How much are frequent flyer points worth? Cents-per-point worked example

A frequent flyer point is worth the cash you would otherwise have paid, minus the cash you still pay on the reward, divided by the points used. That gives a value in cents per point (cpp), and it changes with every redemption. A domestic economy reward seat, a long-haul business class upgrade and a toaster from the rewards store can produce very different values from the same points. For deciding whether a card's annual fee is worth it, use the value of the redemption you would realistically make, not the best one advertised. If your card earns bank points that convert into an airline program, multiply by the transfer ratio as well.

This guide belongs to the rewards card worked examples. All fares, point prices and charges below are illustrative, not real program prices. Check the current terms of your program, such as Qantas Frequent Flyer or Velocity Frequent Flyer, before relying on any figure.

The formula

Value per point (cents) = (cash price you would pay − cash you pay on the reward) ÷ points used × 100

Three rules make the result honest:

1. Use the fare you would really have bought, not the most expensive fare in the cabin. If you would have flown on a sale fare, use that price.
2. Subtract taxes and carrier charges paid on the reward booking. On some international rewards these are significant.
3. Count only trips you would have taken anyway. A "free" trip you would never have paid for saves nothing from your budget.

Worked example 1: domestic economy reward (illustrative)

• Cash fare you would buy: $260 one-way.
• Reward seat: 12,000 points plus $35 in taxes and charges.
• Value: ($260 − $35) ÷ 12,000 × 100 = 1.88 cents per point.

If you would only have bought a $150 sale fare: ($150 − $35) ÷ 12,000 × 100 = 0.96 cpp.

Worked example 2: international business class (illustrative)

• Cash business fare: $6,500 one-way. But you would actually have flown economy at $1,100.
• Reward seat: 110,000 points plus $450 taxes and carrier charges.
• "Headline" value against the business fare: ($6,500 − $450) ÷ 110,000 × 100 = 5.5 cpp.
• Value against what you would really have paid: ($1,100 − $450) ÷ 110,000 × 100 = 0.59 cpp, plus the comfort of the better seat, which you have to value yourself.

This is why marketing values and real values diverge so widely.

Worked example 3: shop or gift card redemption (illustrative)

• $100 gift card for 20,000 points: $100 ÷ 20,000 × 100 = 0.5 cpp.
• A store item priced at 60,000 points that sells for $250 in a shop: 0.42 cpp, and only if you would have bought it.

These redemptions are simpler and always available but usually lower value than flights.

Bank points and transfer ratios

Many bank rewards programs earn their own points and let you convert to an airline program at a set ratio. Illustrative example:

• Card earns 1.5 bank points per dollar.
• Transfer ratio 2 bank points : 1 airline point.
• Effective earn: 0.75 airline points per dollar.
• At an airline value of 1.2 cpp, the return is 0.75 × 1.2 = 0.9 cents per dollar of spend.

Compare this with a frequent flyer card that earns, say, 0.5 airline points per dollar directly: at the same 1.2 cpp it returns 0.6 cents per dollar. The bank card returns more in this illustration, but transfer ratios, fees and minimum transfers can change, and conversions are usually one-way.

Turning cpp into an annual fee decision

Take your yearly eligible spend, convert it to airline points, value them conservatively and set the result against the fee:

Enter these figures into the rewards value vs annual fee calculator. If the result is close to zero, small changes such as a fee rise, a lower earn rate or one month of interest decide the outcome; see annual fee versus rewards value.

Things that reduce the real value

• Reward seat availability. Points are only worth something if seats are available when you want to travel.
• Taxes and carrier charges, which differ by route and airline partner.
• Points expiry if the account is inactive for a period set in the program's terms.
• Devaluation: programs can raise the points needed for rewards, change earn rates or alter transfer ratios.
• Status credits are separate: card spending usually earns points but not the status credits that decide frequent flyer tiers, unless the terms say otherwise.

More on losing value is in points expiry, devaluation and cancelling a card.

Frequently asked questions

Is there an official value for Qantas or Velocity points?

No. Programs set the points price of each reward, and the cash value of a point depends on the redemption. Third-party "valuations" are opinions; use your own redemption.

Are points from a credit card taxable?

For personal spending they are generally not treated as income: the ATO's long-standing view (Taxation Ruling TR 1999/6 and TD 1999/34) is that rewards from consumer loyalty programs earned on private spending are not assessable. Business and employment arrangements can differ, including fringe benefits tax in some cases; check with the ATO or a tax adviser.

Should I value points at 1 cent each?

One cent is a common rule of thumb, but it is only a starting point. Gift card redemptions are often lower and some flight redemptions higher. Use what you would really get.

Can I pool points with family?

Some programs allow family pooling or transfers under their terms, sometimes for a fee. Check the program rules.

Sources and where to check

• ASIC Moneysmart — rewards credit cards and loyalty programs
• Australian Competition and Consumer Commission — consumer rights and loyalty schemes
• Australian Taxation Office — tax treatment of rewards for business use
• Australian Financial Complaints Authority — complaints about card-linked rewards