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Reader Vinhsynd asked,
In reading the site I’ve seen you value AAdvantage miles at 1.8¢ in the past.
I’m not interested in how you came up with that number as it is probably an average of value of all the awards you have researched. But I am interested in what you do with that number: how does it influence when you use cash vs points, how does it effect which card you choose, etc?
I wrote an extensive discussion of how much different mileage program points are worth back in December. (At the time I valued American miles at 1.7 cents apiece, though deteriorating availability on American’s own flights and reduced premium cabin award space on Cathay probably knocks that down a tenth of a cent.)
Here are the valuations I gave for different airline miles currencies:
That’s less than the best points currencies that transfer to a variety of frequent flyer programs:
It should be noted that these average values are not the same as how you should value these points in all cases.
It depends on how you redeem them. What value are you going to get for your points? The important thing here is not to use the retail price of a ticket you’re getting, since
- with premium cabin rewards you might not have been willing to spend that much cash.
- Frequent flyer tickets aren’t necessarily worth as much as a paid ticket. They don’t earn miles. They may not be upgradeable. And you can’t necessarily just pick whatever flight you want, you have to be flexible and worry about award availability.
It depends on when you’re going to redeem them. You don’t earn a rate of return on miles and points like you might with cash in a bank or investment account. And you need to discount to present value if you’re going to use the points later. Plus there’s substantial risk of devaluation with many points currencies.
It depends on how many you already have. The value of points at the margin is different than an overall average value. As you approach having enough points for an award, the marginal value of a few more points goes up substantially — since those extra points are what make the award possible. On the other hand, once you have more points than you’ll redeem in the near-term the value of additional points falls since you may not ever use them, or may not use them under current award charts.
But since valuation here is the amount at which you are indifferent to holding miles versus cash this figure is useful for:
- Comparing when to spend miles or cash. Should I spend 50,000 miles for an award ticket or $700?
- Comparing when to spend on airline’s miles versus another for the same award. Should I spend 25,000 United miles or 35,000 Delta miles?
- Comparing the value of different credit card signup bonuses. Is an 80,000 point offer from Marriott better than a 75,000 point offer from Hilton? In fact, I view a 40,000 point offer from Chase Sapphire Preferred better than both (and that’s without the 5000 extra points for adding an authorized user to the account.
- Determining which hotel chain offers the better value reward when you’re considering staying at two different hotels. Should you spend 12,000 Starwood points or 35,000 Hilton points?
- Deciding whether to buy points when there’s a big bonus promotion. Were those perennial offers to buy US Airways miles at 1.9 cents apiece a good deal?
- Figuring out how much extra you might be willing to spend to earn points through a bonus promotion, or figure out whether a hotel promotion should influence your decision about where to stay
But since these valuations are precise I won’t actually pay 1.7 cents for an American mile. I want to accumulate American miles when they’re substantially less costly than 1.7 cents apiece. And I know I am clearly not a buyer at 2.5 cents.
In practice these are fairly blunt tools that tell me “1 cent a point for American miles is a really good deal” but that I’m not going to spend 2 cents unless there’s a very specific scenario — like a few points at the margin to top off an account for an award I’ve put on hold — where it makes sense (and in that scenario, my valuation of each point is higher since they’re helping me at the margin to save with a real redemption).