Miles Aren’t Free: How To Value Your Redemptions

Filed Under: Advice

Miles Aren’t Free: How To Value Your Redemptions
Miles Aren’t Free: How To Value What You Earn
Miles Aren’t Free: Establishing An Overall Value

One of the first things I discuss with people who are just starting out is to encourage them to think of their miles as currency — you generally paid something to get them either in time or money, and you will get something of value when you redeem them.

In other words, you might have Delta SkyMiles, American AAdvantage miles, or United MileagePlus miles in your frequent flyer account just like you might have Dollars, Euros, Pounds, or Yen in your wallet. All of them have some value, and they all have different values relative to each other. Determining those values, however, is tricky.

The reason you want to start treating your miles like currency is so that you can make smart decisions about when and how to acquire miles and when to redeem them.

Simply put, you should want to get “good” value when you spend your miles the same as you want to get “good” value when you spend your cash. Because in some ways, the two are fungible in the sense that pretty much everything that can be bought with miles can also be bought with cash. (The converse is not true.)

You probably give a lot of thought to how you spend this...
You probably give a lot of thought to how you spend this…

I’m not going to tell you how you should value your miles, and honestly, nobody else can tell you that either. (Though you can see how Ben values his miles here.) What I am going to do is describe a framework that you can use to think about your intrinsic mileage valuations. By examining how you earn and spend miles, we can hopefully establish some bounds around where your real valuation lies.

In this Part 1 of the three part series, I’ll show how to calculate the redemption value of a couple of awards and then analyze what this behavior says about how you value your miles.

Then in Part 2 I’ll apply similar analysis of your behavior to the mileage earning side of the question. This is even more important these days since a majority of miles are now acquired from means other than flying.

Finally in Part 3, I’ll tie the redemption side and the acquisition side together to establish lower and upper limits on our own personal mileage valuation. And then maybe I’ll talk a little bit about what behavioral finance says in terms of why we sometimes make irrational decisions with our miles.

The Mythical CPM

The most popular award redemption on the planet
The most popular award redemption on the planet

If you’ve ever been solicited to sign up for your airline’s co-branded credit card while hurrying to catch your flight, you know that the most popular redemption on the planet is the domestic economy award. These credit card hawkers often don’t even bother to advertise how many miles they’re offering, instead choosing to frame it as “enough for one (or two) economy tickets.”

Why? Because that’s how most people redeem their miles. So how does the redemption value look in this case?

Say you want to fly from Los Angeles to Dallas round trip. American will sell you an economy ticket for $500 or you can spend 25,000 miles.

If you book the ticket using miles, you would get 2 cents of value from them because they replaced $500 worth of cash. All you need to do is divide the cost of the ticket ($500), by the number of miles you need to redeem (25,000) and you’ll end up with a number in $ / mile, which is then commonly converted to cents per mile, or CPM.

In general, a higher redemption value is better than a lower one, because that means you were able to replace a lot of cash with each mile.

Redemption value = ticket cost divided by miles redeemed

The CPM then is a figure of merit for just about every redemption imaginable. You can use it to calculate how much cash your award replaced on anything you redeem your miles for, be it travel or toasters. In fact, if you show up at a miles-and-points conference, you’ll hear the term CPM thrown around a lot. Guys will brag about how big of a CPM they got on their last redemption like it’s the fish they didn’t actually catch last weekend.

Now let’s think about a business class award. Let’s imagine you want to fly business class from Chicago to Tokyo. American is willing to sell you that ticket for $4,000, or you can book it on miles for 100,000 miles. Using the equation we just learned, we can calculate the redemption value at 4 cents per mile.

All you need to know right now is that 4 is greater than 2. I’m not saying that one of those awards is better than the other for you, but it is a fact that the business class award is able to offset more cash than the economy award for each of the miles spent.

American's new business class seat
American’s new business class seat

The figure below allows you to visualize the CPM of the economy and business class awards that you hypothetically have redeemed in the paragraphs above.

Redemption range for miles

The range of redemption values is obviously huge so there’s no real upper end to the redemption graph. On the top end, I’ve personally redeemed around 16 CPM range for a business class award that had multiple stops. (That’s my fish story. It gets a little bigger every time I tell it.) On the low end, you can certainly redeem miles for far less than 1 cent, like if you choose that toaster, for example.

So you redeemed for a business class award at 4 CPM, but you also made an economy booking at 2 CPM. Clearly you’re willing to take 2 cents for each of your miles — the fact that you got 4 cents once is just a bonus.

But this just tells us what you’re willing to accept from someone (the airline in this case) who wants to buy your miles from you. You accepted 2 cents, but you might have accepted less.

Would you really buy that ticket?

At this point, some of you are no doubt saying to yourself, I would never redeem for a domestic economy award, so I’m going to say that I value my miles at 4 cents each.

The problem is that you might have behaved differently if you didn’t have the miles and were forced to pay cash for that business class seat. Would you really have paid $4,000 for it? If so, you can stop reading here, knowing that you do indeed value your miles at 4 cents.

For the rest of us, we might end up paying for economy instead. Or heck, some of us might not even take the trip. That means that we don’t actually value our miles at 4 cents because when push comes to shove and we’re asked to pony up the price in cash, we chicken out and cry Uncle.

Are you really prepared to pay cash for this?
Are you really prepared to pay cash for this?

If that’s the case, then all we know is that you’re willing to accept a 4 CPM redemption of your miles. You can’t value them at more than that or else you wouldn’t have booked the award, but you may in fact well value them quite a bit lower.

The bottom line is that unless you are ready, willing, and able to book exactly the same trip using cash, redemption value only establishes an upper bound on your value of a mile. 

For the math and economics nerds…

The CPM equation I have shown is only valid to first-order. That means that it is close to the right answer, but there are refinements that could be made.

The main second order effect that we are omitting here is the “opportunity cost” associated with award tickets since they don’t earn miles, but paying cash for the ticket would. Therefore we should really be subtracting out the value of the miles that we didn’t earn from the replacement cost of the award ticket. As an example, you can think of the business class ticket from Chicago to Tokyo as providing transportation and some miles at a cost of $4,000. Well, if you redeem miles for that trip, you get the exact same transportation, just not the miles. Therefore, you’re not getting the full $4,000 in value.

This is easier said than done, however, since the logic involved is a little circular in that you can’t put a value on the “lost miles” until you know the value of the miles. But that’s precisely what we’re trying to figure out in the first place. It’s a chicken-and-egg dilemma, if you will. So I suggest that we omit the opportunity cost for now, but instead agree to remember that the redemption value we calculate is a little higher than it otherwise should be.

You can solve iterative equations by plotting them and then....  oooh, bright colors!
You can solve equations iteratively by plotting them and then…. ooh, a rainbow!

Bottom line

I like to start valuing miles based on redemptions, as that’s what we’re all ultimately interested in. Once you know the upper bounds on your personal valuation of a mile, you can better determine if you’re using your miles well, or even getting a good deal.

Next up, we will apply similar logic to acquiring miles.

How do you approach evaluating your miles? Or do you?

  1. Travis, obviously you’re a smart guy, but this post insults the intellect of OMAAT’s readership. Nothing herein is not patently obvious.

  2. Can’t you just add the number of miles you would earn for the revenue ticket in the denominator of your equation to get a much more realistic CPM?
    And you certainly do not have to be a ‘math or economic nerd’ to understand this.

  3. As an appraiser, I always cringe when people refer to the method you’ve described as reflecting value. I would recommend calling this approach a formula for determining retail value or personal investment value. By no means is this an accurate way to determine the theoretical market value of the points or miles, which is what most people reference when they think of value. It’s a small nitpick, but makes a big difference as an appraiser if you don’t properly define the type of value you are determining.

  4. Money (and miles) bet that Travis wrote something like this because it may help sincerely interested new readers (i.e. ones who found OMAAT through the media) or those who aren’t nearly as accomplished — like people such as the insulted Jason. One of my first clues was “One of the first things I discuss with people who are just starting out is to encourage them to think of their miles as currency.” No good deed…

  5. @Jason – Keep in mind that OMAAT is still catering to noobs in this game for the time being with all the new readers they have to the blog. So yes, to you, this may seem really obvious but to many who are brand new to the miles games, this could be good information.

  6. Thanx, Luis.
    For me, neither the math was easy, neither the conclusions was obvious. And, if I’m not an Einstein, I still consider myself a relatively inteligent person.
    For people new in the game, like me, this was a interesting point of view. If nothing else, I think Travis just gave us (again: the newbies) something to think about, if not definitive, or theoretical accurate, like Christian said, definitily a tool to start to learn by ourselves how to make a decision when the opportunity to redeem miles/points comes.
    As for me, Travis is not showing off… At least, it does not bother me his thinking being explained. Thanks, Travis. Nice text. No offense taken!

  7. Yeah, you don’t need to know the value of the mile to calculate the opportunity cost of a revenue flight.

    A flight that costs 120k miles but would earn 15k on revenue would ‘cost’ 135k

  8. Not quite that simple Andy. There is also a value for the status miles earned on the flight, which ranges from zero for infrequent flyers to potentially a hefty sum for someone 15k short of EXP/Diamond/1K.

  9. A really big consideration is left out of this basic primer.

    A heavily restricted paid ticket is sold much more cheaply than an unrestricted paid ticket, even though the seat is the same. In the same way, an award redemption is “worth” much less than the dollar value of a paid ticket, because the two are not the same product.

    Sure you get the same seat, but with cash you could have bought a business/first ticket when feel like it, whereas with miles you have to book 11 months in advance in many cases. Plus you can never change the booking because the award for the new dates won’t be available unless it is 11 months away. So the award should not be assigned the same value as the cash ticket.

    So if the business class ticket would have cost $5000, and you bought the same trip with miles, you didn’t buy $5000 worth of travel.

  10. C’mon y’all. Why bust balls over these introductory articles? Remember Travis has a day job and thus limited time to pen these articles, thus it’s not like you are going to get some advanced opus instead by bullying him into doing no more light bites articles/series of articles. This is what his situation allows, so it makes sense that this is his main type of contribution here (when it comes to the full time OMAAT authors, then perhaps you may have a bone to pick, over the longer term).

    After all, it’s not like any of us are directly paying for this content, and you don’t have to read it if you don’t want to. The nature of this game forces regular content additions, so Travis likely can only do so much here given the constraints he operates under. Sure, there no earth shattering revelations for older hands, but it doesn’t hurt having a read and even offering additional tips in the comments (paying it forward, as we were all starters once).

    Remember OMAAT authors are humans (with feelings), and sure they have the odd off day here and there (like we all do), so cut them just a modicum of slack, no? In my opinion, this article *isn’t* a case of Travis scrapping the bottom of the barrel, so perhaps keep some perspective…

  11. Travis, your writing in this article is superb. Trying to write about values is always a little squishy, but I appreciate your logic and the clarity of your thoughts. Thanks!

  12. When it comes to the Qantas Frequent Flyer program, to make the most leverage out of the opportunity cost involved with redemptions here (noting that International upgrades are far too lottery even for Platinums, and domestic upgrades typically don’t make sense) I almost exclusively redeem premium awards on non-Qantas operated flights.

    This is because Qantas really punishes you in a lot of cases for flying any flight without a QF number (and on most of its codeshares jacks up the flight price) – even within OneWorld – in terms of point and status credit earn, so it is typically the best sweet spot for QFF points usage.

    When a QF operated flight is required, I’m always a rev-pax, as its one of the few opportunities to earn status credits without penalty.

  13. ABC — no, you can’t just add the miles you would earn into the denominator. The problem with that is that you are then implicitly valuing those miles earned at the possibly inflated redemption value that you are calculating.

    Let’s expand on the business case example. Say that $4000 ticket earned 20,000 miles (i.e. you are a general member with Delta or United earning 5 points per dollar spent).

    I think you are suggesting that we should take $4000 / (100,000 + 20,000) = 3.33 cents.

    That just valued those 20,000 miles at 3.3 cents. In other words, you are saying you “lost” $666 of value by not earning miles. To prove this to you, let’s now do it another way where we take the $666 out of the numerator

    ($4000 – $666) / 100,000 = 3.33 cents.

    Do you really value your miles at 3.3 cents? Because you just valued the 20,000 miles that you didn’t earn at 3.33 cents each.

    That’s why the problem form of the equation should be:

    (Ticket Cost – Value of Miles Not Earned) / Miles Redeemed

    So let’s just imagine that you actually value your miles at 1.5 cents. That means you are forgoing $300 worth of miles by booking the award instead of a revenue ticket.

    Now the equation looks like this:

    ($4000 – $300) / 100,000 = 3.7 cents

    Do you see that 3.7 cents is not the same as 3.3 cents?

    Of course the problem — as I explained — was that you can’t plug in the “value of the miles not earned” into the initial equation because that’s exactly what we’re trying to figure out. We don’t know that yet.

    IF you value them at 2.0 cents, you’d get a redemption value of 3.6 cents.
    IF you value them at 1.5 cents, you’d get a redemption value of 3.7 cents.
    IF you value them at 1 cent, you’d get a redemption value of 3.8 cents

    That’s why I said we know that our redemption value is estimating a little on the high side, but we don’t know by how much.

    Does that help you to understand? Ask some more questions. I’m happy to go through some more examples to help you and everyone else get it.

  14. I’m not a super newbie but I generally don’ redeem miles for tix since I have to do status run. This article is still helpful to me and offers the simplest way to understand CPM. If you’re a long-time reader of this blog and an experienced points/miles collector, what the hell are you doing on this site? Go pick your fight on FlyerTalk.

    PS: I just burned some SkyMiles before they are devaluated even further–I booked “saver level” open jaw JFK/EZE and SCL/JFK via MEX on Aeromexico Dreamliner 787 biz class for 3 people at 125K miles per person while the revenue ticket is over $2800. So the CPM, based on Travis’ formula, is over 2 cents. It’s not 4 cents but I’m happy about the redemption as a DL PM. I’ll be visiting South America for the first time with my parents, and flying biz class and experiencing 787 for the first time. You can’t put value on that.

  15. To amend the award tix I just booked via on Aeromexico metal–the same flights in revenue ticketing don’t show up on, but on AM site, which shows $2893. On, a similar schedule on DL metal prices out at $6565. So if I were to divide $6565 by 125K miles, that’s 5.2 CPM! But who wants to fly DL metal when I can enjoy full flat on a 787 over 4 flights?

  16. I guess i am one of those guys that never flies business class. I have been to 27 countries, and fly domestically about 15x yearly…..and I have only been first class 2x in my life, both from PHX to PDX on alaska. Big whoop….

    I take last minute flights a lot, or within a week, because thats the way my businesses work(I own 3). opportunities or demands to travel usually come up a week ahead of time. So by using AVIOS points earned by my 3 BIZ AMEX and 1 PRG AMEX, my CPM is a lot higher than 2c.

    My grandfather just died near EAT, so we flew 6 people last minute for 90k miles from PHX to SEA. The regular flights were $750+ for nonstop. My CPM was off the charts.

  17. Ben —

    Over 2 cents is fine. Good even. You’ll notice that I said nothing about what CPM you should redeem for. My goal here is to show folks how to calculate it so that you have an idea of what value you get from your miles. That way you can compare it to the price you are paying for you miles. Because clearly, you want to be getting more out than you are putting in.

  18. This is a great primer. There are obviously some other conditions that influence the value…whether you have the money available to buy the ticket being the most important as for some people a free ticket, no matter how low the value, enables a vacation that otherwise would not happen.

    Personally I always look to use miles to give me an experience I would not otherwise have and also booking 11 months out to maximize the value. Looking forward to flying to the Maldives in first class for 11 months also has a value…

  19. @ Christian

    That’s nice that you are an appraiser, but I definitely think its wrong to value miles at market value. I just booked an itinerary in F for 135k miles that would have apparently cost $23,000 to book. Does that mean I’m really getting 17 cents per mile of value out of my miles? In a sense, yes. Does that mean I would be stupid to use 25k of my miles for a domestic coach reservation instead of paying $800 for a coach ticket, getting only 3 cents per mile? No.

    I’ve recently had to visit my sister in CVG a few times. As you may know, CVG is still largely in the throes of DL and coach fares from NYC are well above $500 roundtrip and often way above $1000. I would not have been able to visit her as much as I did this year had I had to pay those insane airfares every time I went. Being able to use my miles, even if I wasn’t getting as good “market value” as my upcoming international F trip was a big help.

  20. @Travis. I’m not disagreeing with you. I found your formula to be a good solve to my age-long question on CPM. I’m happy with the redemption and knowing the value and defending some of the recent blog entries catered to new readers. Those experienced frequent flyers should just go to FlyerTalk for a more lively discussion if that’s what they’re looking for.

  21. @Travis,
    As one of the n00bs mentioned, this really starts to answer some of the questions that I wasn’t getting just from the primer. Thank you a lot for taking the time to write this. I know that you normally cater to a more savvy group, so it means a lot that you’d take a moment to help clarify this.

  22. I would argue that your theoretical 16CPM redemption is even less of a “real” value than the 4CPM business class ticket. It sounds like it took advantage of certain peculiarities of award pricing vs. revenue pricing, like how one-way international awards are a much better value than one-way international revenue tickets in any class of service, and how awards typically allow more stopover flexibility.

    For one-way awards, this is real value if you have any need to use international one-way tickets regularly, though in many cases if forced to use cash you might well be buying roundtrips for cheaper than the one-way and throwing away the second half, so really CPM should be against the $1,000 roundtrip, not the $2,000 one-way.

    And for stopovers, you likely would be buying two or more separate tickets in a way that prices most effectively. These are even more “real” reductions to CPM than the “would you pay for business class?” question, since some people actually would pay for business class … but almost no one would willfully throw away money by booking an overpriced multi-city ticket when an open jaw with a one-way in the middle is often vastly cheaper.

    But then, thinking too much about CPM is a fast-track to a 2% cash back card. Some people, like myself and probably most readers of this blog, simply place an intangible value on being able to get a premium cabin experience using miles that they’d likely never pay cash for. And some people don’t, and are probably better served by the 2% cash back.

  23. Bgriff —

    For sure, I would never have paid anything close to the cost of that 16 CPM ticket. I’m mentioning it to illustrate the point that to some extent, the sky’s the limit in terms of creating artificially high award redemptions.

  24. Christian — Just to point out, I’m not saying this is methodology establishes an absolute value on your miles — I’m just saying that it sets an upper bound. And soon I’ll show the lower bound. Then we should be able to agree that the actual value lies in between.

  25. Travis, thanks for a very elaborate analysis. There are certainly some ‘ground rules’ of what makes sense and what not but in the end I find any value approach very personal. I probably redeem around 500K miles each year, this year a lot more. I never use any for domestic flights (except the occasional Avios ticket), only international business or first class, mainly US to Europe. If I can buy such a ticket at around $2K I buy it, if not, I use miles. Granted, not a very scientific approach but it works for me. What has a lot of value to me is the option to cancel award tickets for a moderate fee at the last minute, which you cannot with a heavily discounted revenue ticket.

  26. I am new to this but I think I have done well or is it not?

    We are going to Ecuador approx/average ticket cost I found to be $1,000 we are going out economy but it let me change to perm economy based on hubby’s status, coming back we booked business round trip each ticket was 55,000 points so am I calculating that right to be 0.18? Thanks

  27. I think this discussion of “value” is as much about philosophy as science or mathematics. My son collected beanie babies and used to tell me how much each was worth because of the a published value in a catalog. I said well sell one and then we will see how much it is worth. I think the same applies to miles. The real value of a mile or anything else is what you can get if you sell it and not what you can use it for. Any other calculation is false.

  28. As a newbie, I appreciate the perspective and education. I do think though that you are overlooking what I think is the MAJOR motivator of newbies, the opportunity value. Right now, as an infrequent traveler looking to see much more of the world and country, I can tell you that if I have the option of getting 1 first class ticket to one destination, versus 4 economy to 4 different destinations, that is a no brainer for me. I’m going to take the 4 trips to 4 different locations. It seems like that value, of seeing more, is often lost in many of the posts here I’ve seen when discussing “value”.

    Eventually I may care more about the comfort than number of trips, but right now I care about going more places (I imagine the OMAAT veterans heads exploding right now). That opportunity value far outweighs my judgement of CPM value.

  29. Nice article, Travis!
    I apply an inexact methodology for redeeming IHG points (that works for me) from reading your posts and other travelers’ conversations.
    I’m either hording points and spending cash or using points to allocate money elsewhere. That’s the bottom line. Trying to get the absolute best deal possible at all times is ambitious but time-consuming!

  30. Travis,

    Thanks for this article! I’ve set up my own iteration spreadsheet to see how much I value my miles (yes, I’m definitely the nerd you were referencing in your article).

    But what about upgrade rewards? Would your original equation still be valid?

    CPM = ( Ticket Cost for Upgrade – Value of Miles not earned in Upgrade ) / Miles Redeemed for Upgrade

    If this is the case, it seems like my miles would be better spent on upgrading than a full redemption.

Leave a Reply

If you'd like to participate in the discussion, please adhere to our commenting guidelines. Your email address will not be published. Required fields are marked *