Monday, May 25, 2009
The Value of a Mile
If you travel a lot (as I do), you probably have collected a ton of air miles (and if you are not in a frequent traveller program, you probably should be, regardless of lowered return in recent years). Plus, there are tons of other ways to collect miles, such as credit card programs. The question that often arises however, is "how much is a mile worth, exactly?". In other words: If you have a $400 ticket or the alternative to pay with 25,000 miles, which is the better deal?
Well, the conventional wisdom used to be that a mile is worth about 2 cents U$. This is based on the fact that it generally takes 25,000 miles to purchase a domestic round-trip ticket, while the price of such a ticket used to be $500 on average. This has changed a bit however, since the price of an average domestic round-trip ticket is now about $360 (stats from late 2008). Therefore, $360 divided by 25,000 = just under 1.5 cents U$.
So in simple terms, if you were to pay with 25,000 miles for a $400 ticket, you would save about $40. However things aren't quite that simple (are they ever?). For one, you collect more miles on that flight. Say the flight is from Houston to Seattle and back, you would collect another 1,900 miles each way, or 3,800 miles round trip. Depending on your airline and frequent flyer program and actual fare class, you will collect that many miles, or a little less, or even twice as much. For the sake of argument, let's say you collect exactly 3,800 miles. That would be the equivalent of $55, so you now lost $15 on the whole deal. (Or you might have earned the equivalent of $110 if you are in a higher frequent flyer category, and thus lost $70 on the deal). Not to mention that the next time you go on the same flight, the fare may be twice the normal rate and now you could really safe significantly, but now your miles are gone. (For instance, going from the US to Europe, I have had $500 round trips and I have seen $2,500 round trips for the same flight... guess which one I would rather spend 50,000 miles for an international round trip on!)
Of course on the other hand, you may not be able to get a qualifying seat on the expensive flights. So there is something to be said about using your miles when you can. Often, I end up trying to pay with miles and there are no seats open for miles-based travel. In that case, you may end up paying a premium. Instead of flying to Europe and back for 50,000 miles, you may all of a sudden have to shell out 100,000. The equivalent of $1,500. Still not a bad deal if the ticket would otherwise have been $2,500, but if you are at all flexible with your schedule, it still is a bitter pill to swallow.
So bottom line, when should you use your miles? Personally, I am looking to get the equivalent of 2.5 to 3 cents per mile. If a domestic round trip ticket is above $600 or $650, it is probably worth paying 25,000 miles instead. Especially if it is a relatively short domestic trip and you wouldn't have earned all that many miles anyway. Internationally, if your round-trip is more than $1,000, you may consider using miles instead. Although keep in mind that a paid trip to Europe would also give you a ton of miles. A trip from Houston to Munich and back is 11,000 miles. If you are an elite frequent flyer (or whatever the airline of your choice might call your program), you may earn as much as 22,000 miles on that trip, or the equivalent of $350 (or almost a domestic round trip with miles alone, just for that one trip to Europe!). Besides, you may get other perks if you pay for your flight, such as a first class upgrade. So maybe make that international magic number $1,200.
Posted @ 3:34 PM by Egger, Markus (email@example.com)