Reasonable Redemption Values taking shape

Slowly, but surely, “Reasonable Redemption Values” (RRVs) are taking shape for various types of points and miles.  When I last wrote about this, I showed how I computed RRVs for United MileagePlus miles.  Since then, I made minor adjustments to the RRV spreadsheet and I added estimates for American Airlines and Delta.  Since US Airways is working on folding into the AA program, I don’t think its worth adding them to the mix at this point.

What is Reasonable?

I introduced the concept of Reasonable Redemption Values (RRVs) in these prior posts:

The idea is to estimate a “reasonable” value one can get from various types of miles and points.  This is a work in progress that can be found in this Google Doc spreadsheet.  Since the estimates are based on many assumptions that you may or may not share, you can choose to copy the spreadsheet and enter in your own assumptions at any time.  This way, you can compute RRVs that work for you.  For example, if you live near an airline hub, you may want to change my assumptions about saver level award availability with that airline (for the better).  Or, if you value business or first class more or less than I do, change those values too.

Keep in mind that the concept of RRVs is to compute values that you can reasonably expect to get from your miles.  I don’t mean to imply that you can always get that much value.  The idea is that most people have multiple currencies to work with (cash, bank points, airline miles, etc.) and it makes sense to use whichever one gives you the best bang for your buck in each situation.  Sometimes you’ll be better off booking flights with cash or fixed value bank points.  Other times, you’ll have the opportunity to redeem miles and get value as good as or better than these RRVs.

Spreadsheet Enhancements

The biggest change I made to the RRV spreadsheet was to move “flight assumptions” to its own tab since these estimates are useful for all zone based award programs.  The new tab now contains the following types of estimates:

  • Estimated value of various types of flights
  • Estimated value multiplier for business and first class compared to economy
  • Estimated distances for awards between zones (used to help calculate estimated economy price)

With all of the above on one tab, you can make a copy of the RRV spreadsheet and put in your own assumptions in that tab in order to update the RRVs for all airlines with zone based awards.

Tax and Fee Estimates

For each program and each award type, I estimated the taxes and fees that would need to be paid in addition to miles.  I did this simply by using each airline’s website to pretend to book various awards.  When multiple awards were available with different taxes and fees, I took the amount that appeared most frequently and rounded to the nearest $10.

These tax and fee estimates are now used to compute the reasonable redemption values as follows:

Reasonable Redemption Value = (Flight Value – Fees) / Miles Required

American Airlines

AA redemption values are tricky to calculate because ridiculously high fuel surcharges are tacked on to the cost of AA awards that include British Airways flights.  It’s possible to book awards without British Airways in the mix, but its much harder to find awards that way.  For estimating award taxes and fees to Europe and Africa, I made the assumption that BA flights were included in the award.  This had the effect of reducing the estimated reasonable redemption value of AA miles.

On the other hand, I also made the dubious assumption that Mile SAAver awards could reasonably be found for all award types.  This had the effect of greatly increasing the estimated reasonable redemption value of AA miles.

My thought is that while neither of the above assumptions is fully defensible on its own, they counteract each other nicely to produce a reasonable middle ground.  Keep in mind that these are intended to be ballpark estimates.  It’s impossible to get a single right answer here, so simplifications like this make sense (to me, anyway!).

Delta

Delta was much easier to compute than AA.  With Delta, I simply made the assumption that it is reasonable to find round trip awards booked at the saver level in one direction and at the standard level in the other direction.  No, this won’t always be true, but in my experience it is true often enough for these purposes.  Once Delta introduces additional award levels and one-way awards in 2015 we’ll have to revisit these estimates (please remind me if I forget).

And now, the numbers….

Here are the estimated redemption values at the time of writing this post.  I reserve the right to make changes to the spreadsheet at any time, so the numbers below may soon be out of date.

  American Delta Southwest United
Domestic Economy 1.33 1.02 1.65 1.37
Domestic First 1.01 0.78   1.03
International Economy 2.12 1.70   2.44
International Business 2.58 1.86   2.56
International First 2.71     2.29

 

There are some interesting trends in the above table:

  • Delta has the lowest RRVs across the board.  This is driven partly by their award chart, but more by my assumption that each round trip award would include a standard level award in one direction.
  • With the exception of Southwest, RRVs for domestic awards top out at a measly 1.37 cents per mile.  Its no surprise that domestic awards are rarely the best use for traditional airline miles.
  • RRVs for international awards are much higher than for domestic awards.  Note that this is true even with United’s new award chart and with the assumption that one direction of travel on United would be on a partner airline (which incurs higher award prices).

Don’t forget that it is always possible to get more or less value than the estimated RRVs.  These are simply estimates of what is reasonable to expect.  If you have little or no flexibility in your travel dates, you may have to accept less value.  Or, if you have flexibility and you’re particularly good at finding the best saver level awards, you might get much more value.

About Greg The Frequent Miler

Greg is the owner, founder, and primary author of the Frequent Miler. He earns millions of points and miles each year, mostly without flying, and dedicates this blog to teaching others how to do the same.

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Comments

  1. “Fascinating” – Spock

    Greg, really love the spreadsheet and the ability to manipulate assumptions. The math looks good. Certainly puts a damper on those who advocate buying miles as you prove the ROI is not great.

    • Thanks Glenn. I didn’t reach the same conclusion as you though. If your goal is to fly internationally and you’re short on miles to do so, buying them at a discount (e.g. 1.5 cents per mile or so) can make a lot of sense.

  2. The Delta Domestic First Class redemption is interesting, as cardholders should note that their RRV will be closer to 1 with the PWM option.

    • I can see why you would think that, but its not actually true. In the spreadsheet I valued domestic first class as 1.5X over domestic coach. However, real world prices might be much higher. For example, a real first class flight might cost $1000, but in my analysis I value it at $514. If you pay with miles it will cost 100,000 miles. At an estimated value of $514, you would be getting only .5 cents per mile value.

  3. I am probably going to take a lot of heat for this, but if each point is really only worth about 2 Cents even for International Premium Airfares, why not just MS the heck out of the Barclays Card at 2.2cpm?

    • I don’t think you’ll take heat for the comment, but I think your conclusion is based on the assumption that premium airfare values in the spreadsheet are based on actual flight prices (they’re not. See my previous RRV posts for more). As long as we value premium classes at less than full fare cost, a weird thing happens: actual US pennies become worth less than 1 cent each when used to purchase premium cabins. That is, we get less than our money’s worth because we value those cabins at less than full fare. So, the same is true of Arrival miles: they are worth less than 1.1 cents each when applied to premium fares if we don’t value those premium fares at full retail price.

  4. Really great analysis!

    My only comment is that when I’ve priced AA vs. United for trips to Europe in Business, AA’s high fees on BA make me choose either AA economy or use more miles on United. Emotionally, those fees kill me, and when I”m using miles, I don’t want to pay $1K+ for my ticket. Logically, I understand that the RRV for AA & UA are the same, but I can’t get past that $1K+ fee. So for me, the UA miles are somehow worth more.

    • That makes sense. It’s worth reading blogs that write about ways to use AA miles to get across the Atlantic without high fuel surcharges. In most cases it will require calling AA to book the awards, but its certainly worth it. I believe that One Mile At a Time has posted about this, for example.

  5. when there’s PWM option, the delta value should never be below 1.0. If someone is redeeming for below 1.0, I would say their redemption is NOT reasonable taking that out of the math.

    • Steve, see my replies to Michael and Rob. Even with PWM option, you would get less than 1 cent per mile value if you value the premium cabin at less than full retail price.

  6. RRVs should never be below 1 for Delta, because you can always get a penny a point for them if you have their credit card.

  7. I love stuff like this. I am going to take a deeper look at your stuff later. Article out today on airlines latest seat availability http://ow.ly/3l7GoD. Anyways so Far this year I have been able to book 3 delta domestic award tickets economy at saver rates both ways on the days I wanted including over the last holiday weekend. Value 1.5 cents basically on all 3 tickets. One more for a complex itinerary to Hawaii in First Class in Standard at 1.8 cents.

    I love what you are doing keep it up!

  8. I still have this post open on my iPad so let me ask this. Do you think your reasonable redemption value will change based on the most recent UA devaluation? TIA!

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