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When ‘not’ to earn miles

SmarterTravel

As alluring as miles are, there are times when it pays to just say “no.”

If you’ve been following The Joy of Miles series thus far, you might expect our overarching advice to be that miles should be earned for everything possible. And these days, they can be earned for just about everything.

Not at all. Part of being an educated consumer is knowing when not to earn miles.

Before rushing headlong to earn, earn, earn, consumers should do the math to be sure they’re not overpaying to pad their mileage accounts. That math begins with the following axiom:

    Miles are a potential rebate, which, if successfully redeemed for an award ticket, have an average value of approximately $0.02 each.

The above has two key variables and two corresponding caveats. First, there is the contingent aspect of miles’ value. If they aren’t redeemed?because you can’t or because you choose not to?then their value is merely hypothetical. And second, because their value ultimately depends on the price of the ticket you could have purchased in place of the award ticket, the actual value of your miles will reflect your choice of more- or less-expensive flights.

With that in mind, the following are several typical situations in which consumers should weigh the pros and cons of earning miles, and a discussion of the factors to consider.

Alternative flights, with and without miles

The decision to earn miles or forego them arises most often when comparing flight arrangements, where there exists a cheaper alternative to one’s preferred carrier.

Example

A Delta SkyMiles member looking to fly between Los Angeles (LAX) and Dallas (Ft. Worth), purchasing a ticket seven or more days in advance and making a Saturday-night stayover, might find a Delta nonstop flight available for $372. However, the cheapest flight available might be on America West for $257, with a plane change in Las Vegas. And the cheapest nonstop: on American for $280.

Let’s assume that the combination of lost time and extra aggravation associated with the America West connecting flights rules it out, leaving the American flight as the lowest-priced option. And let’s further assume that miles earned in American’s program will never add up to enough for a free ticket for our Delta loyalist, making them effectively worthless. The comparison is then as follows:

The net price of the Delta ticket is $372 minus the value of the miles, which we’ll treat as a cash rebate. The round-trip LAX-DFW distance is 2,470 miles. Using $0.02 as our per-mile value, it amounts to a rebate of $49.40. So the net cost of our Delta ticket is $322.60. Even with the value of the miles factored in, that’s $42.60 more than the American ticket.

Another way of looking at it is to determine how much the miles would have to be worth in order to justify paying $92 extra ($372 to $280) to earn them. Dividing the price difference by the number of miles in question, the miles would have to be worth $0.0372 each. If you’re the type of disciplined consumer who follows our advice and conscientiously redeems miles for high-priced flights, then a case can be made for paying more to fly Delta. Otherwise, the American flight makes better economic sense.

Although we just focused on those aspects of the decision-making process that can be easily quantified, there may of course be less-tangible factors, which would take precedence over the financial considerations. Our hypothetical Delta customer might, for example, have a strong preference for Delta’s service over American’s. Or she might need the miles to qualify for elite status, making them extra-valuable.

Miles for merchandise

As frequent flyer programs have evolved into frequent buyer programs, the opportunities to earn miles for merchandise have multiplied manyfold. And with those expanded opportunities comes the need to assess them from a return-on-investment standpoint.

Often, frequent flyer program members can earn miles for purchases at online retailers they would have purchased from even if miles were not on offer. Since both the price and the merchandise are identical in both the with- and without-miles scenarios, there is absolutely no reason to forego the miles.

Consumers need to unsheathe their pocket calculators in cases where there’s a price difference, depending on whether the item is bundled with miles or not.

Example

The wish list of many a frequent traveler includes the Nokia 9290 Communicator. It’s a combination GSM cellphone, PDA, and Internet client. And it fits in the palm of your hand. Just the sort of multi-function gadgetry road warriors covet.

It’s available from SkyMall.com for $599. SkyMall is a catalog of catalogs, the print version of which is found in the seatbacks of 24 airlines. The great majority of SkyMall’s network merchants are full-price retailers, so prices tend to be at or near suggested retail.

At PCNation.com, a large online discounter that does not award miles, the Nokia is priced at $528.87, a $70.13 savings over the SkyMall price. (There’s another $18.95 in potential cost savings, since PCNation.com’s ground shipping is free.)

SkyMall awards miles-for-purchases through several airline and hotel programs. Continental OnePass members, to take one example, earn five miles for every dollar spent at SkyMall. So the Nokia purchase would generate 2,995 miles. The question becomes: Is it worthwhile to spend an extra $70.13 to earn those 2,995 miles? Dividing the extra cost by the number of miles earned shows that we’d be paying $0.23 per mile. That’s a bit more than our $0.02-a-mile rule of thumb, but not enough more to make it a definitive deal-breaker.

Mileage runs

A mileage run is a trip whose sole purpose is to earn miles. They are typically taken for one of two reasons, either to earn miles for an award or to reach elite status. In the former case, the standard analysis, comparing the cost to earn the miles with their eventual value, is applicable. Bottom line: If you’re paying more to earn the miles than their redemption value, then you’re paying too much.

If the goal is to reach elite, the analysis is less straightforward. Elite status is, after all, a basket of benefits, some of which are hard to put a price on. Upgrades. Bonus miles. Recognition. How much are they worth to you?

Fees-for-miles

There’s a movement, small but growing, to pass along the costs of miles to those who earn them. You may decide those mileage surcharges are fair and reasonable, and elect to pay them. But you should be aware of the extra costs, and consider them in light of any available alternatives.

Some examples follow:

Car rentals

Beginning on October 1, 2002, Hertz instituted a $0.50-per-day fee, up to $2.00, for rentals that generate miles in most airline programs. That may not seem like much, but it amounts to paying $0.01 per mile on rentals of four or fewer days.

By contrast, most other rental-car companies charge a Frequent Flyer Tax Recoupment Surcharge totaling $0.06 or $0.07 per day. And two, Budget and Thrifty, don’t charge extra for miles at all.

So when it comes to renting a car, travelers have multiple options. They can opt to avoid extra fees by choosing not to earn miles when renting from Hertz and other rental-car companies that charge for them. They can rent from Budget or Thrifty, earning miles without incurring a surcharge. And so on.

Credit card miles

Also in 2002, Diners Club began charging Club Rewards members $0.95 for every 2,000 points exchanged for miles. The charge can either be added to the member’s next card statement, or paid off in Club Rewards points (190 points deducted for every $0.95 in fees).

The choice? Diners Club’s principal rival, American Express, does not charge to exchange Membership Rewards points to airline miles.

With the continuing profit squeeze in the travel sector, we will likely see more such fees in the coming months. And while a few cents here and there may seem insignificant, they can add up to significantly undermine the value of the mileage-earning endeavor.

Caveat emptor

Miles for mortgages, miles for mutual funds, miles for meals…the mileage offers are everywhere.

It only takes a bit of basic arithmetic to tell which is the real deal, and when consumers should just say, “Thanks, but no deal.”

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