Airline Miles are worth 1.4 cents each. A simplified approach to Reasonable Redemption Values.

One credit card offers a $500 signup bonus.  Another offers 40,000 airline miles.  Which is better?

One online portal offers 10% cash back when shopping at Macy’s.  Another offers 8X airline miles.  Which is better?

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Why I care

As a blog author, I’m proud to display unbiased credit card sign-up offer rankings:

The credit cards listed on these pages are sorted by estimated first year value based on methodology described here: Credit card signup bonus estimation details.  While its easy to nitpick various aspects of the methodology, it does have one big glaring problem: the estimation makes use of my Fair Trading Prices in order to estimate the value of each point or mile.

There was a time when Fair Trading Prices were a pretty good conservative estimate of point redemption values.  But, the Fair Trading Price calculations are not based on redemption value at all.  Instead, the Fair Trading Prices are calculated by comparing points earned with the best available credit card options to standard no-fee 2% cash back cards.  If a credit card earns 2 points per dollar, then those 2 points are earned instead of 2 cents, and the Fair Trading Price is then 1 cent per point.  As new cards came out with better and better category bonuses, this calculation led to weird results such as transferable Membership Rewards points being valued at only 1 cent each while American AAdvantage miles are valued at 1.81 cents each.

As a blog author, I need better point value estimates in order to fix my sign-up offer rankings.  The AAdvantage 50K offers are good, but there’s no way they should be listed at the top of the airline card offers and business card offers as they are today.

Impossible Point Valuations

I’ve argued before that it is impossible to know what points are worth.  See: Impossible point valuations and the joy of free.  The value you get from your points and miles depends upon many factors, but mostly the value you get depends on how you use your points.  With most points & miles programs, it is possible to maximize value through certain types of awards or minimize value through others (usually the worst option for travel points is to redeem them for merchandise).  So, we can’t really assign a fixed “value” to points or miles, but we can set a target…

Reasonable Redemption Values (RRVs) Reboot

A couple years ago I began a project to estimate Reasonable Redemption Values of points & miles.  The idea was to calculate a per-point redemption value for each airline and hotel program that was reasonable to achieve.  With US Bank FlexPerks, for example, it is theoretically possible to get 2 cents per point value by redeeming 20,000 points for a flight that costs exactly $400, but it’s not reasonable.  Perhaps redeeming those 20,000 points for a $360 flight is more likely.  That would lead to a reasonable redemption value of 1.8 cents per FlexPerks point.

FlexPerks points proved easy.  Regular airline miles proved to be more difficult.  Miles can be redeemed in many different ways (domestic economy, domestic first class, international economy, international first class) and for many different routes.  I made a lot of assumptions about award availability, airfare prices, and more, and calculated what I could.  Each airline was a project that I didn’t have time for.  And each program devaluation required a new set of calculations.

I still believe the project is worth doing, but I need to drastically simplify the process.

Simplification

Most of my audience is US-based.  And most credit cards and portals I write about are US based.  And, I’ve read that most US frequent flyer award redemptions are for domestic economy flights.

I don’t know the chance of finding saver level domestic award availability.  But, in my experience, I think it is reasonable to assume that a person with flexible dates and times can find saver level awards if they try hard enough.

So, here’s the simplification:  Let’s calculate a reasonable value for domestic economy awards.  We’ll call that the Reasonable Redemption Value for miles.  Yes, people can do much better by redeeming miles for international premium cabins, or for last minute flights that are otherwise outrageously priced.  But, at least we would have a conservative target value.

Reasonable Redemption Value is the value per mile at which it is reasonable to get this much value or more.

Methodology

In order to assign a Reasonable Redemption Value to airline miles, I made several assumptions:

  • Most people in the US use their miles to book domestic economy flights.
  • Most frequent flyer programs offer 25,000 mile round-trip economy awards within the continental United States.
  • It is reasonable to assume that people who are flexible with their flight dates and times can find saver level awards (e.g. 25,000 mile round-trip).
  • The average domestic round-trip flight price is $361 (Found here, based on 2016 data).

Given the above assumptions, we can calculate the Reasonable Redemption Value:

  • RRV = (Average Flight Price – TSA Fee) / (25,000 miles)

Results

  • RRV = ($361 – $11) / 25,000 miles
  • RRV = (36,100 cents – 1,100 cents) / 25,000 miles
  • RRV = 1.4 cents per mile

Note that these calculations may change going forward.  To find the most up-to-date calculations and results, please see: What are airline miles worth?

Applicability

The Reasonable Redemption Value shown here applies only to the frequent flyer programs that offer 25,000 mile round trip domestic US awards.  These include:

  • Alaska MileagePlan
  • American AAdvantage
  • Delta SkyMiles
  • United MileagePlus

And:

  • Air Canada Aeroplan (when used to fly United)
  • Avianca LifeMiles (when used to fly United)
  • Korean Airlines (when used to fly Delta)
  • Lufthansa Miles & More (when used to fly United)
  • Singapore KrisFlyer (when used to fly United)
  • Virgin Atlantic Flying Club (when used to fly Delta)

The following frequent flyer programs are not included in this calculation because they do not offer standard 25,000 mile round trip awards:

  • British Airways Avios
  • Frontier Bonus Miles
  • Hawaiian Miles
  • JetBlue TrueBlue
  • LATAM Pass
  • Southwest Rapid Rewards
  • Spirit
  • Virgin America Elevate

The above list of exceptions will each require separate assumptions and calculations.

What about award availability?

I imagine readers saying “Wait a minute! I can never find saver level awards with Delta!” or “Hold on! When was the last time you found a saver level flight on AA.com?”

I wanted to include the likelihood of finding saver awards in the calculations.  I had conversations with the owners of AwardNexus and Expert Flyer (two online tools that help users find award space) to see if they had data that could be used to estimate award availability.  Both were willing to help, but neither had this data readily available.  Both suggested using their tools to estimate availability for a specified set of routes, dates, etc.

Estimating award availability would be a lot of work. And the truth is that availability changes all the time.  In order to keep the results relevant, the work would have to be re-done regularly.  And what would I do with the result?  How could I use award availability to estimate a Reasonable Redemption Value?  I had ideas, but the truth is that using that data would be complicated too.

In the end I made a practical decision.  I realized that I would never get this project done if it was dependent upon estimating award availability.  Instead, I’ll make the controversial assumption that it is reasonable to find saver level awards for domestic economy flights.  Individuals will no doubt have situations in which that assumption is not reasonable, but at least the assumption lets me move forward…

What about round trip requirements?

Some frequent flyer programs require awards to be booked round-trip.  For example, you can use Virgin Atlantic miles to book a round-trip domestic Delta flight for 25,000 miles, but you can’t book one-way for 12,500 miles.  This limits the reasonable use of these miles since round trip award availability is much harder to find than one-way.  Should I dock a programs point value as a result?  Truthfully, I haven’t decided yet.  What do you think?

What about hotel points?

This one is easy.  I’ll use Wandering Aramean’s Hotel Hustle median point values.  I previously discussed this approach here: Hotel rewards that offer the best value.

What about transferable point programs?

This is where it gets really hard!  How do we compute a Reasonable Redemption Value for points that can be transferred to many different programs?  If points can only be transferred to airline miles, should we value them at 1.4 cents each?  Shouldn’t we increase their reasonable redemption value due to the fact that many frequent flyer programs are available to choose from instead of just one?

Julian, author of our Bet You Didn’t Know series, suggested that we could increase the RRV by a small amount for each useful transfer partner.  I think that’s a good idea, but how much is the right amount to increase by?  How do we judge which partners are “useful”?

If you have suggestions, please comment below!

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.

More articles by Greg The Frequent Miler »

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Comments

  1. For domestic coach flight redemptions you’re better off skipping miles altogether and just focusing either on a straight 2% cashback card or a program like FlexPerks – anything else leaves you at the whim of airlines that are decimating their saver award availability (yeah AA, I’m looking at you in particular)

    • That’s usually true except with last minute flights that are often priced outrageously high. I think RRVs will help people make that determination. If they see that a domestic flight only leads to, lets say, 1 cent per mile value, then they would realize the advantage of using pay with points programs or cash.

      • I agree with you that last minute high-priced flights can often be found for very attractive mileage rates. I just booked my brother, who was stuck in Ohio due to a mechanical issue on Allegiant, on a same day flight for 10,000 miles on United (cost was $681 – gotta love that %!).

        However, most of the major airlines charge any non-elites (or even mid-tier elites…looking at you United) “close-in” booking fees. I could complain about those for days, but the bottom line is that often you are still paying $25-$80+ on top of the mileage to book last-minute award tickets. Oh and by the way, but last minute I actually mean 21 or fewer days out.

        All in all, you can still get some great value on those last minute flights. Just makes it a little more painful that you have to fork over money on top of the taxes, assuming you don’t have elite status that waives it.

        • Yep, those close-in booking fees suck, but you can usually get around them by booking with a foreign carrier’s miles. For example, you can use Singapore miles to book United with no close-in fees (and very low change/cancel fees)

  2. Logically, if your assumption about there always being availability for the airlines and your further condition that domestic flights will be the redemption, then transferable points have to have the same value as any of the airlines, since you would gain nothing from the option to transfer to various partners, as the result would always be the same, you would get your domestic redemption for 25,000 points.
    Probably not an unreasonable assumption for a conservative minimum value for the transferable points, perhaps more defensible than for any individual airline, given the question of availability.

    • I agree with the logic, but…
      -I’m not assuming that there will always be availability — just that it is reasonable to get that much value or more
      -I do think we need some way to account for the fact that transfer partners open up many more options for higher value redemptions. One option may be to find something like the 75%tile cost for domestic flights and use that price point rather than the average when calculating RRVs for transferable points
      -Things get even more confusing when you consider that the RRV for Hyatt is about 1.8 cents per point and that UR transfers 1 to 1 to Hyatt. Or, similarly, Amtrak points can be redeemed for 2.9 cents each and SPG transfers 1 to 1 to Amtrak.

  3. For transferable points I place their reasonable value at the fixed rate I can redeem them for, so 1.5 cents for UR, 1.6 cents for TYP, 2 cents for MR. Obviously dependent on having 3 premium cards but it might be reasonable to assume most people who read through all those calculations have at least one or two of those cards.

    • Yep, I considered that approach, but…
      1. Not sure we should assume that everyone has a Biz Plat card
      2. When the Prestige drops to 1.25, what do we do? You can still transfer to miles that are arguably worth more than that.

    • Yeah, have to agree that the ‘old’ RRV was much better in concept, although Greg is right that it would take a lot of work and regular updating to keep up with program changes. This new RRV is far too simplified to be of use to most of his audience, who I assume are not primarily using miles for domestic economy flights. And using Hotel Hustle results for point valuations is like using premium cabin cash prices for miles valuations, i.e. unrealistic that we would pay those rates.

      I wonder if Greg could put together a coalition of folks like Shawn, Drew, etc. to take a couple of programs each and maintain an updated set of valuations using more detailed RRV principles? Suggestions below:

      To be useful to miles/points enthusiasts, for valuation:

      1. Airline miles need adjustments to cash prices for reasonable sale fares, a combination of economy and premium cabin values, assumed small premiums to economy for premium cabins since we wouldn’t pay large multiples like cash pricing, adjustments for availability, airline and partner quality, routing restrictions, stopover/open jaw possibilities, opportunity cost of miles earned on cash fares, surcharge policies.

      2. Hotel points need adjustments to compare with reasonable estimates of Airbnb/Priceline NYOP costs for nice apartments or 4 star hotels in a sample of destinations domestically and internationally. With additional adjustments for program quirks regarding availability, global presence, 5th night free, cash & points, opportunity cost of points earned on cash stays, resort fees.

      3. Transferable points can be valued at a mix of travel use value and a combo of the best miles/points they can be transferred to.

    • Not sure if you meant the old Fair Trading Price scheme or the old RRV scheme? FTPs will still be around, they just won’t be used for estimating the travel value one can get from miles (which is what I’m trying to do with RRVs)

      • Definitely meant the old RRV scheme, which is like the one I was suggesting, but I was suggesting more adjustments to account for program quirks. Even more work! 🙂

  4. Don’t forget that using miles to book flights has an opportunity cost of lost potential miles from cash bookings. Redeeming miles for domestic economy flights therefore really yields about 1.2 cpm value. That makes them pointless. If you are going to earn miles use them for international flights (1.8cpm average net value) or upgrades. Otherwise use a cashback or transferable point credit card.

    • Yes, I purposely ignored the value of earning miles with flights. In many cases award flights have advantages over paid flights (such as free or low cost changes with some programs), so rather than try to estimate that value I’d rather fudge it and assume that the two things offset each other.

  5. I know it could be a small thing, but Southwest miles normally gives me 1.7 cents value, plus the points go right back in my account without a more limited time frame to use them. Booking with cash and changing, you have less than a year to use it after you cancel your flight, and you have to keep track of each ticket as a separate $ amount, that Southwest does not help you track. Since I reschedule a lot of flights, this is super valuable to me – like the flight was not ever scheduled in the first place.

  6. I used to use your values, but realized my own redemptions differed enough that I should calculate my own values. I use a low-typical-high format to get a range of values for the programs I use and don’t bother calculating it for a ton of airlines and other programs I don’t use.

    I think it’s valuable to present your point values as you do, especially for people who are new to this game or a particular program. However, I think it’s also important to encourage everyone to do their own math based on their own experiences.

  7. I have a spreadsheet where I put all the flights I have taken, with the miles redemption values it would take on every relevant program. Then I use the dollar amount of the actual ticket – minus taxes – and calculate the value of every mile. After a few flights, I have a pretty good distribution for all.

    And because I compare to the cheapest ticket that was available between the two airport at the time, and that I fly economy, apart from JetBlue and Southwest, everyone is under 1.1c.. And I’m not even flying Spirit and such as I’m tall and like my knees.

    I checked business redemption, that is better, yes, but not much, about 1.5.

      • SF bay area. I have the convenience to choose from 3 airports, so the competition is pretty good also. I could even add Stockton and Sacramento, they are still closer than the airport I used to live “near” before moving here, but the 3 probably covers every meaningful carrier that flies in the US. My destinations are mostly to Europe, with a few domestic.

        I probably had different experience if I could practically choose only one of the big carriers to fly.

  8. Who cares about how much points/miles are “worth?” What matters is points/miles acquisition cost. Once I know how much it costs me to generate, replace, manufacture one airline/hotel point, I can figure out the cash equivalent cost and compare against my cash alternatives. Take premium international flights for example. In many instances, you can get over 5 cpp value from redeeming say 140,000 miles. If I am manufacturing the miles at 1.5 cpp, then those 140,000 miles cost me $2,100. I can care less that those points are worth 5cpp. What I care about is that it cost me 1.5cpp.

    • That’s true. For ms-ers, acquisition cost is much more important. I’d bet that only a very small percentage of my readers use ms as the primary way to earn miles.

      For people who earn points by signing up for credit cards, I think it is important to have a rough idea of how much those points might be worth towards travel. Similarly, those who are simply looking for the “best” credit card for their daily spend, need to have some basis to compare the value they get from, let’s say 1.5 Ultimate Rewards points compared to 2% cash back.

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