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What are frequent flyer miles worth?

AskEd & AnswerEd
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Editor's Note: This story was originally published on March 29, 2007. To see the most recent SmarterTravel articles on related topics, please click on any of the following links: airfare, AskEd & AnswerEd, Ed Perkins, frequent flyer.

I continue to receive questions about the best ways to use frequent flyer miles. It's not surprising, since the apparent value of miles has decreased so much lately as travelers find it difficult to get seats. Here's a typical recent query: "I have airline miles that I can use for either airfare or hotels. Which would be the best use of them for travel to Spain, Italy, and France in September?" As is so often the case, the answer is much more complicated than the question.

A "controlled" currency

Not long ago, some financial writer pegged frequent flyer miles as the world's third or fourth largest currency in circulation. Maybe, but if so, they're a very tightly controlled currency. If airline miles were a real currency, you could use them to purchase just about anything, at relatively consistent exchange rates. That's clearly not the case with airline miles as you can use them in only a few limited transactions, at set exchange rates: air travel, limited hotel accommodations and cruises, and limited merchandise.

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"Retail" value

You can calculate a "retail" cost for your frequent flyer credit by measuring what sort of tickets you can "buy" with it. All the big lines offer most frequent flyer awards at two levels and although each line has its own names, let's just use generic "high-miles" and "low-miles" levels.

Low-miles values

Arlines invariably quote the lowest-mile level when they're promoting deals and offers. But airlines allocate very few seats to low-miles awards, so availability of seats runs from scarce to nonexistent. The retail cost depends on where and how you fly.

  • If you use low-miles awards for relatively long domestic coach trips or transatlantic travel in economy, I estimate the cost from around 0.7 to 1.5 cents per mile.
  • If you use low-miles awards for comfortable seats (business or first class), the retail values are higher—somewhere between three and six cents a mile. You arrive at similarly high values when you use your miles to upgrade a less expensive economy ticket.

High-miles values

If you really want a seat on specific dates, you usually have to use a high-miles award that gives access to any available seat. And for business or first class to Europe or Hawaii, a high-miles award may be your only realistic choice.

On most routes, the high-miles credit is double the low level mileage, but even more than that on some lines. Thus, credit you use for a high-miles award is worth roughly half the value you calculate for the low-miles awards. Check my earlier report for a detailed tabulation of award levels for travel within the 48 states and from the 48 states to Europe or Hawaii.

Real value

For most of us, retail values overstate the real value. Because, to you or anyone else, the real value of any given amount of frequent flyer credit is the amount of real cash money you would actually spend if you didn't use the mileage.

  • If you can get a low-miles seat for a domestic coach trip, for example, and if the cash cost of the ticket is $350, the value of that credit is 1.4 cents a mile—pretty good.
  • But if you can't get a low-miles seat, the value of the credit you'd have to use for a high-miles seat drops to 0.7 cents a mile—not so good.
  • If you can get a low-miles seat to Europe in business class, the retail value of the credit would be somewhere around four to six cents a mile. But that's only if, lacking the miles, you'd actually buy a business class ticket.
  • If, instead, lacking the miles, you'd pay no more than, say, $400 for a round-trip upgrade to Europe, then the value of the extra miles you'd need for a business class seat drops to 0.8 cents a mile.
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