As I mentioned previously, over the coming days and weeks you’ll see the occasional post from a fellow reader who has applied to write for OMAAT on an ongoing basis. It’s possible that posts will still be in the publication queue after we’ve announced our decision, so we’ll be publishing these anonymously. We hope you enjoy the different perspectives!
I’m a points geek. There are few things that make me prouder than finally ticketing an exciting and complex award itinerary.
After the initial excitement wears off, the next thing I always do is calculate the redemption value. Anything above 5 cents per mile would be reason for a celebratory dinner and maybe even a glass of Krug (a la Lucky). But recently, I’ve started to think beyond the cost per mile metric.
The basics of valuing your award redemption:
I’ve never been good at math (exactly why I watch the planes and don’t engineer them). And that’s why I’ve always been so attracted to this simple cost per mile (CPM) formula that Travis discussed in detail here:
Cost per mile (CPM) equation
This formula lets you easily compare different redemption values. The higher the CPM, the more valuable your award redemption. Unfortunately, however, there’s always more to the story than a simple division problem.
As I got more involved in this hobby, I spent more and more time engineering awards that maximized my cost per mile. But as I’ll explain below, between point transfer times, phone hold times, and the miles I would’ve earned by flying on a revenue ticket, I was actually incurring a lot of hidden costs that weren’t reflected in this simple formula.
In other words, my opportunity cost was sky-high. 😉
The missing factor: opportunity cost
Conceptually, opportunity cost is the idea that the time/money that you spend doing one thing is time/money that you could have spent doing something else.
Opportunity cost: visualized
Imagine it’s Thanksgiving evening and you’re planning a trip to Frankfurt for the following week. What do you do when a Lufthansa first class award seat becomes available for the flight you want? Do you skip the football, pumpkin pie, and family time to spend the next hour on the phone trying to switch onto the new flight?
If you make the call, the opportunity cost is all the family time you’d miss (which, in some *rare* cases, may actually be a good thing). Often, when booking award tickets, I encounter a similarly subtle opportunity cost tradeoff.
Opportunity cost applied to award tickets
Whereas booking paid tickets often involves a simple trip to Google Flights, award redemptions are a whole different story and often entail a larger opportunity cost. For example, my dad is planning on surprising my mom for their 23rd wedding anniversary with a special trip to Israel, and he’d like to use miles.
But my dad is – to be generous – not technologically inclined, so he asked me to help with his booking.
The seats I needed to book
My dad wants to fly to Tel Aviv in business class in October 2018. I found 2 seats available in business class on Austrian, routing from Miami to Vienna onto Tel Aviv.
Austrian business class
“Great!” I thought, “A straightforward award – I’m almost done.”
With a stash of Membership Rewards on hand, I knew that my best options for maximizing the cost per mile metric were:
- 69,000 Singapore KrisFlyer miles
- 82,500 Air Canada Aeroplan miles
So, you’re thinking: who in their right mind would redeem more miles with Aeroplan for the exact same ticket?!
What the concept of opportunity cost taught me, though, is that it may make sense to book the ticket with Aeroplan, even though it costs more miles and the CPM would thus be lower.
Opportunity cost: points transfer time
Membership Rewards Transfer Partner |
Transfer Ratio |
Transfer Time |
Air Canada Aeroplan |
1000 : 1000 |
Instant |
Singapore Airlines KrisFlyer |
1000 : 1000 |
~ 12 – 24 hours |
I began thinking about the Membership Rewards transfer times to Aeroplan vs. KrisFlyer. Points transfer to Aeroplan instantly, whereas they take 12-24 hours to transfer to KrisFlyer. Since there were only 2 award seats left in business class, I knew that I didn’t have time to waste – if I didn’t book the seats, someone else might grab them.
So, I decided that the opportunity cost of the time waiting for the points to transfer was too high, because if I lost the seats, I would’ve needed to repeat the whole search process again.
Opportunity cost: phone hold times
Although it’s now possible to redeem KrisFlyer miles online for Star Alliance flights, I kept receiving errors on the website when trying to select the flight.
So, in my example, not only would Membership Rewards take about a day to transfer to KrisFlyer, but also the flights I wanted had to be booked over the phone with KrisFlyer compared to immediate booking online with Aeroplan.
Internet vs. phone booking dilemma
Aside from the time I’d need to spend on the phone calling KrisFlyer to get the Austrian tickets booked, what about the possibility of a date mistake, a name spelling error, a long hold time, or an unhelpful phone agent that requires the dreaded HUCA? This could all be avoided if booked with Aeroplan online.
Opportunity cost: forgone miles
Finally, what about the miles that my parents would have earned if they paid for their flights to Israel? I often go straight to searching for awards, but sometimes when considering elite bonuses and other one-off promotions, the opportunity cost of redeeming miles is actually higher than the benefit of redeeming miles.
Forgone miles
Fortunately, my parents don’t have any status (does that make me a bad son?), so I didn’t need to consider this in my calculation.
So, what did I do?
Call me blasphemous, but in the end, I booked the ticket through Aeroplan and paid 13,500 more miles per person (how my math has improved!). At face value, I accepted a lower CPM by booking through Aeroplan.
When it’s all done!
However, I challenge you to think beyond the CPM and include a consideration for opportunity cost in your own calculations of redemption value.
When was the last time you searched for award space with ANA even though it takes longer than the other Star Alliance websites that often display phantom award space? Or played with the LifeMiles website for hours to get your flight to appear for lower miles and then found out it became unavailable during the endless hours of searching around?
This example was a simple award booking; can you imagine what happens to the opportunity cost when the itinerary gets more complex?
Ways to minimize opportunity cost
Fortunately, there are a number of tools that I recommend to minimize the time you spend searching for awards, making you more productive and reducing the opportunity cost of your time.
- ExpertFlyer
- The ability to set award availability and seat alerts saves you from refreshing websites every day, thereby greatly reducing your time spent searching for awards and minimizing your opportunity cost.
- Wikipedia Airline Destination Pages
- I find these pages really helpful when searching for an award with an obscure airline.
- Say you want to fly Royal Air Maroc to Casablanca. In order to figure out where Royal Air Maroc flies to in North America, look here and sort by country. This way, you can be more pointed (pun intended) in your award search for flights with Royal Air Maroc
Bottom line
Creating an absolute value for award redemptions is hard. The cost per mile (CPM) calculation is an easy way to simplify things, but doesn’t factor in the opportunity cost of the award redemption. The goal of this post was to get you thinking outside the box of cost per mile (CPM), and try to consider the opportunity cost when comparing different redemptions.
My challenge to you and please sound off in the comments: how do/will you include opportunity cost in calculating the value of your future award redemptions?
Thank you for sticking with me throughout this post. I look forward to hopefully writing many more for OMAAT!
As a reminder, this post was guest-written by a fellow reader. Feedback is appreciated, but please keep the comments kind and constructive.
And then there is the true cost of the alternative revenue ticket to consider. Not only could that ticket earn miles to offset its cost, but it could have been purchased with a discounted gift card purchased through a portal using a card that earned a multiple of points or miles or even fulfilled the required spending for a large cash sign on bonus.
I enjoyed this piece quite a bit as well! All the commenters above complaining and criticizing: OMAAT has a wide variety of posts, some of them about complex redemptions, and some of them for newbies to the whole miles and points thing. That's what makes it great! The info in this post might be "old news" to some of us, but it's still interesting and well written and the kind of content I come to...
I enjoyed this piece quite a bit as well! All the commenters above complaining and criticizing: OMAAT has a wide variety of posts, some of them about complex redemptions, and some of them for newbies to the whole miles and points thing. That's what makes it great! The info in this post might be "old news" to some of us, but it's still interesting and well written and the kind of content I come to OMAAT for. Lucky, I agree with whoever suggested that you should hire more than one person for more diverse perspectives. This poster was great, and I'd love to hear more from them!
Excellent piece -- insightful, engaging, and interesting. Looking forward to reading more from this author!
Great piece. Insightful and exceptionally well written.
I vote "hire."
Whoops -- sorry about my comment above to Tiffany. Didn't know this was a guest reporter. Good first effort!
I also factor in the cost of the taxes/fees. But the author is right on. I recently canceled an Iberia flight that was 53k miles in exchange for a Delta flight at 70k, basically for better connections/overnights. Convenience is important to me when traveling.
As far as time, I am retired and don't mind spending way too much time on this stuff. But obviously I draw the line because I typically only search the...
I also factor in the cost of the taxes/fees. But the author is right on. I recently canceled an Iberia flight that was 53k miles in exchange for a Delta flight at 70k, basically for better connections/overnights. Convenience is important to me when traveling.
As far as time, I am retired and don't mind spending way too much time on this stuff. But obviously I draw the line because I typically only search the US carriers. The next step of learning all the partners and how to find space on them is just daunting. There are so many blog posts but not one place that really can help walk you through where to search for what.
As the author of this post, I'm humbled by all the positive feedback -- thanks guys!
In regards to some of the comments:
- I'm glad this has sparked a healthy conversation about opportunity cost / valuing everyone's time. There are certainly other components of opportunity cost to booking award tickets, but these were the major ones that stuck out to me during the booking process.
- In my example, I was set on booking...
As the author of this post, I'm humbled by all the positive feedback -- thanks guys!
In regards to some of the comments:
- I'm glad this has sparked a healthy conversation about opportunity cost / valuing everyone's time. There are certainly other components of opportunity cost to booking award tickets, but these were the major ones that stuck out to me during the booking process.
- In my example, I was set on booking the Austrian ticket as this was all that was available. The YQ surcharges between Krisflyer and Aeroplan were almost identical, so didn't take that into consideration as a difference between booking with either program.
- Thanks for sharing Flightconnections.com! Looking forward to using in my future award searches!
Can you really book Royal Air Maroc as an award?? Which airline lets you book Royal Air Marco???
Critical and valuable information for anyone getting into points and miles AND for those of us veterans ‘stuck’ in the mud on just looking at # of miles for a redemption. Nice post and hope to read more like this!
Great post! I tend to favor convenience even when at a premium.
Pretty good though still loved the first person
One other tidbit that feels like it should be mentioned:
If I have Citi prestige points that get me a fixed 1.25 cents per point (on a united flight for the sake of this example), and can get the same flight using united miles that would get me 1.3 cents per point, I would still be better off using the Citi points since I’ll never get a redemption better than 1.25 cents per point and getting 1.3 cents per point from united is quite a poor redemption.
Anyone with an ounce of brain would know there is opportunity cost when making those decisions. Quite a few people reading this blog are most likely consultants and already understand the concept of opportunity cost. It would be helpful if instead of talking about something not so useful, You talk about finding a way to fly from say NYC to Prague in first class say for 100k miles round trip. What credit card points you...
Anyone with an ounce of brain would know there is opportunity cost when making those decisions. Quite a few people reading this blog are most likely consultants and already understand the concept of opportunity cost. It would be helpful if instead of talking about something not so useful, You talk about finding a way to fly from say NYC to Prague in first class say for 100k miles round trip. What credit card points you would transfer it to say Thai airways. And because Thai airways have coshare with I dunno Etihad for example, so somehow you can use 100k miles to go from NYC to Abu Dhabi to Prague for a 100k Miles instead of 200k miles with Etihad. I’m just making things up. But this would be a lot more useful than talking about the concept of opportunity cost.
Wow... it feels like fresh air blowing into this site. I like hearing from different people.
Well done mate. Great piece and you also have a great sense of fun which a lot of readers on here don’t.
While the featured guest writers are nice there is a distinct lack of Real Housewives gifs that only Lucky delivers.
Some good tips overall, but as others have mentioned the term opportunity cost is grossly misused. The example of using more points to transfer to Aeroplan is particularly egregious. In that case there is a direct trade off between cost and expediency. So the opportunity cost of the Aeroplan option is getting the cheaper flight, but the benefit is that the transfer goes through right away.
It's helpful to have useful tips, but detrimental to...
Some good tips overall, but as others have mentioned the term opportunity cost is grossly misused. The example of using more points to transfer to Aeroplan is particularly egregious. In that case there is a direct trade off between cost and expediency. So the opportunity cost of the Aeroplan option is getting the cheaper flight, but the benefit is that the transfer goes through right away.
It's helpful to have useful tips, but detrimental to dress the advice up in incorrect jargon.
Great post and nicely written. More like this one please.
Enjoyed the post and most of the comments. At my age I need to keep it simple!
I’m with Marija
Flightconnections.com is the way to go when you’re trying to figure out which airlines fly to each airport
Great article, funny, well-written.
The topic itself is a bit simple but does bring a slightly different perspective and the entertaining writing style made it worth it.
Keep more like this coming please!
I think you've just discovered something real important. Value is more important than cost. Just because something costs less doesn't mean it's the least expensive. Well done.
The search is the game!
My spouse recognizes this is a hobby (I don't play the stock market, gamble, watch sports or play video games) and that I enjoy the process of finding an open biz/first class seats for our leisure travel. We decide where to take vacations by where I can get the best points redemption value. Just last night I realized nearly 8 cents of value for our flights over the holidays!...
The search is the game!
My spouse recognizes this is a hobby (I don't play the stock market, gamble, watch sports or play video games) and that I enjoy the process of finding an open biz/first class seats for our leisure travel. We decide where to take vacations by where I can get the best points redemption value. Just last night I realized nearly 8 cents of value for our flights over the holidays!
I agree that I need to become more efficient at the process of finding open seats. The airline's wiki page for US destinations is always helpful, but then I mostly rely on google flights and need to learn the ins and outs of Expert Flyer. Also, I've learned to put a limit on searching for a better value once the flights are booked, that can become a time suck especially if I've already realized a great redemption point value.
One question on the equation:
redemption point value = cost of airfare if purchased / number of points
is should you subtract any surcharge fees added to points redemption from the purchase price of the ticket?
I'm in the "writing is fine, content is meh" camp. I only bother with CPM calculations in the sense that I need to know if I'm better off paying cash for something. Once the answer is "no" I stop counting.
The thing is, it just doesn't matter for the most part. I use my miles for long haul J; for the most part, I'd never pay hard cash for it, so the computation is pointless....
I'm in the "writing is fine, content is meh" camp. I only bother with CPM calculations in the sense that I need to know if I'm better off paying cash for something. Once the answer is "no" I stop counting.
The thing is, it just doesn't matter for the most part. I use my miles for long haul J; for the most part, I'd never pay hard cash for it, so the computation is pointless. Stuff actually starts to matter when it comes to hotel redemptions -- that's where I actually bother with a rough calculation.
But for air travel, I go somewhere I want to go, and don't bother with any CPM calculations.
Maybe a 6/10. Technically the writing is fine but the author tried too hard. All the parenthetical and dash/dash comments caused friction. These can be effective when used sparingly. When they are used this frequently it's a sign the author is trying too hard or lacks subtlety.
This left the same impression as the juxtaposed images. It came across as an attempt to be clever but in practice seemed sloppy.
Content-wise, for a...
Maybe a 6/10. Technically the writing is fine but the author tried too hard. All the parenthetical and dash/dash comments caused friction. These can be effective when used sparingly. When they are used this frequently it's a sign the author is trying too hard or lacks subtlety.
This left the same impression as the juxtaposed images. It came across as an attempt to be clever but in practice seemed sloppy.
Content-wise, for a novice, sure, this would be helpful. But for the person who considers taking an hour away from Thanksgiving to book a ticket? Not so much.
Not bad but I'm hoping the next guest(s) are better.
For some of us that can’t physically sit in coach for more than 5 or 6 hours, it can be even simpler: use miles or don’t go at all, lol.
+1 on a nice, well-written piece by the guest author.
Good story. I have horror stories about transferring TY points to Etihad, and later needing to change a flight and how long it took points to redeposit.
Although, Singapore has such good redemptions it might be worth just putting miles/points there.
These posts keep getting better.
Hire all 3 of them though.
I was going to mention that Austrian does charge fuel surcharges but maybe that’s not the point of this post.
I always check the price of what the award would have cost in cash. It’s not what I would have paid, but it is a real cost that would be necessary if paying in cash.
I do let people know what it would have cost in cash, though I redeemed miles for it, so it’s not quite that expensive.
@Nat Arem hello hookgrip :D
Tiffany -- the Tiffany/Travis simple formula is actually wrong. The correct formula for figuring out simple redemption cost in CPM is actually cost of ticket in cents (not dollars)/miles used.
Suppose you redeem 50,000 miles for a $1,000 ticket. Under your formula, you would put cost of ticket in dollars (1,000) over miles used (50,000). The result is .02. That's dollars per mile, not cents per mile. Two one hundredths of cent would be very...
Tiffany -- the Tiffany/Travis simple formula is actually wrong. The correct formula for figuring out simple redemption cost in CPM is actually cost of ticket in cents (not dollars)/miles used.
Suppose you redeem 50,000 miles for a $1,000 ticket. Under your formula, you would put cost of ticket in dollars (1,000) over miles used (50,000). The result is .02. That's dollars per mile, not cents per mile. Two one hundredths of cent would be very poor value!
So, to get cents per mile, what you actually need is the cost of the ticket in CENTS, not dollars. In this case, $1,000 is 100,000 cents. So, your numerator is 100,000. Your denominator is miles used, here 50,000. 100,000/50,000 is 2, and that is the correct answer expressed as cents per mile. $1,000 in tickets for 50,000 miles is 2 CPM.
Very true. I agree that other costs have to be taken into account. Kudos to the author of this article for bringing this up. - Would be great to hear what else you have to say. Please write more.
What a great article!!! So refreshing to hear someone talk about the other costs associated with point redemptions. It is true that this is a true cost that has to be taken more into account. - PLEASE WRITE MORE POSTS, I would love to hear what else this author has to say... I'm so happy right now. You made my day.
This is really interesting and has a unique voice. I'd love to hear more.
I would really like to see more articles about award chart sweet spots for different mileage programs. Like the ones that TravelisFree.com used to do pretty regularly (although I don't think he posts much anymore).
you forgot the YQ in your calculation, in your case it is over $600 CAD.
Interesting article from someone more down to Earth that does not “print miles” like many travel bloggers so it gives a real perspective on using miles vs paying for the ticket.
Excellent point that's often overlooked.
Regarding "ticket cost", some rather obvious points:
(a) If you would never pay for a J ticket, but would travel Y if you had to pay money, then using the J cost to determine the value of miles used to get a J award ticket is not reasonable
(b) For apples-to-apples comparisons, you have to compare the cost of a ticket that is equally hard to get and has to be booked equally far in...
Regarding "ticket cost", some rather obvious points:
(a) If you would never pay for a J ticket, but would travel Y if you had to pay money, then using the J cost to determine the value of miles used to get a J award ticket is not reasonable
(b) For apples-to-apples comparisons, you have to compare the cost of a ticket that is equally hard to get and has to be booked equally far in advance; and that is generally not possible. For example, the only way I can get J award tickets to X is to book 11 months in advance; but if I were going to pay money for it, I could buy it at my convenience. So using the "ticket price" as a measure of value is incorrect.
All in all, a somewhat unsophisticated article.
Opportunity cost: the next best alternative forgone.
Give time a value. (How many hours = how much money. And which booking typically takes how much time to search, and then book) And since not all miles are of same value, we need the miles*value-per-mile of currency used. Then the fuel surcharges (it varies too). Finally, put in a value for plan changes (some have very hefty cancellation fees, plus extra fees for close-in award flight...
Opportunity cost: the next best alternative forgone.
Give time a value. (How many hours = how much money. And which booking typically takes how much time to search, and then book) And since not all miles are of same value, we need the miles*value-per-mile of currency used. Then the fuel surcharges (it varies too). Finally, put in a value for plan changes (some have very hefty cancellation fees, plus extra fees for close-in award flight bookings). Justify why you attach these values in your calculation. Do up an excel spreadsheet template and share it.
Once you have attached a value to all these factors, you can make an informed decision on your personal opportunity cost, and you can see it at a glance what path you should pursue before even deciding which currency to transfer to and use.
This will increase your content score to distinction level.
The time spent is not a cost when one would rather do this than play video games or save the world.
Meh. What opportunity for profit, exactly, am I foregoing by not having Thanksgiving dinner? As someone else wrote, I think you're misunderstanding the meaning of opportunity cost.
Someone a bit more math-savvy, who is able to translate complex ideas about valuation into simple English, would be preferable.
I really appreciated the unique voice in this post. Thanks for bringing up a topic that hasn't been talked about much. This writer is great- I'd love to hear more from him / her!!
Writing: 8.5/10. Easy to read and digest.
Content: 7/10. Some originality here, though its not deep content like the previous article. Nonetheless, good effort overall.
I think this illustrates why, for many people, a simple cash-back card is the most "valuable." I think most people reading this blog actually get enjoyment from the process of spending more time to get a better points deal. Most of the travelling public would rather get the ticket and be on their way.
I do +1 the idea that another key thing to remember is that the "price" of the ticket is what you...
I think this illustrates why, for many people, a simple cash-back card is the most "valuable." I think most people reading this blog actually get enjoyment from the process of spending more time to get a better points deal. Most of the travelling public would rather get the ticket and be on their way.
I do +1 the idea that another key thing to remember is that the "price" of the ticket is what you would otherwise pay, not the $24,000 that CX charges for that first class seat. In fairness, Travis talks about that in the linked article.
Good article, the author could have mentioned the cost of acquiring those miles depending on the currency.
@Joe: would you help me study for the CFA exam please? :)
@Joe. I like your formula best.
@Craig. I agree about the difference between risk and opportunity cost.
Overall, I would have made the same choice as the writer on the parents trip. Good job !
Clear and helpful article for those of us just getting into the points game! So important to think about the tradeoffs we make when we book awards.
Doesn't Aeroplan charge a lot of taxes and fees for OS flights? Or did they change that?
Also, it appears that Lifemiles has FINALLY fixed their new web search and booking engine
also need to subtract fees and taxes you pay from the cost of the ticket
Great article! I would like to see more from this author.
Although not relevant for your comparison, it is such a shame that so many Star Alliance flights have such large fuel surcharges.
Really exciting to have a new voice on OMAAT, I really appreciated the unique voice in this post and totally relate to the CPM/time balance conversation. Thanks for bringing up a topic that hasn't been talked about much. This writer is great- I'd love to hear more from him/her and maybe do a q&a to discuss in more detail?
@DaninMCI, completely agree, and IMHO the painfully slow transfer times for SPG points make the value of those points SIGNIFICANTLY lower than most people think. I get it: SPG transfers to a lot of great programs, and their 20k-->25k transfer bonus is nice, but if the seats are gone by the time the points are in my account it doesn't do me any good!
all these post by the candidates are so good! I cant wait to read more articles!
I love the writing style, this person has personality and it shows. (The first two entries seemed too stoic and dry.) But the value of the article is minimal in that it doesn't really make a strong point. I think the article would've been a lot better if it were framed: Aeroplan or KrisFlyer for an award ticket to Israel. Aeroplan costs more but you get instant booking. All the other stuff, although well written, seemed superfluous.
Great post, an insightful comment in what I am sure quite a few people in their excitement over flying in premium cabins with points&miles forget! Keep'em coming!
Great article! Would like to see more from this author :)
This article presents a great illustration of the concept of opportunity cost. It touches on but does not mention by name the concept of liquidity. The reason the Aeroplan booking made sense was not just because of opportunity cost of the time to complete the more difficult SQ redemption but also the illiquidity of transferring MR to SQ. The transfers are slow and the award seats may be gone by the time the transfer is...
This article presents a great illustration of the concept of opportunity cost. It touches on but does not mention by name the concept of liquidity. The reason the Aeroplan booking made sense was not just because of opportunity cost of the time to complete the more difficult SQ redemption but also the illiquidity of transferring MR to SQ. The transfers are slow and the award seats may be gone by the time the transfer is completed, so MR are less liquid when used on SQ than Aeroplan. Similarly, while SPG points have the bonus when transferred in blocks of 20k, transfers usually take longer to complete than the same MR transfer. Therefore, SPG points are less liquid and less useful than MR for last minute awards or held awards. SPG points are more useful when you have flexibility.
This comes up in the business world all the time. If you need capital in the short run would you rather have $900k in cash or $1 million in real estate? Liquidity affects value.
The article is fine. Some reasonable points. However, the term "opportunity cost" is used incorrectly everywhere except perhaps the part about not earning miles from a paid ticket. Everything else might be considered a risk factor or a "better things to do with my time", but opportunity costs they are not.
In the miles and points space, "opportunity cost" is really the alternatives to accumulating one set of miles instead of something else - i.e....
The article is fine. Some reasonable points. However, the term "opportunity cost" is used incorrectly everywhere except perhaps the part about not earning miles from a paid ticket. Everything else might be considered a risk factor or a "better things to do with my time", but opportunity costs they are not.
In the miles and points space, "opportunity cost" is really the alternatives to accumulating one set of miles instead of something else - i.e. the opportunity cost of earning 50K miles on your credit card is $500 of cashback...
So cool! Very informative, keep these coming!
Great post! The writing style made for an easy, entertaining read, and a fresh perspective on something that I think a lot of mileage junkies just take for granted.
I know plenty of people who love bragging to their friends --who know nothing about miles/points-- about how much cash they saved by using miles; they always try to play it cool like they booked everything in 5 minutes, never mentioning the hours and hours...
Great post! The writing style made for an easy, entertaining read, and a fresh perspective on something that I think a lot of mileage junkies just take for granted.
I know plenty of people who love bragging to their friends --who know nothing about miles/points-- about how much cash they saved by using miles; they always try to play it cool like they booked everything in 5 minutes, never mentioning the hours and hours of time that they actually had to spend putting the award together from start to finish.
Would love to see more of these simple yet provocative articles on the site.
Exactly my thought process... although I always factor in that there are YQs, and connection hassle, and I would never pay $10.000 (or whatever insane amount) for first class, and I don't actually have a particular wish to visit Doha... But at least this sounded as researched article, not just an opinion piece which makes me appreciate it more.
Only one improvement is needed for the article - the flight destination are better (and easier)...
Exactly my thought process... although I always factor in that there are YQs, and connection hassle, and I would never pay $10.000 (or whatever insane amount) for first class, and I don't actually have a particular wish to visit Doha... But at least this sounded as researched article, not just an opinion piece which makes me appreciate it more.
Only one improvement is needed for the article - the flight destination are better (and easier) researched on
http://www.flightconnections.com/
Obviously, my equation can easily take care of other cost components. E.g., if you incur search costs while redeeming miles, you can factor those into T.
Great post
Great article. So often we forget the value of our own time when pursuing this hobby. Another part of the opportunity cost is that so many of us get so little vacation time that we really have to ask ourselves, "is it better to fly direct in a crummier product if it means an extra day of useable time at my destination?"
I have a Google sheet for all of my award tickets and I...
Great article. So often we forget the value of our own time when pursuing this hobby. Another part of the opportunity cost is that so many of us get so little vacation time that we really have to ask ourselves, "is it better to fly direct in a crummier product if it means an extra day of useable time at my destination?"
I have a Google sheet for all of my award tickets and I have a "CPM High" and a "CPM Low" column – the former for the flight I actually took and the latter for the flight I would have taken if I'd been paying out of my own pocket. Yes, ANA First on a direct flight is superior to a one-stop Korean Air flight in J, but the "real" number is somewhere between those two. My spreadsheet also deducts the co-pays and value of foregone reward miles before calculating the CPM.
The redemption value formula you use is contradictory. You are implicitly assuming that the value of the miles you earn when buying a cash ticket is zero while you assign positive value to the miles you redeem. That doesn't make sense, the value of a mile you earn should have roughly the same value as a mile you spend. (At least if we abstract from market imperfections and such.)
Furthermore, your formula ignores the co-payment...
The redemption value formula you use is contradictory. You are implicitly assuming that the value of the miles you earn when buying a cash ticket is zero while you assign positive value to the miles you redeem. That doesn't make sense, the value of a mile you earn should have roughly the same value as a mile you spend. (At least if we abstract from market imperfections and such.)
Furthermore, your formula ignores the co-payment (taxes and fees) necessary for many redemptions.
A more accurate representation. Let a value of a mile be V, let P be the cash ticket price, T the co-payment (for award travel), R the number of miles redeemed, and E the number of miles earned when flying cash. Then,
R x V + T = P - E x V.
The left-hand side represents the cost of an award ticket (dollar value of miles you're giving up plus cash co-payment). The right-hand side represents the cost of a cash ticket. It's the dollar price of the ticket P minus the dollar value of the miles you're earning.
If you're choosing optimally between earning and redeeming, the left-hand side and right-hand side must be equal.
From the equation, with a bit of algebra it follows that the value of a mile is
V = ( P - T ) / ( R + E).
I agree with the approach. In fact one of the worst (out of many) things about Amex points is the slow transfer time to partners. It's not that I mind the waiting but in your example say there was only the Krisflyer option. With 12-24 hour transfer time do you dare? It's 2018 it's time we do away with transfer times that take more than a few minutes and while we are at it it's...
I agree with the approach. In fact one of the worst (out of many) things about Amex points is the slow transfer time to partners. It's not that I mind the waiting but in your example say there was only the Krisflyer option. With 12-24 hour transfer time do you dare? It's 2018 it's time we do away with transfer times that take more than a few minutes and while we are at it it's time we do way with promo's that require 6 to 12 or whatever weeks to award the miles/points like it's 1972.
I do take into account non-math factors but sometimes I'm limited by award availability. Aircraft type are a big deal to me as well. So for example I'd rather spend a few more miles on a nice product most of the time.
I would have thought you'd consider the opportunity cost of other uses for the miles in a program from which you're considering redeeming. For example, some programs have sweet spots for better value award redemption, flights to cities you want to go in the future, etc. Redeeming from such a program for a different award may deprive you of the opportunity for those other awards in the future if you plan to want or need...
I would have thought you'd consider the opportunity cost of other uses for the miles in a program from which you're considering redeeming. For example, some programs have sweet spots for better value award redemption, flights to cities you want to go in the future, etc. Redeeming from such a program for a different award may deprive you of the opportunity for those other awards in the future if you plan to want or need them; but redeeming miles from another program where there are not really good flights to other places you want to go in the future might be a great way to burn those miles.
Additionally, I, too recently used Aeroplan miles instead of United miles for biz class travel on Austrian. I chose Aeroplan in part because they're separating from Air Canada in a couple years and who know what will happen to them -- and my miles. I transferred a few extra membership reward points and then redeemed for travel on Austrian, thereby burning all my Aeroplan miles. Now it doesn't matter to me what happens to them going forward.
I think things like all of these make the opportunity cost calculation even more complex and personal.
@JamesK above is correct.
valuation = cost of ticket / miles or points used is not necessarily a good way to calculate.
Perhaps it's better to calculate as valuation = cost of economy class ticket that you usually buy / miles or points used + how much you value J or F class. For example, being a cheapskate, if on vacation and not a short business trip paid by a company, I might value LAX-CDG in J at $300 more. I usually wouldn't pay a few thousand dollars more.
10/10 I felt like I was reading one of Lucky's articles
There is another part of the equation that often gets ignored and that's the acquisition cost of the points your spending.
Clearly this is difficult to calculate given all the different ways you earn points and the various bonuses.
Bloggers of course live a very very different reality from the rest of us. For even an well off person earning enough miles for a pair of round trip tickets via long haul business...
There is another part of the equation that often gets ignored and that's the acquisition cost of the points your spending.
Clearly this is difficult to calculate given all the different ways you earn points and the various bonuses.
Bloggers of course live a very very different reality from the rest of us. For even an well off person earning enough miles for a pair of round trip tickets via long haul business class can take a year or more of effort especially if you don't have big sign up bonuses to surge you ahead.
Which means that even if your favorite blogger suddenly tells you that you can have first class tickets to Europe for 25k miles it may not be worth it if earning those points is the result of a years worth of credit card spend for a trip that you weren't really dreaming about anyway.
Well written article but fairly obvious. The people out there who value their time already know this trade off and the people who don’t won’t care. There will always be the people who will work for hours to save $10 on something or will stand in a 1 hour line for free ice cream or similar. This won’t change their mind.
Great post. I fall into the trap of going straight for cpm rather than weighing out true opportunity cost rather often. Very well written!
Nicely done. Good article.
Are you sure it´s possible to hire just one person? All the posts so far have been interesting, maybe hire one but feature the other from time to time.
Good article. Though I wish people would try to stop calculating CPM with tickets they would never actually pay for. If I spend 62,500 miles for Delta Suites, sure I can make myself feel smart by saying that the one-way cost of BWI-DTW-AMS is $7700, but I would never actually have paid that amount (even if I was using cash, I certainly wouldn't book as a one-way). It's so artificial to claim I got 10 cpm on my Flying Blue points
Great post ! I would add that vie-tlv is a fake j so not really such a great redemption for a miles geek...
This post was clearly written for an North American audience. As it's supposed to be a general topic that applies to all miles collectors around the world, maybe consider using more general examples which are understandable for all readers?
Otherwise an interesting topic, although I didn't quite catch the point (hopefully) being made, probably because of what mentioned above.
Well written, though it was a bit dry and not engaging.
LONG time reader, first time commenter - this is honestly so true...not enough people consider unique approaches and the value for time spent when it comes to travel. Great post - well-written, thoughtful and valuable. Thanks for posting! Would like to see more from this author.
Very well written and easy to follow. Thank you! 9.5/10!