Valuing Airline Miles & Points (and why you need to)

This is part 2 in a 3 part series on airline miles and points – you’ll find part 1 (collecting miles & points) here.

The whole point of collecting miles and points is to reduce travel costs and to, hopefully, make travel a bit more comfortable than it would otherwise have been. That should all go without saying. However, that’s not the whole story. Collecting miles and points is nothing more than a big game and the way to win the game isn’t just to minimize costs but to also extract great value from the miles and points that you collect. To extract great value you need to understand how much your miles and points are worth and it’s usually this that leaves newbies to the game feeling confused.

The truth is that it’s very simple to work out how much your miles and points balances are worth, it only looks and sounds daunting. I’ll take you through my thought process step-by-step and hopefully that will give you a good guide to follow.

The most important thing to point out is that no one should ever tell you how much each of your points or miles is worth – the value of loyalty program miles will vary from person to person depending on their circumstances and needs.

With that in mind I’ll show you how I choose to value my balances and, in doing so, will also demonstrate what I consider to be good and bad redemption opportunities.

Let’s start with American Airlines AAdvantage Miles:

The way I choose to value my miles is by first identifying what I’m most likely to use them for, and then deciding how much I would be prepared to pay to purchase the same trip with cash.

As I collect AAdvantage miles primarily for Business Class award tickets it make sense to consider the value of my AAdvantage miles with that in mind.

American charges 100,000 miles + taxes for Business Class flights from the US to Europe and, on the rare occasions I’ve actually purchased Business Class tickets, I’ve not been prepared to pay more than $2,300 for the ticket (I only ever by when there’s a big sale on). That makes the equation to work out the value of my miles quite simple:

100,000 miles + taxes = $2,300

As my main route to Europe involves flights to London I use the taxes to/from London to complete that equation:

I’m left with this:

100,000 miles = $2,300 – $323

100,000 miles = $1,977 or

1 Mile = $0.019 or 1.9 cents

You’ll notice that I don’t base the value of my miles on how much Business Class tickets cost outside of a sale because I’d never buy a Business Class ticket under those circumstances. Attempting to value my miles this way would be creating a false equivalency and would overvalue my balance quite significantly.

Now that I have a value for my miles I can use it to decide whether or not an award  redemption opportunity is good value and I can even work out if a “miles sale” is worth pursuing (“miles sales” occur when loyalty programs offer to sell you their miles at what is, to them, a discounted rate – these are rarely a good deal).

Let’s take an example of an award that American offers (Los Angeles to Paris) and see if, by my valuation, it’s a good redemption or not.

Taking a random set of dates in January I can get from Los Angeles to Paris, in Coach, for 40,000 miles + $97.10 in taxes. (This is a “miles sAAver” award).

For those those same dates (and with a similar routing) American is offering a Coach fare of $1,454.60.

This now allows me to calculate how much value I would get from my miles: I can see that 40,000 miles + $97.10 in taxes would get me the same trip as I would get if I paid $1,454.60 in cash. So:

40,000 miles + $97.10 in taxes = $1,454.60

40,000 miles = $1,357.50

1 mile = $0.034 or 3.4 cents

I would be getting 3.4 cents of value out of every AAdvantage mile that I value at 1.9 cents so this would be a good way for me to use some AAdvantage miles.

Note: The above calculation shows why you should always do your own math – a large percentage of miles and points blogs are quite disparaging towards Coach awards claiming they’re a bad use of your miles. In a lot of cases this is true but completely ignoring Coach awards can mean that you lose a chance to get decent value out of your miles.

Lets take another example, this time let’s try a New York to London routing for next summer.

Taking a random set of dates in July I can get a Coach ticket from New York to London for, at best, 130,000 miles + $209.60 in taxes. There is no “miles sAAver” availability at this point so the only awards available require a higher milage outlay.

A with the previous example I can now check how much it would cost me to buy a similar ticket for cash and , the best price, comes to $1,312.10.

Performing the same calculation as before:

130,000 miles + $209.60 in taxes = $1,312.10

130,000 miles = $1,102.50

1 mile = $0.0085 or 0.85 cents

This would be a truly bad redemption for me to make as I’d only be getting 0.85 cents of value per mile that I value at 1.9 cents. I’d be much better off paying with cash and saving my miles for another day.

It’s worth noting that I’m taking a purely mathematical approach to my decision on whether or not to redeem my miles – there will be individual circumstances where other things will come into play. For example: If cash isn’t readily available it probably won’t matter that you’re only getting 0.085 cents/mile value – far better to spend $209.60 in taxes plus your miles than to hand over $1,312.10.

Like I said earlier, each person’s circumstances and needs will contribute to their own valuation – only you know how much your miles are worth to you.

I mentioned “miles sales” earlier in this post and suggested that you could use this valuation method to decide if the deal being offered is any good. All you have to do is to work out how much the loyalty program is selling one mile or point for and compare it to your own valuation – it’s as simple as that.

This valuation method works for hotel points as well as for airline miles – just work out what room type/room standard you’re most likely to book using your own money, find out how many points would be needed to book that room and, after taking into account any taxes that you may have to pay you can work out your value of a point.

Next: Using Airline Miles & Points – The Basics

 

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