Feb 24, 2015

My travel strategy, illustrated with my $421 trip to Budapest

I often get asked how I'm able to travel so much and keep it affordable. I'm not rich: Indeed I could never afford most of the travel I do if it were not for using the tricks and techniques of the frequent flyer world.

Here I'll share a bit about my typical travel strategy, illustrated through a recent trip to Budapest & Bratislava.

Reacting to opportunities

I almost never sit down and say "I want to go to X on date X" and then make bookings based on that. Instead, I'm constantly reacting to opportunities. I start with the premise that there are lots of places I want to go in the world, and just wait for good opportunities to come along, executing on them when those opportunities stack well together.

In practice this means that I'm almost never paying "normal" prices for travel. There has to be a good fare or cheap hotel to begin with.

Taking advantage of miles & points

Both on the earning and the spending side, I'm adament about getting the best value I can from travel using loyalty programs set up by the airlines and hotels. Even if you don't give this much value, it's free and there's simply no reason not to be earning miles or points when flying or staying in hotels. Even exploited poorly, these things add up.

Although complicated, having a strong grasp on how all of that works can really save quite a lot of money in the long run, because for any paid trip, you're getting value back in addition to the cash out of pocket you are spending. Which leads me to…

The net cost approach of travel accounting

To keep things comparable, I advocate thinking always in terms of "net costs" when it comes to trips. Any trip you take is going to involve some actual cash outflows, but also some inflows in the form of miles or points, to a varying degree. You should thus consider the "real" trip cost as the cash outflows minus the value you're getting back.

This means, however, that when it comes to redeeming those points and miles, you should consider the cost of the trip at your current valuation of the points (and hence it's worth thinking pretty hard about your personal valuation of those points). I am not a fan of ever calling a trip "free", as it implies no resources were used. Miles and points are just a different form of currency: just because it costs you 0 US dollars does not in any meaningful way make that trip "free".

If you don't approach things this way, making decisions becomes too sloppy. It becomes almost purely emotional to compare one trip to another (either when using cash or miles). I'd rather have at least a best-effort guess at a true net cost to help make a rational decision. In the long run, this will better-maximize your travel dollar.

Thinking of things within this framework means that the definition of a mileage run or mattress run (or both) is simple: it's when the net cost is less than $0.

Food accounting

I rarely consider food costs when making financial decisions about travel. This is primarily because even in San Diego I rarely cook, and I mostly eat out already, so the marginal cost when traveling of my food purchases is usually low or negative (and in places like Thailand, very negative).

Where I sometimes do account for food is what comes to me for free simply as result of flying. With lots of lounge access, and ability to get into premium cabins, this matters more than you might think. On a recent one night mileage run to Hong Kong for $680 (involving an unplanned diversion to Taiwan), I ended up with thirteen free meals (many of them excellent) along the way: on the plane, vouchers from the diversion, and in the lounges. Those thirteen free meals (with drink), even conservatively valued at $10 each, means I'm getting $130 in "meal value" - money that, without having flown those flights, I would have had to purchase in San Diego anyways: nearly 20% of the cash cost of the flights!

Hence no matter what your eating patterns are, the right way to think about food is "displacement" - by taking a trip, what's the "difference" in food costs. Adding the raw cost of all food you buy on a trip is on some sense double-counting: you wouldn't have spent $0 on that food at home anyways.

Budapest & Bratislava

Although not a particularly high-value example, my recent trip to Budapest illustrates how I used this strategy on a fairly mundane trip to travel for cheap.

First, the opportunities that aligned to provoke the trip:

  1. There was an American Airlines fare on their 777-300ER to Budapest for $843 roundtrip from LAX through London. While nothing stellar, that's a decent fare.
  2. I had two American Airlines systemwide upgrades expiring on February 28th, and the best way to use them is on long-haul rounds aboard the 777-300ER.
  3. Flight loads on that LAX-LHR route in February were quite low, so I was confident my systemwides would clear into business class (normally that is a very difficult route).
  4. Club Carlson (a hotel group) came out with an extremely valuable promotion: 10,000 additional points per night (if booked the right way). Plus an initial bonus of 10,000 for the first stay (from the early bird promo). This seriously changed the value proposition of hotels, especially cheap ones.
  5. Winter in Budapest offered some great low rates on Club Carlson hotels.

One or two of these opportunities were nothing too special, but all of them stacked together to produce a nice opportunity to travel to Budapest (and surrounding areas) in a nice airplane seat for fairly cheap.

Here's a run-down of what I booked and what the out-of-pocket costs were:

  • $843: American Airlines Los Angeles to Budapest through London roundtrip, deliberately booked on dates with the lowest yields in business class, for highest chance of upgrades clearing. Indeed I did end up clearing both ways.
  • $232: Three nights at the Radisson Blu Beke Budapest hotel.
  • $124: Two nights at the Park Inn Bratislava, Slovakia.
  • $156: Two nights at the art'otel Budapest Danube.
  • $32: Roundtrip train from Budapest to Bratislava.

So the total out of pocket cash cost of the trip was $1,355. That's the money that went on my credit cards. Even that alone is not a horrible price for a 7 day trip to Europe in business class, but I certainly wouldn't have done it if that was the end of story.

The key is that I'm earning value back by as a result of booking these things. Here's an account of exactly what I earned back - value that I received only by booking and taking this trip:

  • 2,529 American Express Membership Rewards points, because I used my Amex Gold credit card to book the airfare, and this card earns 3x points on airfare.
  • 1,088 Chase Ultimate Rewards points, because I used my Chase Sapphire Preferred card to book the hotels & train, and this card earns 2x points on travel.
  • 25,536 American Airlines miles: LAX-LHR-BUD roundtrip is 12,768 miles, and having ExecutivePlatinum on American gives me a 2x multiplier on redeemable miles.
  • 76,656 Club Carlson points: 10,000 from the early bird promo, 30,000 from the first stay's promo, 15,000 from the second and third stay's promo, and 6,656 normal points earned on the spend from being a Club Carlson Gold member.

To calculate the true "net cost" of the trip, I need an approximate valuation of those points. I think pretty thoroughly about point valuation, and although this certainly varies from person to person (and the valuations are heightened for me due to my flexible schedule & skill at redeeming them), I can defend valuations for the relevant currencies earned on this trip:

  • American Express membership rewards at 1.5 cents per point.
  • Chase Ultimate Rewards at 1.6 cents per point.
  • American Airlines miles at 1.5 cents per point.
  • Club Carlson points at 0.6 cents per point.

Club Carlson points "normally" might be worth 0.3 cents, but since I have the Club Carlson credit card, the value doubles due to the free night on a two night award redemption.

Multiplying out the points I'm earning times their valuation yields:

  • $38 in American Express membership rewards
  • $17 in Chase Ultimate rewards
  • $383 in American Airlines miles
  • $460 in Club Carlson points

For a total of $878. But if you want to count the free meals I received (seven, by my count), conservatively valued at $8 per meal let's say, that further increases the "value back" by $56, bringing it up to $934 in value back - almost 70% of the cash cost of the trip!

Net that out from the price I paid, and we arrive a true net cost of $421 total, for business class flights and seven nights in Budapest and Bratislava.

Business Class on American Airlines 777-300ER Danube River in Budapest
View of Budapest Meal in Bratislava

Now, how replicateable is this to other people? That depends. Assuming you knew everything about how to earn these points, there are certain things that were required to get the value out of this that I did.

  • I am ExecutivePlatinum on American, thus I get eight systemwide upgrades to use. This is how I was in business class for no more than the price of economy.
  • By being ExecutivePlatinum, I also earn a 2x multiplier on all miles flown. Otherwise, I would have only earned 12,768 American Airlines miles.
  • I have the Club Carlson credit card, which doubles the value of those Club Carlson points and by having Gold status (as a result of the credit card), earns me more as well.
  • I have the American Express Business Gold card, which earns me triple points on airfare.
  • I have the Chase Sapphire Preferred credit card, which earns me double points on hotels.

But let's assume that you have none of that, and that you aren't earning any credit card points at all. Merely signing up for AAdvantage and Club Carlson as a general member (and registering for the promos) would still give you some value back. Let's even be more conservative with the valuations and assume American Airlines miles are worth 1.3 cents and Club Carlson points are worth 0.3 cents (since you don't have the Club Carlson credit card). What would this look like then?

  • Earning 12,768 American Airlines miles, valued at $166.
  • Earning 75,120 Club Carlson points, valued at $225.

Even having no status or credit cards, simply by filling out a few online forms, you would get $391 in value back from booking this trip. That's 29% of the cost of the trip - not bad at all.

This all serves to illustrate my general strategy:

  • Be prepared to leverage opportunities by having the right credit cards and elite status.
  • Wait for opportunities to stack together in alignment for a decent trip to somewhere I actually want to go.
  • Keep an eye on the promos. Some of them are quite lucrative. And even if not, it's free.
  • Do a rational accounting of the costs and benefits and arrive at a net cost, even if it isn't perfect.
  • Decide whether that net cost is worth bearing for the trip in question.
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