Wednesday, June 9, 2010

Greekonomics 104 - Rational Expectations

In economics parlance, rational expectations is defined by Thomas Sargent as the following in “The Concise Encyclopedia of Economics”:

"The theory of rational expectations was first proposed by John F. Muth of Indiana University in the early 1960s. He used the term to describe the many economic situations in which the outcome depends partly on what people expect to happen. The price of an agricultural commodity, for example, depends on how many acres farmers plant, which in turn depends on the price farmers expect to realize when they harvest and sell their crops. As another example, the value of a currency and its rate of depreciation depend partly on what people expect that rate of depreciation to be. That is because people rush to desert a currency that they expect to lose value, thereby contributing to its loss in value. Similarly, the price of a stock or bond depends partly on what prospective buyers and sellers believe it will be in the future"

In frequent flyer terms, this has to do with whether or not to hoard your miles. If you observe that airlines have found their FF programs to be a piggybank which allows them to generate their own form of “fiat currency”, then you must expect that with the money supply increasing, the purchasing power will decrease over time, hence the move towards using miles now rather than booking them for later.

Points advance.

A little known feature of the American Express Membership Rewards program is points advance. You can advance yourself up to 60,000 points at a time. Then, you have 12 months from the date of advance to earn those points to offset. Otherwise, you revert to paying 2.5 cents per point for any “unpaid” points. This is a great program in that you have very little downside. I especially like it right now in that if will allow me to earn some free SWA tickets prior to June 30, which is the date that SWA ends its relationship with membership rewards. If you have 4-8 credits to go for a free SWA ticket, transferring Amex MR points could be a great move, especially since Starwood doesn’t allow transfers and other programs (such as Priority Club) require a relatively high number of points for credits (PC requires 10,000 points for 2 credits). Sorry, PC, but those 10,000 points can get me 2 Point Breaks nights (and have in the past, such as in Sydney).

Segment arbitrage:

I just noticed something very interesting on my last trip. Typically I fly CO from BOS to IAH, and get a $500-$600 R/T 7 day advance purchase fare. However, I forgot to book a trip the other day and didn’t realize it until 5 days out. Therefore, I needed a cheap O/W BOS to IAH fare. CO wanted about $700, so that was a non-starter. USAir, on the other hand, was offering $250 O/W with a 45 minute layover in Charlotte. Not ideal, but much more cost effective, and I’ve found CLT to be a very pleasant airport not typically plagued with delays. Since CO is now Star Alliance, I was able to get the flight miles credited to CO as well, which was nice. So, when I checked my CO account, to what should my wandering eyes appear but 2 flight segment credits, as opposed to 1. Meaning, if you fly USAir multiple segments, you get multiple flight credits and could rack up a lot of them to help get you to elite status. What I am not sure of is if I booked a three segment flight, would I have gotten three credits? If so, I can imagine mileage runs on USAir to get CO elite status quickly and cheaply. Just some food for thought.

Greekonomics 103.2 – Option Value Redux

Earlier I had posted about incorrect attribution of option value to frequent flyer miles. However, I do have a good example of option value for you through the Starwood Preferred Guest program. Starwood allows you to book room awards with points, which you typically can cancel without penalty up to 24 hours beforehand. Therefore, you can hold a room with points and wait to see if you can get a cheap cash room rate up to 24 hours before your checkin time. This is essentially a free option to hold rooms with points. The only cost is that you can’t use the points holding the room. But here is where SPG helps you out again. You can hold those rooms with cash and points, meaning that you don’t need that many points to hold a room. I’ve found this to be especially helpful when I have booked a trip far in advance with points and am earning promotional free nights. I can hold the room with the points, and then contact SPG to replace the “points” room night with the “promo” room nights. I just did this at the Westin Swan in Orlando. I had originally booked 5 cash and points nights for 4000 points and $60 per night (total outlay 20,000 points and $300). However, I just earned three free nights with the current SPG promo, so I replaced those 3 nights and then my total outlay was only 2 nights at 10,000 pts per night and no cash (savings of $300). Unfortunately, the cash and points option was no longer available, as I would have preferred $120 and 8000 points. However, my alternative cost me no incremental points versus my first option, so it was definitely a winner.

Wednesday, April 7, 2010

Getting Value from Delta Drachmas

One common complaint I hear from frequent flyers is that they feel like Delta Skymiles have very little value. I think that I may have cracked the code on this, at least for people who need hotel stays. Delta has added a feauture where you can book hotel rooms and/or car rental with your Skymiles. Go to the Skymiles tab and pick"Use Miles" on the dropdown. Then click on "Skymiles Marketplace" on the left side of the screen. Then, select "Book a Hotel/Rent a Car" on the left side again. As an example, for a 2 night stay next week in Houston, you can get the St. Regis for 30,204 Skymiles per night, or the Westin Galleria for 18,712 Skymiles per night. The St. Regis is listing a rate of $385 ($450 with tax) and the Westin is listing $289 ($338 with tax). These prices are from SPG.com. So, we're talking about 1.5 cents per Skymile.

They seem to have hotels worldwide - I noted some interesting options in places like Seville and Cartagena, Colombia. Check it out!

Tuesday, February 9, 2010

Posting from 35,000 feet

I'm learning the hard way that Delta can stand for "Doesn't Ever Leave The Airport". On a replacement plane from BOS to ATL (with onboard wifi). Landing 10 min before my ATL to BHM flight departs. Wondering if the Force will be with me at ATL. The flights are at adjacent gates, so as Bill Murray said in Caddyshack - "so I got that going for me."

Wednesday, February 3, 2010

Rapid Rewards Winter Wonderland - some good news

Kudos to Southwest Rapid Rewards Winter Wonderland promo. Despite mention in the fine print that you have to give your RR number at the time of reservation to qualify for the bonus credits, I was credited bonus credits for 3 car rentals that I had to get retroactive credit for. Those extra credits are helpful as I race against the clock to top off my account with Amex Membership Rewards points before SWA is no longer a partner of theirs.