100,000,000 QFF points, or $4,000,000 in cash??

[woomp001]

Hi all,

I have been reflecting on this whole airline points piece, and I am wondering on people's opinion on this.

If given a choice, would you rather have $4M in cash, or 100 million QFF points?

Here is the basic equation:

Imagine that you own a reasonable business, and can pay circa $5M a year in bills through your AMEX card.

You do this for 20 years.

After 20 years, you have accumulated around 100M airline points (to be fair, they could be broadly any airline, not just QFF).

The counter argument is that at an average surcharge rate of 1.5%, you have incurred surcharges of $75k a year.

If you invested 75K a year for 20 years, at the ASX accumulation index historical rate of 9.2%, after 20 years would have circa $4 million!

So that is the question.

Going into retirement after a long career, would you rather have 100M airline points, or $4M in hard cash, to fund all of your retirement travel with?

I think I'd very much rather the cash, but I'm interested in others views.

How much will airline points be worth in 20 years time?
What if you don't use the whole stash before you die?
Can u pay for other holiday expenses with points?
The $4M would throw off a conservative $200K into perpetuity in dividends, which you could fund all sorts of travel with right?
Will reward seat availability in 20 years time be even worse than it is today?
What will the AMEX to airline transfer rate's look like in 20 years.


The issue is that I see articles like this:

https://www.news.com.au/travel/travel-advice/flights/aussie-can-fly-business-for-free-for-rest-of-life/news-story/71136f1d3b32ce47ec0e8b2edcfc44f4

Where Michael promotes this...
"For businesses, earn even more points by using your American Express card to pay for your rent, payroll and superannuation.”

This implies hefty surcharges, even higher than my little model used...

Do points and loyalty programs, invoke slightly irrational behavior?

 

[lilkid28]

No brainer, $4m in cash

 

[Forg]

The cash for sure, for me!
Even if you put it into a savings account, just the yearly interest would pay for all the business-class travel you'd want to do per year but actually when you wanted to do it. As well as being able to be used for something else.

 

[elanshin]

There's a but more maths involved here. Assume we wre talking about a company (pty ltd). That 1.5% is tax deductible by at minimum 30% making it 1.05% for true cost or 52500. This would change your maths to just shy of 3m if we assume the rest od the numbers.

Then the other considerations are that there are many suppliers and placed that don't charge you a fee in which case it becomes a no brainer.

Also to consider is that I'm sure noone preaches to save up your FF points for retirement so more realistic timelines would be 5 year comparisons at most before you already empty your FF bank. Many would even say if that's your earn rate, earn and burn as fast as you can.

Which would see valuation closer to 25m vs 330k.
The 25m points assuming you redeem it for 1.5c ( each would have costed 375k in flights. You would have both had holidays with the family and or business travel done which would've saved your cash position that you could reinvest too.

Just some food for thought as to why the maths isn't as clearcut. Now if you're going to just save up for retirement 20 years out then yes its a no brainer to take the cash. But I'd like to think most people with 5m business expenses per annum are going to want to travel (for work or leisure) reasonably regularly.

Finally it's also a cashflow management tool for companies. If you run a business, then you'd know that cashflow management is a huge component of being successful and having CC help the short term. (Invoices all due but the jobs are being paid in 2 weeks at completion? - type of situation).

 

[Supersonic Swinger]

The cash for me:

1. QFF points are not a 'currency', they are a loyalty counter whose value, use and availability is at the discretion of people within QFF Loyalty looking to maximise the value to Qantas Group of their most profitable division
2. Related to the above, the $4 million in cash will earn you interest to fund travel you want when you want, as opposed to points sitting there as you look for random availability around the dates you might want on routings that require 3 stops including a 23 hour layover in Pago Pago to get you to Capetown.
3. The "Pay With Points" option currently seems to value each QFF point at 0.5 cents, so 100,000,000 points are effectively worth $500,000. I just realised that is a devaluation from last time I looked and "Pay With Points" value was around 0.62 cents.
4. As much as the purchasing power of $ may shrink over time, it won't be anywhere near the arbitrary ability of the powers that be at Qantas Loyalty to change them. My join date is 1993, and what you could get then vs now is night and day. This isn't unique to QFF, I have seen that across many programs.

I know you can find significant value for points if you are lucky / persistent, but I put a base value on them of the Pay With Points value, and certainly wouldn't pay any more than that to acquire them, definitely not paying 1.7% surcharges.

 

[elanshin]

Oh I also forgot to mention. As dumb as it may sound, it's much much much easier to swipe a card today than pay using transfer. So unless you have someone else doing your AP. Sometimes its just a lot easier to pay on card saving you time (which funnily could mean money too) especially for small expense stuff.

 

[NoName]

When you start off with such an obviously incorrect statement like “fly for free” the senses are immediately raised. Even ignoring the copayments (which to its credit the article DID mention once) that is simply wrong. Then when it became obvious that the linked article was simply hawking the guy’s website I stopped reading.

 

[equus]

There's a but more maths involved here. Assume we wre talking about a company (pty ltd). That 1.5% is tax deductible by at minimum 30% making it 1.05% for true cost or 52500. This would change your maths to just shy of 3m if we assume the rest od the numbers.

Not sure that it is a minimum of 30%. If this is a small business (at least a base rate entity), then the corporate tax rate is only 25%, not 30%

And to illustrate your point, if this is for retirement - that money is in the company, not your hands for travel. You now need to get it out. Assuming the company made a profit, then you may get the benefit of being able to frank the dividend, but you will still need to pay tax on the payment at your top marginal rate. You are not going to get the whole of that "saving" in your hands to spend.

 

[woomp001]

When you start off with such an obviously incorrect statement like “fly for free” the senses are immediately raised. Even ignoring the copayments (which to its credit the article DID mention once) that is simply wrong. Then when it became obvious that the linked article was simply hawking the guy’s website I stopped reading.

Agree 1000%

 

[glasszon]

It's a biased question that will lead people to choose cash out of those 2 options. From a high level glance there's 2 main issues with your assumptions:

1. You won't redeem flights within the 20 years, in that case QF is definitely not for you
2. Credit card surcharge is a tax deductible item for business

Root cause though is you should only earn points with the view of using said points in the short term, you don't get interest on your airline points and they are subject to devaluation. You should not be paying $ to generate points if you have a large enough points balance that you don't know what to do with.

 

[offshore171]

I agree cash is king, but your numbers need to factor in taxes and inflation.

The counter argument is that at an average surcharge rate of 1.5%, you have incurred surcharges of $75k a year.

Less 30% tax, so it's more like 50K per year.

An investment deposit base of $1m over 20years, plus compounding capital gains (which is subject to CGT).

Total of $2.6M of which 1.6M is taxable. So it would be more like $2.3M after 20 years rather than $4m.

In today's money, (assuming average inflation rate of 3%) that's about $1.3M of 2024 dollars

And then from this, you'd need to deduct cash spending on travel (instead of points).

If you invested 75K a year for 20 years, at the ASX accumulation index historical rate of 9.2%, after 20 years would have circa $4 million!

So that is the question.

Still take the cash though. Points can be devalued at any time. The scheme could be wound up. The airline could go into administration or receivership. Seat availability could be heavily curtailed. Cash surcharges could be raised.

A lot of Ansett points disappeared into thin air back in the day.

 

[WilsonM]

I mean, the news.com article is about a guy that's obviously had a unique opportunity, and I think cash isn't necessarily something he's going to worry about anyway. However, some of the things he espouses as 'expert knowledge' is a bit bizarre:

How I Scored $899 Qantas Business Class from Sydney to Noumea

Discover how I booked a Qantas Business Class flight from Sydney to Noumea for just $899 instead of $1,877 using Alaska Airlines miles. Learn how to save big on your next trip!

pointrs.com

Instead of using QF points, recommends buying AS miles and using them to NOU. Sure, 30,000 is less than 83,000 (the QF points required to get to NOU and back in J) but you can get 83,000 QF points for a lot cheaper than $899 by simply signing up for CCs, which is the most common way to acquire large amounts of points - especially for Australians.

Also, the redemption he recommended, on AS, actually cost over $1k after taxes and fees.

Regardless, I'd personally take the cash - just more flexible than points are.

But I think this sort of clickbait article does raise the question of why people are willing to pay so much to get points, and I think it's largely psychological - the surcharges on CC's and other things like RentPay, Pay.com.au-style things (or alternatives, etc) don't factor as costs in your mind, and then when you use the points and you pay only $800 in cash, it feels like you're beating the system. And everyone loves beating the system.

 

[Tiki]

Cash please! Not that I would ever be anywhere close to that!

 

[Seat0B]

I too would take the cash for the reasons people have shared here about the unattractive qualities of FF points. And even if the amount of cash was a lot lower than your headline rate of $4m. Cash is always better than FF points because you can spend it how you want.

That said, I agree with @elanshin that it is not always easy/convenient/possible to avoid using a credit card and so you're likely to end up with a mix of cash and money.

 

[daft009]

Yeah I'd be using the points as I go along every year. Build it up and use it every year.

I would use the points for J travel but not the cash I wouldn't think lol

 

[CaptJCool]

Other people’s money is giving you the points. FBT?