Michael on June 26th, 2009
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It’s Friday, so it’s time for this week’s reader-submitted Q & A. If you’d like to submit a question, click here for more information or simply email a question.

You: When should I use frequent flyer miles vs. paying for an airline ticket?

-Steven R., Milford, CT

Straightforward Answer:  If you can get more than two cents per mile redeemed, put away the credit card.

More Detailed Explanation

As USA Today reports, frequent travelers redeem more miles as recession lingers. That probably surprises no one.  With less cash around, miles look like some pretty attractive currency. But it still begs the question of when it’s a good idea to cash those miles in.

It all comes down to the value of a mile.

You: Math?

Yup, but it isn’t tough math.  Just division.  Say you’re contemplating a trip from Boston to Miami.  Summertime fares to Miami are, not surprisingly, lower than they are in the winter.  Say you could find a decent itinerary for $250.  Since it would cost 25,000 miles to get a free round trip ticket between Boston and Miami, you’d be redeeming the miles for $0.01 each if you went that route.

On the other hand, say you have hopes to go to Europe and the fare to go to London from your city is $800. It will cost 40,000 miles for the same ticket.  In this case, your choice to redeem miles means you’ll be exchanging them for $0.02 per mile.

You: That’s twice the value as the first exchange.

It is, making the miles for Europe trip a comparably shrewd decision vs. burning them for the jaunt to Miami.

You: So you do it?

If I was going somewhere and I could redeem at two cents per mile, I’d probably do it. I definitely would not at one cent per mile.

You: Do you do this calculation every time?

Usually, but not always.  Sometimes it’s not relevant.

You: When would it not be relevant to figure out the mileage redemption rate?

The airlines often restrict frequent flyer redemptions around Thanksgiving.  Therefore, we book way in advance (we’ve already had our November 2009 flights booked for several weeks) and get the best rate we can.  There’s no sense in dwelling over how many miles the flight translates into because I can’t use them anyway.

However, in all other cases when I am flying for personal reasons, I compare the price of paying cash and redeeming miles.  Because of the economy, flight prices are relatively inexpensive, so even when I planned to redeem, I have not always done so.

You: Really?

Yes. Earlier this year my family flew to a vacation in Puerto Rico.  We had plenty of frequent points at a hotel chain to stay for free for the entire duration.  Furthermore, I had planned on using airline miles to get there.  As such, our only expenses were going to be meals and entertainment.  Given that the hotel had a “kids eat free” promotion and my two daughters eat like thoroughbreds, I nearly convinced myself it was going to be cheaper to live in the hotel than in New Hampshire.

When I went to double-check the cost of the flights I was about to purchase using miles, I saw that, by changing my itinerary from a Friday-to-Friday trip to a Thursday-to-Thursday version, each ticket could be had for well under $300.  But the redemption was 35,000 per ticket, less than a penny a mile.

You: A bad deal.

So I kept my mileage.

You: Makes sense.  What else is there to consider?

A few things:

You Don’t Earn Miles On Free Tickets

Don’t forget that when you redeem mileage, you forgo the amount you’d otherwise earn by flying.  With short flights, this doesn’t change the math too much.  On longer ones, it’s a consideration.

For me, this came up a few years back when I was a platinum elite flyer and earned 125% bonus of miles flown on paid tickets. When my wife and I flew from Newark to Honolulu, the plan was to use points.  However, we only used points for my wife’s ticket, who had no airline status as my beloved grad student.  Her airfare was about $550.  A free ticket, I recall, was about 30,000 miles.  Not quite two cents a mile, but close enough.

But on my ticket, I’d not only be giving up 30,000 miles, but also the 22,500 miles I would have earned on the trip, since Hawaii is about 5,000 miles from New Jersey and I had the incredible bonus.  As such, my redemption rate would have been far lower, only about $0.01 per mile.  I passed.

Trying to Gain Elite Status?

If you’re trying to gain or preserve elite status, frequent flyer travel doesn’t help you do so.  My aforementioned trip to Hawaii really jump-started my mileage earning requirements for the next year. This is only relevant if you’re genuinely flying a lot.  Otherwise, don’t worry about it.

Do You Have Too Many Miles?

I may have too many miles right now, given the rate I accumulate them (fast) and my ability to use them (slow).  Because I travel frequently for business and have small children, my mileage balances are growing against my best efforts.  One could argue that when you accumulate a LOT of points, each subsequent mile is worth less than the one before it. I haven’t caved into that line of thinking as I aspire to be able to burn a bunch of them on an incredible trip when the kids get older, but if an airline or two goes out of business, I would be majorly disappointed.

How do you approach the spend money vs. use miles decision? How have you have changed your attitude in this matter recently?

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