Recalculating How Much Frequent Flyer Miles Are Worth

The Points Guy took an interesting stab at a data-driven valuation of frequent flyer miles.

They don’t share enough about the routes they used for each airline. They only looked at travel within the next 3 months. They looked at Thursday-to-Thursday roundtrips only and excluded basic economy fares. And partner redemptions don’t appear to be a part of this. So the methodology and data isn’t fully transparent or comprehensive.

Nonetheless, they came up with interesting conclusions. And if they’d simply said ‘we’re measuring how much airfare your miles will buy in the next 3 months’ I’d have had very little beef.

  • They valued American miles at 1.68 cents apiece, up from their previous valuation of 1.4 cents (I value AAdvantage miles at 1.3 cents)
  • They valued Delta miles at 1.48 cents apiece, up from their previous valuation of 1.1 cents I value Delta miles at 1 cent)
  • They valued United miles at 1.13 cents apiece, down from their previous valuation of 1.3 cents (I value United miles at 1.3 cents)

The problem is, as I explain in some detail they are looking at how much airfare a mile buys but that is different than ‘how much a mile is worth’. You can’t spend miles on nearly as many things as cash (and get lower value for things other than travel when you redeem that way). You don’t earn interest on your miles. There’s more devaluation risk with miles.

What The Points Guy failed to do is discount how much airfare a mile might buy for all of the factors that make miles less useful than cash. Surprisingly they even failed to discount their valuation based on the miles you earn flying on a paid ticket that you give up on a redemption ticket, and even the miles earned paying for a ticket with a credit card versus not generating that card spend.

Here’s a stab at quantifying the discounts that you should consider taking when converting ‘how much airfare do miles buy’ into ‘how much are miles worth’?

  • Let’s assume average redemption in 24 months, discounting using the 10 year treasury rate of ~ 1.4% so we take a present value discount 2.7%.

  • You want to discount not just for time but also devaluation risk, let’s call it (generously) 5% over those 2 years.

  • And that all miles are earned by general members, so the mileage-earning foregone is 5% (rather than 11% for a top elite)

  • You’re foregoing 2% in credit card earning when you don’t buy the paid ticket (even though Membership Rewards are worth 1.7 cents apiece so 5x earning with a Platinum card would mean giving up 8.5%).

  • And recognize that miles that can be used for airfare aren’t as valuable as cash. I’d be inclined to take a 10% discount here, but in a real market you take about a 20% haircut selling American Airlines gift cards but buy at only a 4% discount to face value. Let’s call it just 4%.

So let’s generously discount the valuations by 19.7% – although a top tier elite paying with an Amex Platinum card might discount by 32.2%.

Here’s how a 19.7% discount changes their valuations:

  • American AAdvantage: 1.35 cents apiece
  • Delta SkyMiles: 1.2 cents apiece
  • United MileagePlus: 0.009 cents apiece

The discounts here probably aren’t enough, as I explained, but AAdvantage miles and SkyMiles start looking a bit more reasonable when you factor things that drive value of miles beyond just ‘how much airfare can these miles buy in the next 3 months?’

On the other hand MileagePlus miles come out lower than they should, in my view, but that’s because the value of those miles is driven by international business class awards on partner airlines which the TPG analysis doesn’t appear to factor. They’re great for Lufthansa, Turkish and ANA awards.

That said, their analysis would be more helpful for someone who doesn’t redeem their miles that way. For consistency, though, this should change the advice a site like that gives on what credit card to use. The person who values miles the way they’ve laid out should be accruing cash back in most circumstances.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. When my kids were young they got very upset if, when someone asked for the time, I would round it to the nearest quarter hour — or even the nearest five minutes. They needed the time reported to the exact minute. I’d sometimes apologize “You’ll have to pardon my kids, they suffer from Meaningless Precision Syndrome”)

    Attempts “value” points are exercises in Meaningless Precision Syndrome. Every circumstance is different. Personally, I never redeem airline miles or Hyatt points for less than 2.5 cents a piece, regardless of any calculation that tells me that 1.7 cents is a good deal. The difference between 1.35 and 1.7 cents per point is immaterial since there will be redemptions all along the scale, and outside of those bounds as well.

    Are MR points worth $40 each because I can redeem two or three of them a year for that value (through Amazon)? Are LIfemiles worth 1.2 cents each because Avianca lowers the price to clear them out of inventory?

    No “experts” I know value any points at two cents or better and, by that metric, everyone should accrue only cash-back (at least in non-bonused categories).

  2. And neither they nor almost anyone (including Gary) give any weight to the time it takes to do all this. Fun for some (maybe many) but it’s time that would have been spent elsewhere which is gone forever.

  3. The theoretically correct way to value points and miles is to look at what people actually redeem them for use the cash price for those products.

    Even this is problematic, however, because some of the redemption options aren’t regularly sold for cash. Mileage redemptions seem to be more likely to involve bizarre routing or unusual flight times to get the most value.

    I’ve pretty much resigned myself to the fact that if I redeem for something normal and useful that I really want, I should expect to get 0.5 to 1.0 cpp value from my points and miles.

    My card use these days is 2% cashback for all spend except for travel spend that has a favorable pairing with a cobrand card, like LarryInNYC suggests.

  4. @Sam: “And neither they nor almost anyone (including Gary) give any weight to the time it takes to do all this. Fun for some (maybe many) but it’s time that would have been spent elsewhere which is gone forever.”

    To the extent that people might earn miles in different ways other than churning or manufactured spending, this metric you’re asking to be added is completely meaningless.

  5. Gary, do you mean 0.9 cents for United, or are they really that worthless? Thanks for the analysis.

  6. The precision is meaningless at any given time, but the trend over time is meaningful. Without precision, the trend is obscured. That being said that assumes you care about the average value of a mile which is pegged to circumstances which could be very different from yours. You need to consider your own travel habits and preferences and create your own rules of thumb like LarryInNYC. I suspect that in the long term there will be no miles, no cash back, and we will all be paying straight up.

  7. A mile costs from 2.625c (lost cash with BofA) to 2c (lost cash with Citi/cap One ventureX) for unbonused spend to as low as 0.525c (5X at staples w Chase Ink cash) to 0.66c (4x at Groceries with Amex Gold).
    The values must be adjusted up for annual fees costs for Amex Gold
    The value of miles is steadily eroding due to inflation and lack of appreciation compared to invested cash @ 4% return at least
    Just keep enough for next 6 months travel; share with family pool or friends and avoid hoarding miles like cash
    TPG is selling the idea of “free” miles – so wants us to think AA has more “value”
    Without a planned travel over next year miles are worth less and less once you factor in all of Gary’s points above

  8. Physicist Niels Bohr would say that the value cannot be generalized. It can only be determined by a specific observer at a specific point in time.

    I have very targeted redemptions. I don’t stray. As a result, my specific redemption rates are substantially higher than what any of the blogs post. But, I don’t think it’s fair to use my numbers as a benchmark for anyone else.

  9. I think one thing people fail to consider is the value of miles varies depending on how many you have in your account. If you’ve got 1 million in the bank, the value may be different than if you’re only sitting on 50,000, depending on what you’re trying to do. I don’t have a ton of miles, so I’m not normally going to book a business award to Europe, I’d rather fly the entire family in Main Cabin to Europe over just me in business. I try to use them wisely, like picking up last minute flights for the kids, which can have a high rate of return, or doing an upgrade for miles on a trans-Atlantic flight.

    I recently somehow wound up with two full fare premium economy tickets after numerous changes due to AA rescheduling flights. Still trying to figure out if AA has overcharged me, but the full fare ticket makes me available for an upgrade to business for only 15,000 miles. As a PlatPro, the domestic segments of the upgrade don’t really gain me anything, but lie-flat to Paris for 15,000 and no additional payment? Yes, please! That is a wise use of my limited miles with a hefty return. (And it’s cleared!) If I had a 1 million, paid for by my employer, I wouldn’t be that excited, but since it’s all my spend, a little more exciting. I’ll just have to build the account back up.

  10. So how do we value this particular miles redemption? I’ve redeemed nearly all my AA (and old US Airways) miles on international first- and business-class flights on alliance partners.

    Those itineraries are worth many thousands of dollars — but I would NEVER have purchased those seats with cash. And because the seats are often booked within a few days of departure, the “value” of the flights are even higher if you look at the cash price of those same itineraries at the time of booking.

    For example, I recall an itinerary using US Airways miles pricing out at over $25,000 — but the trip only cost me 110,000 miles at the time. That suggests a value of 23 cents/mile — which is absurd.

  11. The value of a mile or hotel point is effectively zero, when you can’t use it without going to an extreme of building itineraries that look like a Rube Goldberg contraption. None of the calculations factor in the value of a person’s time in going on the long adventure to find availability in the first place.

    Bank points, especially Chase are worth 1.5c on the Reserve card, and that’s the only loyalty that remains for me.

    The airlines (and now the hotels) unfortunately have killed the fun.
    Loyalty is deader than fried chicken.

  12. I think if you never plan to book international or P.S. flight busienss or first then you are probably better off with cash back. I travel to Europe with my family every year and so traveling in business or first is nice and something I would not do without the millions of miles/points I have acquired and spent. I do spend too much time reading and planning travel but I enjoy it.

  13. No matter what your redemption, at time x a point is never worth more than the dollar value at which you would be equally happy taking the point or taking cash. “I redeemed for x cents value” based on the value of a the redemption is just someone who wants to justify earning points or miles instead of cash back. There are so many people out there who are not max buyers of Hyatt points when they are on sale for 1.8 cents per point but tell you they get better value out of them.

    Or people who tell you they got 2 cents per point value out of using 15,000 Marriott points for a $300 room, when there are a dozen other hotels in the same city for the same stay that were $200 a night and at which they would have been equally happy. There is a reason you are not buying Marriott points at 1 cent per point. (Narrator: Because you value them less.)

    Any valuation of airline miles has to take into account two very significant factors — the first of which was mentioned in a recent VFTW post. The serious difficulty in finding domestic connecting space. I don’t know why but miles and points enthusiasts completely downplay the expense of positioning, both in terms of out of pocket costs and time. On the plus side though, miles are proving to be much more flexible with low or zero change or redeposit fees. I think that’s a very positive factor with respect to their value.

  14. FF miles were becoming a sucker bet even pre-pandemic, and they are certainly such now and into the future.

    1. Cash is once again King for longhaul premium air travel. Between more aggressive discounting, and the launch of “basic business” fare offerings, crossing oceans up front is increasingly affordable…especially for those who have seen incomes and househould wealth increase during the pandemic.

    2. The restrictions (published and unpublished) around using FF miles have become too asinine for reasonable minds. My breaking point was the metering of Star Alliance award space by UA MileagePlus.

    3. Given points #1 and #2, moving from a miles-centered to a money-centered approach to longhaul travel has been liberating. Flying where I want, when I want beats the corny games of old.

  15. Mike:

    “To the extent that people might earn miles in different ways other than churning or manufactured spending, this metric you’re asking to be added is completely meaningless”

    Seems you’ve never tracked miles earned through flying, spent time reading blogs on loyalty program angles (like the one your’re reading right now) or looked for award space for a trip.

    As I said, few give any value to the time this takes.

  16. @Sam: “As I said, few give any value to the time this takes.”

    Because you’re assuming that the time that is expended by this is significant for everyone, and I’m not.

  17. @Mike: “Because you’re assuming that the time that is expended by this is significant for everyone, and I’m not.”

    Many spend a lot of time, and many who do just blow it off as insignificant.

    But an obvious truth is that everyone spends some time, and that time is rarely taken into account, including it seems by you.

    So it seems we agree.

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