How to determine the value of your miles

by , SmarterTravel Staff
Editor's Note: This story was originally published on February 7, 2006. To see the most recent SmarterTravel articles on related topics, please click on any of the following links: Erica Silverstein, frequent flyer.

Miles are a lot like dollars: You work hard to earn them, so you want to make sure you get the most out of them. But it's not always clear what the value of your miles is, or in which situations it's better to use miles or just pay cash. Here are a few rules to follow to help you figure out how much your miles are worth.

Use the industry standard

Over the past few years, ticket prices have dropped and award seats have become more scarce; the result has been the devaluation of your miles. Whereas the industry standard of the value of a mile was once two cents, experts agree that it's dropped to one cent.

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If you're trying to decide whether to purchase a ticket or use miles, you can do the math to determine where the best value is. Say you find a flight from Boston to San Francisco for $300. You would need 25,000 miles to book this flight for free. At one cent per mile, 25,000 miles are worth $250 (25,000 x $0.01). In this case, you'd be getting a lower price on the flight if you paid in miles (valued at $250) than if you bought the ticket outright (a cost of $300). If you then found the same flight for only $200, you'd be wise to pay in cash, rather than waste your miles.

Compare your options

Another way to look at the value of your miles is to compare how you would spend them. Perhaps you're planning two trips this year, and one flight costs $300 and the other costs $500. As they are both domestic flights, you would need 25,000 miles for the award ticket. If you divide the cost of the ticket by the number of miles needed, you'll arrive at the value of your miles. So if you used miles to purchase the $300 ticket, your miles would be worth 1.2 cents. But if you used them to buy the $500 ticket, your miles would be worth two cents. Because you want your miles to bring in the highest value possible, you should use them to purchase the higher-priced ticket.

The same idea works if you're debating whether to use your miles for an upgrade or book an upper-class award. On American, you can book a domestic first-class award for 60,000 miles. Or, you can upgrade a discount economy ticket for 30,000 miles round-trip. Let's say that on this route, an economy seat costs $300 and a first-class seat costs $1,000. To purchase the first-class award, your miles will be worth 1.7 cents ($1,000 divided by 60,000 miles). The cost of your upgrade is the difference between the first-class price ($1,000) and what you'll pay for the economy ticket ($300), which is $700. Therefore, the value of the miles used to upgrade is 2.3 cents ($700 divided by 30,000 miles). In this case, your miles will be worth more if you use them to upgrade rather than to buy the first-class seat outright.

When you do the math, you should always remember to factor in the cost of taxes, fees, or award-booking surcharges that might apply.

Determine personal value

Sometimes financial worth is not the best way to evaluate your miles. If you don't have enough money for an important flight, but you do have the miles, you should consider using them, even if the low cost of the ticket means you won't be getting great financial value from your miles. The personal value of taking the trip, as opposed to staying home, makes your miles more valuable to you. Or, if you have a few thousand miles in an account you know you won't be adding to, you'll get better value out of spending those miles for magazine subscriptions, regardless of equivalent newsstand cost, than leaving them to sit in your account.

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