On Valuing Airline Miles
Short Answer: The value of airline miles varies greatly depending on how you choose to redeem your miles, but generally, on average, miles on the major domestic airlines (Delta, United, America, US Airways) are worth a little over 1 cent each when used for domestic coach round trip flights, and are potentially worth much more when redeemed for international flights for First and Business class. All four of these airlines allow for coach, domestic (continental U.S. only) round-trip award tickets at 25,000 miles, depending on availability.
According to U.S. Department of Transportation Bureau of Transportation Statistics, the average domestic round trip fare was $361 (or about $319 without taxes and airport fees) in the third quarter of 2011. Based on this average fare price of $319 (you still have to pay taxes even with an award ticket), a 25,000 mile award ticket is worth about 1.3 cents each. Of course, this is just a rough approximation of value because the average domestic fare takes into account all fare classes and all distances. Moreover, booking a 25,000 awards ticket has become harder in recent years as the availability of 25,000 mile awards have declined. Deducting for the not-infrequent difficulty of booking awards at 25,000 miles, a case could be made that airline miles are really worth somewhat less than 1 penny each.
However, your miles will generally be worth more if you use them for international flights, particularly when you redeem your miles for First and Business class international fare. For example, US Airways offers an attractive round-trip Business class award to North Asia (Japan, China) for only 90,000 miles (or 85,000 miles if you’re a US Airways Premier World card holder). A July 5-11, 2012 BusinessFirst class fare from IAD (Washington) to NRT (Tokyo) on US Airways Star Alliance partner, United, was recently priced at $6,453 (without taxes). With this award, the value of your miles is over 7 cents a mile! For more examples, see the yellow boxes within my posts on the US Airways Dividend Miles card and the American Airlines AAdvantage card.
The key to wisely spending your airline miles it to divide the price of the fare by the number of miles required for an award ticket. For example, if a domestic cross-country flight is available for $300 or 30,000 miles, you are redeeming your miles for 1 cent each. This is probably not a great redemption because, as explained above, miles are generally somewhat more than that (1.3 cents) and potentially much greater when redeemed for international flights.
One of the experts on collecting and using miles and points–the Points Guy (AKA Brian Kelly)– offers some of the best advice I’ve seen on valuing and using your miles. While redeeming your points and miles for the most value possible should be your general strategy, sometimes it makes sense to throw your calculations out the window and allow yourself to use your miles when you need them–like on a last minute trip to see grandma. Faced with expensive fares on last minute flights or a 12 hour drive, the Points Guy explains how he used 50,000 Delta Skymiles to book a domestic flight, even though he knew he could score more value with his miles elsewhere (First and Business class international flights):
What is the point of this blog post? Basically a reaffirmation that the true value received from miles is much more than dividing the price of the ticket by the amount of miles used or getting the “best deal possible.” Often there’s an intangible human factor that can’t be measured, but should always be taken into consideration. The bottom line is that I probably wouldn’t be taking this trip if I didn’t have the miles, so I’m thankful that mileage collecting, my favorite hobby and full-time job, allows me to experience life by being able to travel more – especially in times when it matters most.
Of course, in the Points Guy’s case, it didn’t hurt that his status on Delta meant that he would likely get upgraded to first in any event.
Read the Points Guy’s full post here.