What Are Miles Worth?

Consider these five ways to earn miles:

* Purchasing miles
* Mileage running (very rare these days)
* Credit card spending (excluding generous sign-up bonuses)
* Doing “silly stuff” (portals, surveys, etc.)
* Normal flying

Add...

* Complaining (But airlines have figured this out now, thank goodness)
* Transfers (Hotel points to miles)

Your equation is wrong. In reality, the value of the mile is the actual cost one would spend if traveling to that destination, no matter what class of service that person redeems. Thus if you spend $1K to Hong Kong, but fly business class, the number of miles used is valued at $1K, whether it is 70K miles or 160K+ miles. What the airline receives as compensation for the use of those miles is not relevant to the traveler......they just sit in the seat, acting like their sooooo smart. lol

This changes over time as well. I currently can't fly often for leisure, kids keep me at home. And 4 kids makes redeeming for premium class travel either very hard or at least very expensive in miles. So it makes more sense for me to, currently, use my miles toward more family travel. Redeeming Skymiles for a short domestic trip will end up saving me only a little bit of money but a lot of time. Flying ~2 hours each way saves me ~14 hours in a car plus an overnight in a hotel. So while I don't necessarily put a $ amount to my miles and points I still understand their value to me. When my kids are grown or at least old enough to care for themselves at home I'll value things differently.

My credit card spend miles are actually under a cent a mile for acquisition. I don't buy things that I wouldn't buy anyway, so my only cost is the opportunity cost of getting cash back on another card. This is generally 1%, as I'll use a cash back card when they have bonus categories. Therefore I'm getting either 1 or 3 miles for an opportunity cost of 1 cent, bringing the average acquisition cost down to less than a cent per mile.
Since you have so many cards, I'm sure you probably allocate your spend efficiently over different bonus categories on various cards, so I would be amazed if you were paying over a cent per mile for credit card spend.
Maybe you are counting the yearly fee in there? I usually tend to think of that as a purchase price for all the benefits that come with a card, so the benefit of earning miles would only cost a portion of that, not very much at all when spread across a full year of spend.

Countdown until DCS comes on here and acts like a complete tool bag. It's nighttime in Asia, so I will say we'll hear his dumb routine in about 4-5 hours.

The buy miles price really should be *above* the credit card spending price. The credit card acquisition cost of an airline mile is probably around 2 cents depending on exactly what kind of spend we're talking about. Most programs will charge much more than that if you want to buy miles.

Let's do a simple example using Delta miles: For a purchase that doesn't qualify for any bonus category, let's assume that your choices are to either use a Delta AmEx and earn 1 mile per dollar or to use a 2% cash back card. So your cost to acquire a mile through nonbonused credit card spending is 2.0 cents per mile. The cost might be lower or higher for bonused spending. If you're going to buy a Delta ticket, you might be able to charge that to Chase Sapphire Reserve (at 3 points per dollar) or to Delta Amex (at 2 points per dollar). The Chase Sapphire Reserve points can effectively be redeemed for cash at 1.5 cents each if you redeem for a travel expense charged to the card, so those 3 points are worth 4.5 cents per dollar. So in that scenario, if you decided to use your Delta card to earn the miles, your marginal cost to earn those miles was 2.25 cents per mile.

The cost to *buy* miles directly from Delta is 3.5 cents per mile -- much more than any of the numbers above. Although there are sometimes promotions that might bring it down in the range of credit card spending, in general, the cost to buy a mile will be much more than the cost to acquire a mile through credit card spend.

@Kieran +1

@Kieran -- Sorry to disappoint you, but what your comment betrays is your cluelessness. I have no problem with this take on the "value" of miles, which is based on correct math sprinkled with the inherent subjectivity of deciding whether paying with cash or points would be better, the result of which deliberation gives an indication of how much one thinks a mile is worth...

G'day.

TLDR. But this is very FMesque.

Nice.

Travis, I truly enjoyed reading your analysis. However, you should probably mention that your discussion is largely under the assumption of market efficiency.

Now, at least over her in Europe, this is not the case. There are routes with intense competition and others with a monopoly situation. Let's compare (a) ZRH-DUS and (b) ZRH-LUX or -BRU. Route (a) is operated by three airlines (AB, LX, EW a with LX and EW both part of the LH group) and also enjoys a train connection which takes slightly longer than the flight, but is well doable. Route (b) is the virtually distance, but operated exclusively by LX (not even their group partner SN operates) and train connections take a full day! The result is that (a) sells for about 200 USD rt (cheapest eco), 300 USD (mid tier), 500 USD (flex eco) and 800 USD (business) - which represents a liquid market. On (b) however, the fares are about 800 USD (cheapest), 900 USD (mid), 1400 USD (eco flex) and 800 USD (biz; not typo!). Clearly no market situation, but a monopoly. The biz anomaly on (b) can be explained that it is mainly used by civil servants not allowed to fly business even if it's cheaper ...

But back to the value of miles: Obviously (a) and (b) earn the same mileage and redemption ticket come at the same price expressed in miles. The economical behaviour is the pay the ticket cash on (a), but redeem miles on (b).

And remember that the opportunity cost of acquisition via CC spend is always 2CPM because you are foregoing 2% cashback.

Andyandy

For me, I think the key part of this is the acquisition cost. Then it is simply looking at whatever redemption you use miles for and decide if it is a good value or not. For instance, if my acquisition cost is 1.5 cents/mile, and I redeem for a biz award at 115K, then I just 'paid' $1725 for the ticket. Is that a good value for a N. America/Europe biz round-trip? Maybe - it is up to the individual. Generally, I would say yes. For me, collecting miles allows me to travel in premium cabins at a discount.

Along these lines, I had a funny situation related to points valuations when I traveled to Nice, France recently.

I told my girlfriend we were going to Nice and that we were going to stay in an amazing Hyatt with Diamond status. She got excited. Then I went to go look to book it. It was 25,000 points. That's a lot of points, I thought, but for a $500 room, why not!? Then I looked at the rates -- they had just had a terrorist attack and rooms were only $250.

I started to change my thinking. Only a penny a point for Chase UR?! That's crazy. I can't redeem Hyatt points like that. So I should pay cash. A much better deal with cash.

Then I thought about it some more. The Chase points I obtained without incurring any out of pocket cost -- I got them through negative cost MS. Paying $250/night would be pretty painful.

But maybe that's how much rooms in Nice cost, I thought.

Then I found a breakfast inclusive rate at the AC Hotel Nice (basically a Marriott version of a Holiday Inn) for $92/night. I could save $640 cash and spend that money on other aspects of the trip, like meals out. So I did the AC Hotel. No ocean view, not a lavish palace hotel. My girlfriend checks in, she seems happy.

A day later, she says, a bit mockingly: "I thought you wanted to come here so you can use up all your points?!" She had a good point.

Then I look at my credit card statement later. I have a $370 charge from the AC. (That's the room rate multiplied by four nights.) It stung a little. I have all these points, which I got FOR FREE, and here I am PAYING hundreds of dollars of my own post-tax hard-earned money to get a hotel. It felt like there was no way to win.

After that, we flew to Mallorca and stayed at the Park Hyatt. The room rates were 1,000 euros/night, and we paid 20,000 Hyatt points instead, getting "5 cents a point" (sort of). As for my girlfriend, she really enjoyed the Park Hyatt Mallorca.

Those international business class redemptions for 120,000 miles are becoming very scarce to the places I wish to travel. Clearly, no matter how you do the math, the lack of SAAver awards has forced the value of a mile down, down, down.....

I'm starting to shift my focus toward hotel points and away from the airlines.

I love this guide, Travis. A very rational, disciplined approach to valuation. Sometimes I look at bloggers and travelers who have valuations that are completely unreasonable or out of this world.

In addition, another factor is how much OTHER people value points. There is a black market. If you overvalue, or undervalue your points, they can be up for grabs.

@Zym -- your math is wrong as your acquisition cost is at least 2% since you can always get 2% hard cash from the fee-free Citi "double cash back card": https://www.nerdwallet.com/blog/credit-cards/citi-double-cash-credit-card-review/ [limited to US expenditures given the thievery of a 3% foreign purchases fee].

@Donna -- agree. My last American miles redemption was to Europe (155,000 miles) and had to both shorten my vacation by one day and pay $885.30 in cash to AA since they only showed availability on BA (wonder why!) and not on the exact dates I have off. Based on the cost for the same exact flights, even on my preferred dates, at the same moment (including $400 AARP discount) I only got 1.89 cent of value per AAdvantage mile used, which seems to be typical after the devaluations and the new business class pricing strategy.

Bottom line: if over the last years I had been using a Citi Double Cash Back Card instead of the AAdvantage one for my regular spending, I would have both saved money and had an extra day of vacation.

Lesson learned: no more Citi AAdvantage card for me (cash is king!)

I agree with you Donna. It used to be *much* easier to find "front of the plane" "Saver" rewards. These days - my preferred airline is Delta - and my preferred hub is Atlanta (I fly out of JAX). So you can pretty much forget about anything approaching the old Saver rewards in terms of miles. I'm looking at perhaps 200k miles minimum RT to Europe or Asia. Note that I could get "cheaper" flights hubbing through another city. Like Detroit. Or JFK. Or flying 2 stops instead of 1. But I'm at an age/point in life where I want to go exactly how I want to go. Note that one advantage of Atlanta to me is it has numerous flights to JAX daily - whereas other hub airports might have only 1 or 2. So I'm often looking at connections through those hubs that are super short - or super long. Nothing that's "just right".

I thought Travis' analysis was really good. I had been starting to think along the lines he suggested a while back. And will probably modify my behavior. First to go will be my United Visa card. Which I don't use very often. Only for Costco and a couple of doctors these days. Think I'll be better off with a cash back card. Perhaps the Fidelity 2% card. I only have a few UA miles left. Not enough for much of anything. Wonder if anyone is thinking of doing the same/similar?