Some people view miles as being “free,” and think that if they can redeem miles for a ticket, they should always do so. I don’t want to say that’s necessarily a bad approach (at the end of the day everyone should use miles in a way that works for them), though personally I view miles as a currency, just as I would cash.
I put a value to all of my miles, and then when I consider redeeming them I perform some basic calculations to decide whether to pay cash or redeem miles. Sometimes the math is straightforward, and sometimes it isn’t.
In the past I’ve shared how I value various mileage currencies, and Travis has also written a detailed post about how you should go about deciding how much specific mileage currencies are worth to you.
In this post I wanted to provide a slightly more detailed description of how I go about deciding whether to pay cash or redeem miles for a ticket. There’s nothing terribly complex here, though there are a couple of things that I think many people overlook, that could be useful.
On the most basic level, the math is pretty straightforward. You compare how many miles a ticket would require to how much that ticket would cost in cash. You divide one number by the other, and you then decide if that that cent per mile value is less or more than what you value the mileage currency at.
Let me use a real life example. A few days ago I wanted to book a one-way flight from New York to Los Angeles, where I had two options:
- Pay 32,500 AAdvantage miles for a nonstop business class award (it’s extremely rare these are available, but it was)
- Pay $472 for an economy ticket and then upgrade (in this case I was booking shortly before departure and the upgrade was a sure bet, though usually it isn’t on this route)
So with the option of paying $472 or 32,500 miles, that’s the equivalent of 1.45 cents per mile. I value American miles at 1.3 cents each, so on the surface it seems like redeeming miles is a marginally better deal.
However, the way I see it there are three other factors to consider:
The miles you’re forgoing through credit card spend
When I look at the cost of airfare, one of the first things I do is discount the airfare by 5.1-8.5%, as that’s what I value the rewards that I earn through credit card spend on that purchase. As I shared in my post on maximizing points through airfare purchases:
- The Platinum Card® from American Express offers 5x Membership Rewards points on airfare purchased directly from airlines; I value Membership Rewards points at 1.7 cents each, so to me that’s like a return of 8.5%.
- The Chase Sapphire Reserve® offers 3x Ultimate Rewards points on all travel purchases, which includes airfare purchased directly from airlines, as well as airfare purchased through online travel agencies (which isn’t covered on the Amex Platinum Card); I value Ultimate Rewards points at 1.7 cents each so to me that’s like a return of 5.1%
In the case of this $472 ticket, I’d be earning 2,360 Membership Rewards points, which I value at ~$40.
The miles you’re forgoing through the frequent flyer program
In addition to the miles you’re forgoing through credit card spend, you’re also forgoing redeemable miles when booking an award ticket. Everyone earns miles at different rates, but as an Executive Platinum with American I earn 11 miles per dollar spent on base airfare. In this case base airfare is $426, so I’d earn 4,686 redeemable miles, which I value at ~$61.
The elite qualifying miles you’re forgoing
This is something that’s potentially tougher to quantify. When you redeem miles you’re forgoing the elite qualifying miles that you’d earn if you booked a cash ticket. The reason this is tough to quantify is because for many people, elite qualifying miles are worth nothing:
- If you’re not going to qualify for status, then elite qualifying miles don’t get you anything
- If you’re overqualifying for status, then with many programs the incremental elite qualifying miles don’t get you anything
My valuation of elite qualifying miles doesn’t necessarily come from how much I’d be willing to spend on airfare to earn status (in other words, what I’d be willing to pay for a mileage run), but rather how much I’d be willing to pay for the status with no redeemable miles associated with it.
In my case, I’d say Executive Platinum status is probably worth $3,000 per year, conservatively. That’s about what I value the four systemwide upgrades, the occasional domestic upgrades, the lounge access internationally, etc., at. I actually think that’s a conservative valuation, but I’d rather be conservative on this front.
That means I value each elite qualifying mile at three cents, meaning that for the above New York to Los Angeles flight I’d be earning ~$74 worth of elite qualifying miles.
Crunching the numbers
Now let’s add that all up. I can redeem 32,500 miles or pay $472. If I paid $472, I’d earn $40 worth of Amex points, $61 worth of American redeemable miles, and $74 worth of American elite qualifying miles. By my math, that’s $172 worth of “value” I get from that paid ticket, meaning that the options are between spending 32,500 miles and being “out of pocket” for $297. Redeeming miles would get me less than a penny per point, and at that that rate I’m better off paying cash.
Again, everyone’s math will be different:
- It’s perfectly reasonable that some people will value elite qualifying miles at zero
- Non-elite members would earn 5x miles rather than 11x miles for the airfare
- Many people don’t take a neutral approach towards cash vs. miles in the way I do, because they’d only take a trip if they could redeem miles, etc., and that’s perfectly fair
This also comes to show you that if you value things similarly to how I do, you can almost get paid to fly. For example, take the below Qatar Airways business class fare from Colombo to Philadelphia, which costs $1,411.
If you booked this you’d earn:
- $120 worth of points if paying with The Platinum Card® from American Express (7,055 Membership Rewards points)
- $517 worth of redeemable miles as an Executive Platinum member (39,780 redeemable miles)
- $814 worth of elite qualifying miles (27,123 AAdvantage elite qualifying miles)
When you add that all up, you’re getting more value than the cost of the ticket.
I don’t expect others to have the same valuations as I do above. Actually, please don’t, because we should all value these things differently based on what we want to redeem miles for, how we earn them, etc. However, hopefully this is a useful general framework for deciding whether to redeem miles or pay cash for a ticket.
The math could work out wildly differently for others, and I also recognize many people don’t view miles as a currency in the same way I do. In that case, please ignore all of the above. 😉
How does your approach when deciding whether to pay cash or redeem miles differ from mine?