I've written before about periodically redeeming my Ultimate Rewards points for cash. I do so because:

  • Points are worth nothing until they're redeemed;
  • Hyatt and British Airways (and Amtrak) are the only Ultimate Rewards transfer partners with points consistently worth more than 1 cent each to me;
  • Unredeemed points are vulnerable to seizure by Chase;
  • Flows are more important than balances.

I think it might be interesting to focus on that last point for a moment.

Flows versus balances

I have 3 primary methods of earning Ultimate Rewards points:

  • Chase Freedom bonus categories (7,500 Ultimate Rewards points per card, per useful quarter)
  • Chase Ink Plus office supply store purchases (250,000 Ultimate Rewards points per year)
  • Chase Ink Plus gas station purchases (100,000 Ultimate Rewards points per year)

With two Chase Freedom cards and two useful quarters this year (grocery stores in the first quarter and gas station in the third quarter of 2015), I'll earn 380,000 Ultimate Rewards points this year, or roughly 32,000 Ultimate Rewards points per month on average.

That's my flow, and it's the number I think about regularly: managing credit lines, managing liquidation methods, and managing my schedule to make sure I hit my earning targets month-in-and-month-out.

Balances, on the other hand, are only relevant at the moment of redemption. It's very important – essential even – to have a sufficient balance of Ultimate Rewards points at the moment when you need to transfer them to Hyatt, British Airways, Amtrak, or United (if you're a glutton for punishment), or when you need to redeem them for a paid flight or hotel reservation.

But since your balance is just the sum of your flows over time, it's trivial to manage your balance in order to always have the correct number of points at the moment of redemption, when they're actually needed. For that reason, I'm happy to put any excess points to work in my bank account, as cash.

I still stockpile a few Ultimate Rewards points

With that being said, I don't redeem my entire Ultimate Rewards points balance for cash. Obviously I first look ahead and make sure that my incoming points flow really will cover any future redemptions I already have planned. But I additionally keep a reserve of Ultimate Rewards points for unexpected and unplanned redemptions.

I don't think it's absolutely necessary to have such a reserve. After all, I have tens of thousands of US Bank Flexpoints, British Airways Avios, Delta SkyMiles, Hilton HHonors points, and even Marriott Rewards points that I could use to get and stay anywhere in the United States I needed to be particularly quickly. Failing that, I can always charge travel to my Barclaycard Arrival+ card and take up to 120 days to "work it off."

At the end of the day, however, there are reservations that really are made most cheaply with Ultimate Rewards points (for example my $200 flight to Reno).

So I keep a reserve balance of 45,000 Ultimate Rewards points in my Chase Ink Plus account. Here are a few of the potential redemptions that made me arrive at that number:

  • 40,000 Hyatt Gold Passport points: 5 nights at a Category 2 Hyatt;
  • 45,000 Hyatt Gold Passport points: 3 nights at a Category 4 Hyatt;
  • 40,000 Amtrak Guest Rewards points: a Bedroom - Two Zones award;
  • 50,000 United MileagePlus Miles (I already have a small balance): a Standard Award in economy anywhere in the United States;
  • Up to $562.50 in airfare or hotel reservations.

So with a balance of 45,000 Ultimate Rewards points I have a high level of confidence that I'd be able to get and stay anywhere I wanted or needed to be on short notice, regardless of my balances in the other programs I mentioned above. That's my reserve fund.

How many Ultimate Rewards points do you stockpile?

Obviously my calculation is based on variables that are specific to me: I don't have family abroad, so don't need a reserve fund that could take me overseas on short notice, and I'm budgeting for a single traveler, without a spouse or kids I would need to buy additional tickets for. Those expenses would add up fast.

What do my readers think? Do you save up Ultimate Rewards points for specific redemptions? Do you keep some in reserve for unexpected last-minute redemptions? Do you ever redeem them for cash? See you in the comments.

Weekend thoughts on killing deals

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I saw a few interesting posts in the last few days about the ethics and mechanics of writing publicly about techniques to manufacture spend:

In the 2-and-change years I've been writing this blog, I've developed a general rubric I use to guide my thinking about whether to share a technique to manufacture spend: if the technique takes advantage of a publicly advertised product of a for-profit company, I feel fine writing about it. If a technique involves a glitch, mistake, or oversight on the part of a company, I'll save it for my subscribers-only newsletter.

This rubric doesn't have the goal of "keeping every deal alive as long as possible." If I had that goal, I wouldn't blog about manufactured spending (and many of my critics would rejoice). Rather, it's based on the philosophy that when a company knows what it's doing, writing about a technique is more likely to help readers take advantage of a product for as long as it exists, while when a company doesn't know what it's doing lots of casual readers piling in will likely kill a deal before anyone can benefit substantially. That includes, unfortunately, the readers who would call into a company to "make sure something works," drawing even more attention to the oversight or mistake.

In other words, since every deal dies eventually, I ask whether I'm helping readers maximize their profit from a deal, or helping it die before anyone is able to benefit?

I don't think this philosophy is any better or worse than anyone else's, but it's the one I've settled on for now. Here are a few examples of how I've applied it in action:

  • The TD Go, Nationwide, and US Bank Visa Buxx cards are all products that by design allow or allowed users to fund PIN- and ATM-enabled prepaid debit cards with MasterCard and Visa credit cards. I wrote about them frequently and they still occasionally come up on the blog.
  • When TD Go announced that credit card loads would be limited to cards issued by TD Bank, third-party credit cards that had already been saved continued to work. Since that was a programming oversight, I didn't write about it. The more publicity the oversight received, the sooner it would be fixed (as it eventually was).
  • When Evolve Money first launched, it allowed contributions to 529 college savings plans to be funded with prepaid debit cards. There were risks (you might get a call from Bill), but that was how the product was designed, and I wrote about it extensively.
  • When Evolve Money first launched, due to lax implementation they also accepted credit cards to fund contributions to 529 college savings plans. Since that was an unintentional oversight, I shared it only in my subscribers-only newsletter, but not here on the blog, and it continued to work until a few days after affiliate blogger Daraius Dubash wrote about it on his highly-trafficked blog.
  • Kiva loans, still one of the most lucrative and accessible manufactured spending techniques available, are bonused as "charitable spending" by US Bank as a matter of policy. That doesn't mean they'll continue to be bonused forever — they won't. That's because every deal dies eventually. But when the corporate policy is clear, as it is in this case, the more of my readers able to take advantage of the policy, the better.

While that's my general approach, there are a few obvious exceptions:

  • When I agree in advance not to share something from a reader, I honor that even if it would otherwise be fair game, unless it's already common knowledge. After all, I actually do manufacture spend, so I'm thrilled to find out new techniques, even if I can't share them with my beloved readers!
  • On the other hand, when something is not corporate policy but has lasted long enough to become background or institutional knowledge, like refunding travel purchases made with an Arrival+ card, I'll write about it on the informed guess that the company simply doesn't care enough to change or fix it.

Conclusion

That's my overall attitude towards blogging about manufactured spend. I don't make any claim that it's the right attitude, but it's mine, and if it helps anyone trying to figure out where they stand on the subject, I'll be happy I could help.

Unvarnished and uncensored criticism is always welcome, of course, in the comments.

Think for yourself: it's free!

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Here on the blog I very rarely make explicit recommendations.

When the "old" Blue Cash card surfaced, I suggested readers "strongly consider" applying, and am pleased as punch at the hundreds of thousands of dollars my readers earned taking advantage of that offer.

When the Suntrust Delta SkyMiles World Check card was being (gradually) retired I wrote that "when they finally close existing accounts, a lot of people are going to regret not trying their luck to see just how many Skymiles they could earn in that crazy period in the early 2010's when debit cards still earned rewards on PIN transactions." I, for one, am still going strong.

But as a rule, I don't give advice, and that's because I don't know anything about you, which I'm happy to admit. Unfortunately, the miles and points blogosphere is chock full of people who don't know anything about you who are absolutely giddy to hand out advice to complete strangers.

And they're wrong to do it.

How much is a weekday night in April at the Grand Hyatt Seattle worth?

Hyatt will sell AAA members a refundable room for $240.25 after taxes and fees, and there are folks, including among my beloved readers, who will argue that the retail price is the only true measure of what a product is worth.

But we're travel hackers, which means never paying retail. So here are some other options for paying for the same room:

  • Redeem 31,344 Delta SkyMiles through the Travel Marketplace. Total cost: $22 (if earned using the Suntrust Delta SkyMiles World Check card at Walmart). 
  • Transfer 15,000 Ultimate Rewards points to Hyatt Gold Passport. Total cost: $150 (the value of the points if redeemed for cash instead).
  • Redeem 20,000 US Bank Flexpoints. Total cost: $200 (the value of the points if redeemed for cash instead).
  • Pay with a Barclaycard Arrival+ MasterCard and redeem Arrival+ miles against the purchase: Total cost: from $48.05 ($2 per $500 Nationwide Visa Buxx load).
  • Chase Hyatt Visa Signature annual free night certificate. Total cost: $75 (the card's annual fee).

Of these, the Chase Hyatt credit card is the third cheapest option, as long as you're staying for exactly one night.

That's fine as far as it goes, but what if you're staying more than one night? Do you move hotels? Or do you start spending $240.25 per night, or $200 per night, or $150 per night since you decided to "save money" by using your Hyatt free night certificate?

On the other hand, if what you want isn't really a night at the Grand Hyatt Seattle, but just a night in downtown Seattle, you suddenly have other options. The "Homewood Suites by Hilton Seattle-Conv Ctr-Pike Street" is literally across the street from the Grand Hyatt, and costs 40,000 HHonors points per night. Manufacturing spend with an American Express HHonors Surpass card at $4.95 per 3,030 HHonors points, a room costs about about $65. At $6.95 per 3,041 HHonors points, it costs about $91. And that's for each and every night, not just the first one. As an elite, if you stay for exactly five nights the price drops even further to 32,000 HHonors points per night, or $52 and $73 at the rates mentioned above.

Credit card rewards are traps; affiliate bloggers don't help

Hyatt, and Marriott, and IHG know exactly what they're doing when they give out annual free night certificates: they're trying to lock you into overpriced properties on the only-too-well-founded assumption that you won't look under the hood and realize how much money they're really making off you.

As travel hackers we should aim to break down these products and rationally choose the best and cheapest way of meeting our travel goals. As travel hacking bloggers, we should aim to help readers meet their travel goals by laying out analysis with as much detail and as many caveats and warnings as possible.

Affiliate blogging creates the opposite result: rather than laying out all the options and weighing them carefully and objectively so that readers can make the decision that works best for them, credit card affiliate links lead to motivated reasoning: since affiliate bloggers don't think of themselves as bad people, but do write blog posts promoting the credit cards that pay them affiliate kickbacks, it's absolutely necessary for them to be emotionally invested, for example, in the absurd notion that the Hyatt credit card annual free night certificate really is the best way to get a hotel room in downtown Seattle.

Why do I write about affiliate blogging?

I indulge myself once a month or so and point out particularly egregious behavior on the part of affiliate bloggers. And I typically get one or two annoyed readers who, quite rightly, point out that posts like this one don't help them earn or redeem their miles and points.

But at the end of the day, I understand that experienced travel hackers read my blog more for entertainment than anything else. If I write a dud every once in a while, it's no skin off their backs.

It's the novices who are just getting started in the hobby, the ones who are vulnerable to the ever-more-popular affiliate blogging platforms, that I have a real chance of helping by pointing out the conflicts of interest that are obvious to us, in hindsight, but are passed over with vague "disclosures" on the biggest affiliate blogs. As long as I think there's a chance of helping those beginners avoid rookie mistakes, I'll keep (occasionally!) writing about those abuses.

Conclusion: think for yourself

Of course it sometimes happens that affiliate bloggers make good points about the benefits of credit cards. Your only job is to be aware that they aren't making those points in order to help you — they're making them in order to get paid, and they find it convenient to ignore the benefits of all the credit cards that don't pay them affiliate commissions.

Understand the consequences of your actions. Decide on your own travel goals. Don't let anyone tell you what those goals are or should be. Think for yourself. It's free!

Thinking about price compression

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Travel hacking means never paying full price, whether it's for flights, hotels, rental cars, or any of the other travel expenses we develop techniques to minimize, evade or completely avoid. One interesting consequence of this is what I would like to call "price compression." There are two ways this phenomenon manifests:

  • More expensive itineraries don't cost more miles or points. The classic example here would be an economy itinerary that costs $150 and a first class itinerary that costs $350: both would cost 20,000 US Bank Flexpoints, so the passenger wouldn't incur any additional cost by taking the more expensive, higher-earning flight. Another fairly common situation is with American Airlines award availability: there will be only expensive AAnytime availability for economy seats, but SAAver availability for first class seats. The difference in miles, and the cost of manufacturing those miles, is often trivial.
  • The price ratio between expensive and cheap itineraries is the same, but scaled drastically downwards. For example, someone redeeming Chase Ultimate Rewards points earned with an Ink Cash, Bold, or Plus card at gas stations might pay roughly 1 cent for 2.5 cents in airfare. A $500 flight still costs twice as many Ultimate Rewards points as a $250 flight, but the numbers are scaled down, to $200 versus $100 in total out-of-pocket expenses. An even more extreme example would be Citi ThankYou points earned (starting April 19, 2015) with a ThankYou Premier card at 3 points per dollar spent at gas stations, then redeemed for 1.6 cents each on American Airlines or US Airways flights (with a ThankYou Premier card).

Think about out-of-pocket costs earlier, not later

Once you've earned miles or points, a common impulse among travel hackers is to assign value to them corresponding to their redemption value, rather than their acquisition cost. This was the theory motivating Frequent Miler's Reasonable Redemption Values, for example: the value of a mile or point is the value of the award that currency is typically redeemed for.

Only later, after booking an award redemption, do you hear people say "I paid $87.50 for a $5,000 BusinessElite ticket to Europe" (using Delta SkyMiles as an example).

What I would like to suggest is that price compression makes it worth considering your total out-of-pocket expenses earlier, rather than later, in the redemption process. It still makes sense to base your earning decisions on the imputed redemption values of your miles and points, but when it comes time to redeem them, it makes sense to look at your out-of-pocket expenses as well.

Price compression at work: paid tickets on American and Delta

Perhaps it's unsurprising why I've been giving this topic some thought lately: the recent massacre of Alaska Airlines Mileage Plan earning on Delta-operated flights.

On the one hand, the new Mileage Plan earning rates have made me more willing to book flights on American Airlines, since even slightly more expensive flights earn two to four times more Mileage Plan miles. On the other hand, it has made me more diligent about checking first class fares on the Delta flights I would, all else being equal, prefer to take.

An upcoming trip to Boston illustrates this point nicely (my earning as an Alaska Airlines MVP Gold 75k is in parentheses):

  • A Delta flight in the "V" economy fare bucket costs $386, and will earn 1,222 (2749) Mileage Plan miles;
  • An American flight in economy costs $540, and will earn 2,734 (6151) Mileage Plan miles;
  • The cheapest Delta first class flight costs $697, and will earn 3,055 (6873) Mileage Plan miles.

That's a fairly significant range of prices. But what about the "compressed" prices of those flights — the out-of-pocket cost of the spend manufactured in order to purchase those fares?

If you're manufacturing Ultimate Rewards points with a Chase Ink Plus at 0.49 cents each, and redeeming them at 1.25 cents each, the three flights cost:

  • Delta "V" economy: $151
  • American economy: $211
  • Delta first: $273

Here you can see the ratio between prices is the same, but the prices are compressed so there's a much smaller difference in the passenger's actual out-of-pocket expenses for the three flights.

Likewise, the three prices fall into three different US Bank Flexperks Travel redemption bands. If you're manufacturing Flexpoints at gas stations for 0.49 cents each (or grocery stores for 0.69 cents each), the three flights will cost:

  • Delta "V" economy: $98 ($138)
  • American economy: $147 ($207)
  • Delta first: $196 (276)

Knowing your out-of-pocket costs promotes clear thinking

I'm not arguing that it's worth paying $98 for 4,124 Mileage Plan miles. At 2.4 cents each, that's fairly expensive from the perspective of manufactured spend. But of course you're not just earning redeemable miles; you're also earning elite-qualifying miles, helping you qualify or re-qualify for elite status.

If the status in question is Alaska Airlines MVP Gold 75k, then you'll receive an additional 50,000 bonus Mileage Plan miles when you qualify. That doesn't mean booking the most expensive flights available is always a good idea, but those bonus miles do mitigate some increased out-of-pocket expenses, once those out-of-pocket costs have been transformed by the miracle of manufactured spend.

You'd also be flying in first class. Whatever you think about free booze, checked bags, early boarding, and so on, they're not worth nothing.

Are you redeeming your miles and points fast enough?

I relentlessly advocate earning miles and points with specific redemptions in mind. But I understand perfectly well that that's not always easy to do. Your upcoming travel schedule may not be knowable in advance. Award space you were counting on may not materialize, leaving you with an unexpectedly large balance. And of course you may simply have access to more manufactured spend than you can reasonably plan redemptions around.

That being the case, taking a look at your out-of-pocket expenses may help you realize you can afford to travel more and travel better than you thought. Instead of comparing each redemption against some ideal redemption you read about online, try comparing redemptions against the price you paid for those miles and points. When it's a matter of a hundred dollars to fly across the country or world in a premium cabin, your economy cabin may be a false economy after all.

Two weird redemptions I just made

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I try to be as transparent as possible about my own mile and point redemptions because I'm absolutely atypical compared to most travel hackers: I don't have a family so I'm shopping for a maximum of 2 seats; I generally don't mind flying coach (as long as I get an aisle seat, preferably in an exit row); and I take 2-4 vacations per month, visiting friends and family all over the country, which means I need to stretch my miles and points as far as possible.

That colors my manufactured spend strategy, and makes my experience more or less irrelevant for some readers (you can't redeem SkyMiles for first class seats, so all my Delta posts are useless for those interested in flying in international first class cabins).

In that spirit, here are a couple weird redemptions I made on Saturday.

Ultimate Rewards points for a cheap American flight

Besides my Chase Freedom cards, these days I'm earning Ultimate Rewards points with a Chase Ink Plus card at 0.67 (office supply stores) and 0.49 (gas stations) cents each, and I have a lot of them. Those points can be redeemed for 1 cent each in cash, transferred to Hyatt, United, and Southwest for quite valuable redemptions, or redeemed for 1.25 cents each for paid airfare.

For an upcoming trip to Reno, I was looking at a $199.60 one-way flight on American Airlines (I had already booked the return with Flexpoints). I've long found these piddling airfares to be some of the most annoying to game: they're too cheap for 20,000 Flexpoint redemptions, but also too cheap to redeem a valuable mileage currency like Alaska Airlines Mileage Plan miles for. I could pay with my Barclaycard Arrival+ card, but I have plenty of travel purchases waiting for redemptions and don't need an additional one.

So instead, I redeemed 15,968 Ultimate Rewards points for the ticket. Those points cost me (on average) 0.58 cents each, or about $92 all together. In other words, I got a 54% discount on a paid ticket. That's nothing to aspire to, but there's a good reason why I did it: I don't need the points for any upcoming transfers and they're only worth 1 cent each when redeemed for cash.

PayPal Extras MasterCard points for an even cheaper flight

Here's one that readers might actually find useful, if they've been following my PayPal adventures for the last few months. A PayPal Extras MasterCard is permanently linked to the PayPal account through which you applied for it. But when that PayPal account is closed (or "permanently limited" in their jargon), the Extras MasterCard continues to work and, importantly, continues to earn points.

Ordinarily, Extras MasterCard points are worth 0.83 cents each in cash: you can redeem 6,000 points for $50 deposited instantly into the linked PayPal account. With all my PayPal accounts permanently limited, that wasn't going to work for me, so I started exploring the other points redemptions available.

It turns out that for the month of February, virtually all redemptions have been cut in price, in some cases dramatically. For almost all gift card and travel redemptions, Extras MasterCard points are worth 1 cent each in February.

Two of those redemptions are for "flight discounts" of $100 or $300:

In late April I'm returning to Lexington, Kentucky, to visit an old friend and bet on some horses. I was able to easily book my outbound flight with 12,500 Delta SkyMiles, but there was no award availability for my return. There was, however, a perfect American Airlines itinerary that cost just $174.60. Whenever practical, my preference this year is going to be to book paid American flights in order to credit them to Alaska Airlines Mileage Plan.

So I redeemed 10,000 Extras MasterCard points for a $100 discount on the flight. When redeeming Extras MasterCard points for a travel discount, you're taken to an extremely primitive travel portal run by a 3rd party provider. Fortunately, that means you don't need to pay for your flight with your Extras MasterCard. That's unlike, for example, a partial Ultimate Rewards redemption, which requires you to use a Chase credit card for any remaining amount after applying Ultimate Rewards points.

I used my Arrival+ MasterCard, and the charge appears in my pending transactions as "American Airlines," so I'm confident I'll be able to redeem Arrival+ miles against the remainder.

Personal finance digression: my beef with Future Advisor

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This isn't a personal finance blog, or a financial independence blog, or an early retirement blog. But I understand there's a lot of overlap in interest between those subjects and travel hacking, so every once in a while I let myself vent about the personal finance industry (see: "Pound Foolish" is a pretty good book").

I was complaining on Twitter about Future Advisor the other day and got into a back-and-forth with their social media team. I want to expand on my point and explain why Future Advisor does not and cannot do what they claim to do: "actively monitor and manage our clients' IRA, Roth, and taxable accounts from a household-wide, long-term perspective."

How Future Advisor works

When you create a Future Advisor account, you're asked for just three pieces of information: your current age, your target retirement age, and your risk tolerance ("Conservative," "Moderate," or "Aggressive"). Based on that information, Future Advisor creates a "Target Portfolio" and a recommended asset allocation. Here's their recommended asset allocation for me:

Next, Future Advisor asks for your current "financial profile." You can either manually input your current investments, or enter your login information and Future Advisor will download the details of your investments automatically. Here's my current financial profile:

Once you've completed those two steps, Future Advisor gives you an "Action Plan," telling you what to do with your current assets in order to bring your plan in line with the asset allocation they recommended based on your age, target retirement date, and risk tolerance. Here's the action plan for my Vanguard Roth IRA account:

Future Advisor does not consider interest earned on cash savings

Note in the current asset allocation picture I showed above, Future Advisor only allows you to add "cash you would like to invest."

The cash I have in my Mango savings account is not "cash I would like to invest," however. It is cash I already have invested — in a 5.28% (after $36 in annual fees) APR savings account! There's no way to tell that to Future Advisor. On the contrary, if I input the value of my Mango savings account, I'm told to move it all into investments that mirror the original target asset allocation Future Advisor proposed:

The explanation for this recommendation leaves me (almost) speechless:

Future Advisor is projecting an average growth of 5% in my cash — cash I'm holding in a savings account that already earns more than that!

This means Future Advisor cannot do what it claims to do

While looking at your target asset allocation, you can see an explanation of each proposed investment. Here's the important part for my point:

The "green" portion of my recommended asset allocation (15% of the total in the first picture) is intended to "reduce overall risk" and "offer growth in bear markets." If I have $5,000 invested in an FDIC-insured savings account with a high, fixed interest rate, and the goal is to reduce overall risk and offer growth in bear markets, logically I shouldn't invest any money in "Investment Grade Bonds," "Inflation Protected Bonds," or "International Bonds" until the total size of my portfolio is over $33,333 (15% of which would be the $5,000 balance in my high-yield savings account).

By ignoring the interest rate on my cash savings, Future Advisor gives inappropriate advice given its own stated investment objectives when designing a target portfolio.

What I'm saying (and what I'm not saying)

Let me be perfectly clear before this becomes a discussion of ideal asset allocations: I am not saying that the target asset allocation designed by Future Advisor is a "bad" asset allocation.

I'm also not saying that my current asset allocation is a "good" asset allocation. Indeed, the same criticism of Future Advisor could be applied to the target retirement date mutual fund my Roth IRA is invested in: since that target retirement date fund also has a bond component (10.1%), I would logically be better served by replicating the stock holdings of the target retirement date fund, while using my high-yield savings account to replicate the bond component with higher yield and lower risk.

I'm not going to do that, but it's a legitimate suggestion.

What I am saying is that Future Advisor, which claims to provide exactly that kind of advice, is incapable of providing it since it doesn't ask what the current yield is on your FDIC-insured savings accounts. Without having that information, it provides bad advice by its own standard of optimizing your holdings across all "IRA, Roth, and taxable accounts from a household-wide, long-term perspective."

In fairness, Future Advisor's social media team doesn't even dispute this.

The only remaining question, then, is why they are still in business?