How NOT To Determine The Value Of American Miles

Just yesterday I published a post with my valuation of various points currencies. Whenever I share my valuation of points, I always mention that there’s no absolute correct ways to value points.

How to go about valuing points

There’s generally a floor and ceiling for valuing points, but it’s not unreasonable for two people to have completely different valuations of points. One person could value a currency at a cent each, and another could value a currency at five cents each.

But the logic has to add up.

One issue people often take with my approach to valuing points is that I’m not actually using a specific formula for doing so. Rather I’d like to think I’m an expert in these programs, and I go based on my overall sense of what these currencies are worth.

This is both a relative and absolute exercise. For example, I know that I value most mileage currencies around 1.2-1.5 cents each (based on the general value I get from miles), and I also know that I value United miles more than Delta miles, for example. So that’s my approach to valuing miles, in a jiffy.

Are American miles worth 2.6 cents each?!

JonNYC links to a NerdWallet story about why you should start collecting American miles, and he highlights how they say that American miles have an average value of 2.6 cents per each.

https://twitter.com/xJonNYC/status/1086465277330624513

While that’s way higher than I value American miles, I wasn’t quite so ready to rule that out. Like I said, valuing miles is highly subjective, and if someone said “I exclusively redeem my American miles for Qatar Airways business class between the US and the Middle East, India, and Africa,” I wouldn’t dispute that valuation. That person may well be getting an average of over 2.6 cents of value per mile.

Why this logic is wrong

There’s not a single right way to value airline miles, but there is a wrong way… and unfortunately NerdWallet’s logic is very bad. While I don’t have a methodology for valuing miles, they do. They have a very exact approach, it’s just very flawed.

Here’s how they describe how they arrived at their mileage valuation:

To determine the estimated value of AAdvantage miles, we sampled prices in both cash and points between November 2018 and April 2019 on the most popular 24 one-way domestic routes flown by American, measured by passengers enplaned, according to data from the U.S. Department of Transportation. In addition, we sampled prices in both cash and points during the same time period on 15 randomly selected international one-way routes originating in the United States, selected from the carrier’s most recent route map.

For domestic flights, the average value was 1 cent per mile, with values ranging from 0.7 to 1.7 cents per mile in economy. For international flights, the average value was 5 cents per mile, with values ranging from 0.8 to 14 cents per mile in economy.

The first part of their logic is fine. Domestic one-way awards are a fair way to determine the average value of miles, since that’s how a majority of members try to redeem their miles. It makes sense that based on this, the average value was about one cent per mile, with the range being from 0.7 cents to 1.7 cents per mile in domestic economy.

But the second metric is bananas… B-A-N-A-N-A-S.

They’re determining the value of international redemptions by comparing one-way economy ticket costs to one-way mileage ticket costs. The problem is that while mileage redemption rates in international economy are reasonable one-way, one-way international revenue fares are generally outrageous.

For example, while you could fly roundtrip from New York to London for $588 in economy…

Booking that same outbound flight as a one-way would cost you $2,789, meaning a one-way costs roughly five times as much as a roundtrip.

By comparison, you could book that one-way ticket for 22,500 AAdvantage miles, so I guess they’d have you believe that you’re getting 12.4 cents of value per mile.

And that’s not even their highest redemption rates — they say you can get up to 14 cents per mile with these redemptions!

Bottom line

Personally when valuing miles I like to consider the value of international first and business class redemptions, since I tend to think that’s the best way to redeem miles. However, I also think there’s nothing wrong with basing the value of miles on the economy redemptions that most people might make, whether domestic or international. I think the ideal approach is to factor in both of those things.

However, determining the value of miles by comparing the cost of one-way international economy award redemptions to the cost of one-way international economy tickets is a completely useless metric, and that’s how this ridiculous 2.6 cent per mile valuation of American miles came up.

Comments

  1. Their technique is not flawed. One way flights are absolute necessary. Given that skipped leg is illegal in many international countries, using miles for one way flights is quiet valuable.

  2. @ Jackie — So you value a one-way economy flight from New York to London at $2,800? And in what country is skipping a leg illegal?

    Yes, a lot of people book one-way international economy awards, but that’s only because a one-way is half the cost of a roundtrip when redeeming miles. People wouldn’t do this if they cost 10x as much.

  3. American itself books 1 cent per mile of liability when awarding miles for flights representing their fair estimate of the value of flights to be provided upon redemption as required by ASC 606, new accounting rules they adopted 1/1/18.

    Of course booking partner awards you’ll tend to do better than that. Someone using miles strategically can do better than that.

    There’s a difference between saying ‘I can get 4 cents per mile from my American Airlines miles compared to the price of the tickets I’m redeeming for. But remember that you’re having to be flexible to get the redemptions you want, and you might not be willing to pay the retail price of those tickets to begin with.

    If we’re talking about ‘average value’ you and I roughly agree on the value of American Airlines miles even recognizing that miles redeemed in the future are worth less than miles today, that if you have a very large stash of miles incremental miles above what you need for specific redemptions are worth less than the miles that put you over the top towards an award.

    2.6 cents apiece is nuts because even TPG isn’t willing to claim they’re worth much more than half that 😉

  4. This is a case that illustrates the ‘subjectivity’ of the meaning of “value”.

    Precisely because one-way tickets cost so much more, it makes use of one’s points instead of cash to pay for one-way flights that much more “valuable.” So, 2.6cpp is pretty much what one gets for using one’s points to AVOID paying the ridiculously high cash costs of one-way tickets. I believe that is the point that @Jackie was making, which I think is valid.

  5. @ DCS — Realistically, you’re much better off just booking a roundtrip and throwing away the return if that’s what you’re trying to do.

  6. I only redeem my AA miles for business class on OW partners. I am able to get some incredible value out of my AA miles. More than any other currency I collect. So I think people like to bash AA miles and make them sound worthless. They’re not. I would never redeem them for less than 2.6 points anyways. If you redeem for domestic you are prob wasting the miles.

  7. @Lucky – You might well be right, but that is something that is best determined on a case per case basis. The point in the abstract remains that using points to pay for cash-expensive one-way flights has a relatively high ‘subjective’ value.

  8. DCS.

    I understand your point, but you would need to prepared to pay that $2800 in the first place….. who would do that (with their own money) if you could book the same flight for $588 and just skip the return….. or use it!!

  9. This gets to a more basic question – for US domestic flights, flights are effectively priced each way – one way flights cost half of round trips. Why hasn’t the same pricing structure emerged for international flights? If it were to emerge, it would be game changing.

  10. @ DCS — But it really doesn’t. Want to fly one-way from New York to London on January 29? You could book that for $145 on Norwegian. Heck, you could book premium economy for $500 on Norwegian. It’s one thing to claim that an international premium cabin ticket is worth a ton, but how can you make that claim for an economy ticket that can be purchased for a LOT less? This is so theoretical and academic that it’s worthless (which might be why we disagree about it). 😉

  11. @Adam — It does not matter what one is prepared to pay. The fact remains that one-way tickets are generally expensive, and there is nothing anyone can do about that. There may often be a middle ground where throwing away the second half of round-trip ticket would still be relatively expensive, justifying use of points. One just have to look at each real scenario and decide accordingly.

  12. @Lucky — What I will concede is the conclusion in the piece that the 2.6cpp makes AA miles the most valuable miles to have, precisely because of the alternatives that exist out there as you pointed out. But if one just wants to fly with AA (maybe because of greater convenience or elite recognition or some other reason), then avoiding one-way tickets by using points still has that ‘subjectively’ high value.

  13. To me, programs like AA that do not allow me to use transferable points (Amex MR, Chase UR, Citi TY) to supplement my account are inherently less valuable, after all that’s why I end up with numerous accounts with less than 30,000 points/miles, not enough to get an award I want and no way to supplement them without flying.

    But until I read the Nerdwallet article I had no idea that I could “easily transfer” my AAdvantage miles to other OneWorld partners like Cathay Pacific and JAL. I am going to go transfer my AAdvantage points to JAL right now, I will report back on how it goes.

  14. What this shows more than anything is why the legacy points/miles system with a fixed cost per ticket are vastly superior in many respects to the WN/B6 style redemption with a fixed point per dollar. The former allows for vastly favorable receptions. Of course, as you allude to in the comments, the logic is probably still flawed as the smarter play would be to book a r/t and throw away the return limiting the value you are truly getting on the redemption.

  15. Doesn’t JonNYC have a reputation and verified history of selling/trading/brokering AA systemwide-upgrades for his own personal benefit? Yes he does.

    An immoral person with a Twitter account can probably assign a lot of value to frequent-flier miles when you cheat the program for your own benefit.

  16. I have been saving and using aa miles for around 17 years and the problem I have is not their value but the availability of good itineraries. Today flying from lex the Kalispell I had to fly to Charlotte and then to Seattle and then Kalispell. With a 7 hour layover in Seattle. Then I tried to get tickets for my son and I to go to Iceland in September and the shortest itinerary is to go from lex to Dallas then London and finally Reykjavik. 22 hours. I’m done. I’m switching to capital one spark. 2 Miles per dollar with a possible 200,000 bonus for 50,000 on the card in 6 months. Same trip to Reykjavik around $800 so 80000 miles instead of 120000 American and a 10 hour total flight. How do you value that? And where are the one ways for 22500 miles? My trips to Europe are never under 120000 miles round-trip. Maybe I’m not getting it.

  17. There’s another flaw in their methodology: they use 2 different criteria for sampling and then merge them into one average.

    Domestic: most popular routes, backed by data. Makes sense, as there’s a specific methodology. Though it by definition emphasizes a particular choice.

    International: random routes. Makes sense as working with unbiased choice, but provides no insight into customer preference.

    Merge together and consider each equal: bad math. One is a sample chosen specifically to highlight preference, the other specifically to avoid it. Either both samples should be based in similar/identical “popularity” or both should be random.

  18. Over the past 5 years I have used my AA miles thus:

    MIA-DOH-BOM-DOH- BOM 2 QR Business class tickets round trips each trip in Dec 2014, Nov 2016 and Mar 2019.

    MIA-LAX-SYD AA 2 Business Class Tks One Way
    MIA-NAD-LAX-MIA 2 Business Class Tks One-Way . Only LAX_MIA in Economy on the return.

    Absolutely greater than 2.6 cents per mile in terms of value derived.

  19. When I first started getting into miles and points three years ago, I was reading a lot of blogs and other sources, and doing a lot of my own analysis. One striking conclusion that I came to is that NerdWallet just gets it wrong with surprising frequency, enough so that if they come up in a search, I now never click through to look at it. I don’t have any examples to give, but this one is as good as any.

    (On an peripheral note, I also feel like I’m seeing round trip advantages on domestic fares as of late — sometimes a one way costs as much as a round trip. I’ve seen this occasionally on United and Delta, I don’t know about American. It’s not consistent or even that frequent, but it’s there.)

  20. Anyone wondering why airlines and banks love frequent flier programs should re-read the Nerd Wallet post and the comments above. Even Ben and Gary have to say “nuts” at some point.

    But don’t be so tough on JonNYC. Who else is going to tell us when AA switches to bio degradable soap in the lavs on flights out of Madrid?

  21. I consistently find NerdWallet to have the wrongest analyses of credit cards. I never even click through to their links when they come up in a search.

  22. Not all of your readers live near a major city to take advantage of some of the low prices to Europe ( and booking a positioning flight can be expensive with no protection in case of delays, etc). I have a son who works in Europe. He has a serious medical condition. I often need to book trips on very short notice. Round-trips out of my western NY city run over $3000 last minute. Booked the same on United with KrisFlyer miles for 55,000 . I have had the same “luck”with AA and United miles, no so much with Delta.

  23. The value you are getting is what you would pay for the ticket – opportunity cost. So I would pay $2,000 for a trans Atlantic r/t business class ticket. Since I’m not going to be able to get that price on the retail market I’m going to use miles. Since I’d otherwise just pay for a coach ticket I’m forgoing what I’d earn. I personally no longer care about EQMs, so I value that a $0. Taxes are a wash, although there are exceptions.

    So, say I pay 140,000 miles for that ticket = 1.4 cents. Maybe I’l get 5,000 miles if I flew on the $1,000 coach ticket available on the same flight, so that 5,000 miles is worth $70 in this case. So my final calculation is $1,930/140,000, which is still 1.4 cents.

    I think 1.5 cents is fair, in general. Meanwhile we have all these folks who think the value of their miles are 2.5 cents and that their free time is worth $100 an hour. Yet can’t come up with a logical explanation as to why.

  24. It is hard to value a mile or point at 5 cents or more if the airline is willing to sell you the mile at 1.75 cents.

  25. The example you’ve given on the Heathrow flight is booked in full Y, which has last seat availability. The closest AAdvantage award for that would be an AAnytime booking at 47,500 miles, making the value roughly 6 cents per mile. NerdWallet’s value on miles completely ignores the seat availability issue that’s been a prime driver in devaluing the AA program. To match the availability of seats allocated for a revenue ticket, they’d need to compare AAnytime award pricing.

  26. I simply value the Miles to me by dividing the miles into the cost of a desired ticket (if I have this N&D right )

    I just did RTW19 1.0, IAD-Tokyo (ANA 77W) Tokyo-FRA (LH 747-8i) FRA-IAd (LH 747-8i) for a total of ~ 232,000 miles. If I paid for these First Class seats, it would have been ~ $40,000; note the $$ price might vary depending upon when I priced it. Also subtract the taxes, fees, and credit card costs from the ticket price

    Therefore these miles were worth ~ 17 cents each. But as the saying goes: your miles may vary

    Cool new (at least I don’t remember from previous visits) feature at Lufthansa First Class Terminal – a chair with carper sample on floor for you to sit on while they X-ray your shoes. #luxury
    Also scored 5 “Hawkeye” Ducks. Gave one to both FA who were thrilled

  27. @DCS: “This is a case that illustrates the ‘subjectivity’ of the meaning of “value”.”

    The irony in you making this statement is pretty thick.

  28. My biggest issues with AA miles has little to do with valuation. Valuations are subjective, and regardless of how any particular valuation is done there will ALWAYS be someone who disagrees with it. No, my biggest issue with AA miles is generally lack of available award space in general and the borderline idiotic routing at times.

  29. @Mike — I have no doubt that you’ll soon enlighten us, in a dissertation-long comment, about the nature of the ‘thick irony’ in a concept I have enunciated numerous times.

    [In fact, I am sure that the claim of ‘thick irony’ is simply the epitome of this individual’s morbid need to prove his ‘smarts’ by constantly calling out the transgressions of the object of his obsession.]

    G’day.

  30. I’d be ‘projecting’ if I spent a second of my life considering or worrying about anything that you might do or say, but I am sorry to burst your bubble of self-delusional obsession: you are utterly irrelevant.

  31. @DCS: Unlike you, I don’t really care about what people on the Internet think of me, so again, stop projecting.

  32. Then stop addressing me for good and we’ll be fine. I was actually enjoying my peace for a while there when you stopped obsessing with me. Off your meds now?

  33. Says one who is clearly an idiot because he offered no reason for the gratuitous personal attack. Can’t make this stuff up!

  34. @DCS: “Says one who is clearly an idiot because he offered no reason for the gratuitous personal attack. Can’t make this stuff up!”

    Yet again, you have no room to talk here.

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