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Time to Change Your Mileage Program Assumptions

If there exists a constant in the world of travel rewards programs over their 25-year history, it’s change. Once they were small; now the largest programs have around 50 million members. In the beginning, the programs catered to a select few road warriors; today, as the membership numbers suggest, they appeal to the masses.

As the programs have evolved, so have the assumptions underlying them and, more importantly, the techniques for using the programs wisely. But there’s often a lag between the latest version of mileage program reality and the public’s grasp of it.

I’ve identified four areas where outdated assumptions often linger: booking fees, the value of a mile, the hoarding instinct, and who should join loyalty programs. If you can get your beliefs in line with reality, you’ll be better prepared to succeed in the mileage game.

Fee-free bookings are no bargain

Until recently, mileage-program participants could call an airline’s reservations center and have a customer service agent help them book a trip using their frequent flyer miles.

They still can, but most major airlines now charge a fee for phone reservations—as they do for in-flight meals, curbside luggage check-in, and a growing list of other once-free services.

Certainly it makes financial sense to book award trips online to avoid the new fees. But the combination of the airlines’ rather primitive reservations software and the severe limits on seats available for use by mileage program members makes booking award trips online an exercise in frustration.

A reservations agent, on the other hand, can sometimes find award seats “hidden” from online bookers or bypass capacity controls by fabricating trips from less restricted connecting flights.

As long as it’s not a level playing field, would-be award travelers should be prepared to pay the extra $10 to $15 for a reservations agent’s assistance. The fees, while annoying, are well worth paying if they make the difference between snagging an award ticket and staying at home.

The mile has lost value

For most frequent flyer program participants, the value of the programs rests ultimately on the value of a frequent flyer mile. Yet many mile mavens neither know what that value is nor how to compute it. And if they do have a figure in mind, it’s apt to be an obsolete one.

For some years, the prevailing assumption was that miles were worth, on average, about two cents each. That was based on the fact that the price of a round-trip domestic coach ticket was in the neighborhood of $500, and that domestic coach award tickets were readily available for 25,000 miles from most airlines.

What has remained the same is the number of miles required for restricted coach awards: they’re still priced at 25,000 miles in most programs. But the price of a purchased domestic coach ticket has steadily declined over the past five years. Today, the average is closer to $300 than to $500. And the difficulty in obtaining award tickets has increased, further devaluing frequent flyer miles.

A recent analysis by industry consulting company IdeaWorks pegged the value of a mile at 1.4 cents, based on average airfares. To reflect the hassle factor associated with actually obtaining award tickets, that figure arguably should be reduced further. For my purposes, 1.2 cents seems about right.

Why does it matter how much a frequent flyer mile is worth? For one thing, it’s a crucial consideration when deciding whether to cash in miles for a trip, or simply log on to Travelocity and buy a ticket. Say you’re flying from Chicago to Los Angeles. Assume that award seats are available at the 25,000-mile level and that you’d be booking far enough in advance to avoid paying rush fees. A comparable ticket—nonstop, convenient departure times in both directions, etc.—can be purchased for $415. Buy, or cash in miles for the trip?

Redeeming 25,000 miles for a $415 ticket yields a per-mile value of 1.7 cents. Using the old two-cent rule of thumb, that would be below average, suggesting that the prudent thing to do is buy the ticket and save the miles for a future pricier trip.

But using the new lower benchmark, the mileage option turns out to provide considerably better than average value.

Avoid the hoarding horde

Judging from the number of mileage-earners who are saving for retirement (or trips at some other undefined point in the far future), the hoarding instinct is deeply rooted in the human psyche. Where miles are concerned, that’s dangerous.

Miles have proven to be what financial analysts call depreciating assets. As discussed above, a mile redeemed today is apt to be worth less than a mile redeemed yesterday. And it’s a safe bet that tomorrow’s miles will be less valuable than today’s.

Miles are also an at-risk asset. While no miles were lost in the bankruptcies of United and US Airways, members of the program of Independence Air were left in the lurch when that airline shut down.

The prudent approach to managing miles is to minimize the risks of depreciation and loss by cashing in miles on an ongoing basis, as award levels are reached. In other words: redeem sooner rather than later.

Non-travelers should definitely apply

“If you don’t travel frequently, frequent flyer programs aren’t for you.” For many years that was practically a truism when it came to mileage programs. But not today.

Mileage programs are no longer the exclusive domain of the jet set. With so many non-travel options for earning miles—credit card use, Internet access, mortgages, all manner of retail purchases, etc.—the airline programs (and to a lesser extent the hotel programs) have truly morphed into frequent-buyer programs.

Today, the pertinent question is: Do you want to earn free trips? If the answer is yes, then an airline program may be just the ticket.

On the other hand, if travel is not your Holy Grail, there are non-travel rewards programs geared toward many other aspirations. Among credit card programs, for example, the GM credit card from HSBC Bank rewards cardholders with a fat five-percent rebate on charges, good toward the purchase of vehicles from Chevrolet, Buick, Pontiac, GMC, Hummer, and Cadillac. I’ve never tried to purchase a car with loyalty points, but it has to be easier than booking an award ticket to Hawaii during the holiday season.

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