Saturday, November 9, 2013

some frequent-flier basics (part five: what are your miles worth?)

In the greater frequent flier community there's much debate about what a mile is worth but generally speaking they're worth something around 2¢ depending on which airline they're from. 

When you're pricing out a potential flight you can quickly tell how much your redemption is worth by dividing the number of dollars it would cost to buy the ticket by the miles needed (this is another great reason to look for the flight on Kayak.com before starting an award search). 

Let's say your flight was pricing out at $400 and you look on United.com and find a Saver redemption for 12,500 miles each way (for a total of 25,000). Now just do the math:
     $400 ÷ 25,000 = $0.016

So 1.6¢ per mile is a decent redemption rate because you're generally in the ballpark of 2¢. Many frequent fliers aim for 6¢ per mile or more, but the only way you'll ever see a redemption rate that high is if you're booking international business or first class. Domestic economy it's quite difficult to get above 3¢. (Although I recently managed a domestic 9.4¢ redemption!)

On the opposite end of the spectrum  I've seen $159 flights on Kayak that would have cost 25,000 miles to redeem (i.e., $0.006 — six-tenths of one cent!!) so it's possible to really over-pay for flights if you don't do a tiny bit of math first. Even if you eventually decide you have to buy at that price, you should make sure that you're making an informed decision. Put another way: be sure you're ready to trade in two later trips for this one if you're going to cash in miles at such a low valuation. 

It's important to do a reality check when calculating these values — if you would NEVER pay $13,000 to take a First Class flight on an exotic foreign airline, then these miles aren't really saving you $13,000. Some folks advocate pricing your miles against the flight you would have actually purchased had you had no miles. But our flights on British Airways and Korean Air First Class were experiences way more memorable and fun than the (likely) Premium Economy seat we would would have gotten if we'd been paying cash, so I think the true valuation of these First Class flights lies somewhere in between. 

The whole system is designed in such a way to make it difficult for you to know what you're earning when you fly and what you're paying when you redeem. It also bears similarities to chips at a Vegas gambling table – once your visceral connection to physical dollars is cut, you're more easily tricked into spending them unwisely.

I'll go more into this later, but if you have an airline mileage credit card, you're essentially paying 1¢ per mile to earn those miles (because with an airline card you're foregoing 1¢ on every dollar spent compared to a 1% cash back type of credit card...). So you probably shouldn't give the miles back to the airline for less than you paid for them. 


The same logic goes when the airline offers to let you buy points (sometimes offered on paid flights as an "award accelerator"), they're almost always priced well above 2¢ each, so it only makes sense to buy them if you're just a few thousand points short of the mileage needed for a specific flight.


Armed with this information and a calculator, you should be able to figure out if you're getting a good deal for your miles or not. The Points Guy also has a great chart where he tracks his own estimates of what each company's points are worth. 



Part 6: a real-world example ➡️
   < back to part 4

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