Understanding the huge differences in taxes & charges between different redemption options

I wrote a few weeks ago about using a tool called AwardAce to identify the best redemption options when there are multiple options between two cities. The tool is great, but focuses on the number of points needed and only gives an indicative view of the taxes & charges component, which can be a substantial influence on which option to pick.

There are three primary variables which define both the number of points you are charged, and the amount of taxes & charges you pay:

  1. The departure point of your flight, and the local taxes levied;
  2. The points ‘currency’ you’re booking with – BA Avios, Qantas Points etc.
  3. The ‘metal’ you’re flying – e.g. operated by British Airways, American Airlines etc.

There isn’t much you can do about (1), so I’ll focus on (2) and (3). Because both the points amount and the taxes & charges amount change, you need to use this formula to calculate the overall cheapest option:

Cash value of points for Option A + taxes & charges for Option A vs. Cash value of points for Option B + taxes & charges for Option B

Example

Let’s take a journey in Business Class, from Philadelphia to London, using either British Airways Avios or Qantas Points.

Firstly, with British Airways, you have two options:

Screen Shot 2017-10-08 at 21.43.18

The option at 18.35pm with British Airways costs 50,000 Avios + £374.50, with the option at 21.10pm with American Airlines costs 60,000 Avios + £384.30.

Running the same search with Qantas, gives you the same two options in Business (with an additional option in Economy):

 

Screen Shot 2017-10-08 at 21.48.13

In this case, the option at 18.35pm with British Airways costs 53,000 Qantas Points + £370.01, with the option at 21.10pm with American Airlines costing 50,000 Qantas Points + £4.28. That is not a typo, it’s £4.28 in taxes & charges with American Airlines when booking with Qantas.

Converting all of the four potential permutations into cash, you have:

  • British Airways flight (6.35pm)…
    • …with Avios, = 50,000 Avios + £374.50 = £969;
    • …with Qantas, = 53,000 Qantas + £370.01 = £842;
  • American Airlines flight (9.10pm)…
    • …with Avios, = 60,000 Avios + £384.30 = £1,097;
    • …with Qantas, = 50,000 Avios + £4.28 = £450;

 

In this case, booking the American Airlines flight using Qantas points is c. 45% cheaper than the next cheapest option, and almost 60% cheaper than the most expensive option. In terms of absolute savings, a single person travelling one way saves c. £392 in total and more than £370 in absolute cash costs.

 

So how should you use this information?

Firstly, try to maintain a diverse portfolio of different points accounts so that you can take advantage of discrepancies like these. The above was just an example, and it isn’t always the case that using Qantas points is better British Airways Avios – if I had run the same analysis on a domestic flight between Sydney and Melbourne, BA would have come out on top.

Secondly, when you’re considering using your points, it pays to explore a few different options to identify which the cheapest option is, and to consider both the amount of points needed and the taxes & charges in a combined valuation. In the example above, note the taxes & charges between flying American with Avios points and flying BA with Qantas points were very similar, but because Qantas points are (on average) worth less than BA points, it’s overall cheaper to use Qantas points.

Get in touch if you have any questions on the above, or just let me know what you’re thinking and I can have a look for you.