Is a Mile Worth Two Cents?

Is a Mile Worth Two Cents?

Is the two-cent-mile valuation a modern myth or a good rule of thumb? We’ve looked at the question from every angle, and have uncovered an answer that is sure to make you feel more comfortable when redeeming your next award — no matter what the cost.

What’s a mile worth? You would be hard pressed to find a frequent flyer alive who hasn’t, at one time or another, sought for an answer to this seemingly innocent, but deceptively-complex conundrum. While popular theory suggests that a mile is worth two cents, this is really a mythical value that has been perpetuated despite a lack of supporting evidence. In truth, the answer to the question remains as elusive today as it was when first posed.

We decided to venture where others before us had failed, and uncover the truth behind the value of a mile. Call us what you will — courageous, foolhardy, perhaps even a little unbalanced — but there was no doubting the worthiness of the search. For, if successful, our reward would be that of having discovered a way for you, our readers and fellow frequent flyers, to feel more comfortable when redeeming your miles for awards.

First, lets take a look back, and see how the myth of the two-cent mile originated. This concept was intially heralded by Ed Perkins, then editor of Consumer Reports Travel Newsletter, some ten years ago. In a reply to the very same question that we tackle here today, Perkins replied, “about two cents,” and thus was born a modern myth.

At the time, a typical award for program members was the 20,000 “saver” award. While Delta Frequent Flyer (pre-dating today’s SkyMiles program) offered a base award at 30,000 miles, all other major carriers offered awards at the 20,000-mile level, and had done so since 1988. Perkins’ two-cents-per-mile rule suggested that a savvy member should not redeem an award if they could buy the same ticket for $400 or less. At that time, the average ticket price in the United States was $318, meaning that a premium was put on the use of an award.

Clearly though, times have changed. We decided to look at the way things were then compared to how they are now, and we began to discover that Perkins’ advice is no longer a valid reference point.

To conduct our research, we took a look at the most popular frequent flyer destinations. We then made extensive calls to program service centers for award availability and tracked these against airfare for similar destinations based on class-of-service and “sale” prices. We weren’t long into our quest before we ran into some of the same obstacles faced by those who had made the search before us. We were finding that tying down the value of a mile was as difficult as making a suit of jello. Here, in a nutshell, are some of the challenges we encountered:

Value Fluctuates as a Result of Your Choices
The “value” of a mile is tied to the purpose of the award ticket. Using an award for a long weekend to St. Louis, planned months in advance, is much different than using an award for the family vacation to Orlando, or using the miles to attend a funeral at short notice.

As most frequent flyers know, last minute, mid-week use carries a higher mile worth than typical advance purchase vacation use. A ticket from Dallas to Seattle is $914 walk-up (mileage value at 25,000 is 3.7 cents), while that same ticket on Priceline is $278 with advance purchase (mileage value at 25,000 miles is 1.1 cents).

Generally speaking, you also get more value for your miles when choosing class of service rather than destination. A coach-class ticket to Paris might be $750, while a business-class ticket is likely $5,000. A coach-class award to Europe is 50,000 miles on average (1.5 cents per-mile value) while a business-class award is generally 80,000 miles (6.25 cents per-mile).

Finally, mileage used to escape capacity controls has a different value. Let’s say a ticket between Chicago and San Diego costs $412. With a saver award (25,000 miles) the mileage value is 1.6 cents, while an anytime award (40,000 miles) has a value of only one cent.

Whose Value Are We Talking About?
Determining value is a matter of perspective. While frequent flyers attempt to qualify the value of their miles, the airlines are continually developing their own value systems.

Some research and simple math tells us the value that at least one airline program assigns to its miles. Our investigations uncovered that Sprint charges members of the Northwest WorldPerks program a tenth of a penny for a “Federal Excise Tax” on miles. Since that excise tax is public information at 7.5 percent, we can deduce that Sprint pays 1.33 cents per mile to Northwest WorldPerks. On the other hand, should you call American AAdvantage today, they will sell you a mile for 2.25 cents. Thus, two cents is not even an average.

Of course, we must also take into consideration that award values vary by carrier. For instance, a free award from Dallas to Las Vegas on Southwest has a different value than a similar award on American, primarily because of the difference in the overall airfare structure of the airline.

Furthermore, award values are always changing as airlines get better at managing their seat inventory. For instance, both American and Continental are champions at offering weekend awards at reduced mileage levels. These Saturday night stay-over awards are often offered at between 12,500 and 15,000 miles. Applying a two-cents-per-mile rule here would be silly, since, in reality, these are Web-only deals, and you could probably purchase the tickets for only $129 roundtrip. Clearly, if you applied the two-cent rule here, you would always buy the tickets, but there is still something quite pleasurable about a free ticket — at any cost.

It’s the Economy, Stupid
The value of a mile, like the value of a dollar, rises and falls on the economic tides. You don’t have to be Alan Greenspan to understand that, even if you only take inflation into consideration, Perkins’ 10-year-old mileage valuation is hopelessly outdated. And you don’t even have to look that far back. The economy three years ago, when you were flying high with options on some dot-com you heard about at the health club, is much different than today’s, where you’re hoping to refinance your house simply to go from the 7.5 percent to the 6.9 percent mortgage rate.

Value When Earning vs. Value When Spending
When we talk about the value of a mile, are we talking about the number of miles you can earn when you spend a certain dollar amount or how you can use your miles to save money — or both?

The per-mile-flown cost and per-mile-redeemed value are two very different principles. You’re likely to hear plenty of people making mileage runs these days to earn miles at .7 cents per mile. This .7 cents figure is determined by dividing the cost of the ticket by the number of miles earned for the flight. So, is it fair to say that these miles have a value of .7 cents, or should their value be based on their worth when it comes time to redeem them? Let’s say you are hoping to fly business class to Asia for a dream-come-true vacation. That ticket might normally cost you $6,000. But, by completing mileage runs, you might be able to earn the miles necessary for that award by only spending $3,200. Mileage runs prove to be a dilemma when trying to determine the value of a mile, primarily because members are proactive in seeking them out and view them as a way to save money on future ticket purchases — a dramatic departure from the typical, reactive nature of award redemption.

The Ever-Elusive Airfare
When attempting to pin down the value of a mile, the mistake many people make is to compare apples to oranges. The restrictions associated with a typical coach-class award are similar to those on a full Y-class ticket purchased from an airline. But, when redeeming awards, most people compare the redemption “cost” to the advance purchase ticket price — which has many more restrictions — rather than the full Y-class ticket price.

Even when comparing redemption value to the most appropriate ticket price, valuation is difficult at best. As all frequent flyers know, ticket prices can fluctuate dramatically from day to day, and even from hour to hour. Believe us, it’s tough to assign value to a mile when the price on a ticket from Denver to Miami can change from $400 to $1,250 in a matter of minutes.

What Did We Learn?
While it may, in some specific instances, be possible to ascertain the value of a mile, the amount of effort and time it would take negates any benefits derived. There are simply too many factors to consider, and, realistically, there isn’t enough time in a day to conduct all of the research and perform all of the calculations necessary to determine the value of a mile with any degree of accuracy. While some may make the time to check all available airfares and compare every possible redemption choice when planning an award, most of us don’t, and won’t, display that type of discipline.

We do, however, see some value in assigning value to miles if you plan to redeem them for merchandise or non-air awards such as hotel rooms and car rentals. Why the distinction? Because the cost of most non-airline awards tends to remain constant, it is much easier to determine the actual cost of the item and, as a result, it also becomes easier to determine the value of a mile in relation to the award. Still, don’t get too carried away here. When redeeming for a non-airline award, set some general base values for award redemption rather than a specific mileage value (i.e., I won’t redeem 10,000 miles for anything less than $150).

Another interesting, and unexpected, finding from our research was that airline miles have the same approximate value as hotel points. Consider that, in the Starwood Preferred Guest program, a point is converted to an airline mile on a one-to-one basis. If you redeem a Starwood point for a hotel room night, a Category 3 room costs 10,000 points for an average $159 room night; point value being 1.6 cents. Ten thousand points converts to 10,000 airline miles, which is likely to have a floating value near 1.6 cents. An airline mile, however, does not have the same value as a hotel point when the circumstances are flip-flopped. In the American AAdvantage program, a free hotel night at a Marriott with a daily average rate of $159 is 35,000 miles. This mileage value is less than a half cent. Certainly the advice here is to almost never redeem airline miles for hotel room nights.

The Bottom Line
The bottom line on all this — a mile has no value, only the award itself has value. In a sense, miles are like art — their beauty (and value) is in the eye of the beholder. Our only word of caution — use common sense. If you find a fare that seems reasonable and that you can afford, then don’t use your miles.

The real purpose of this article was to help you achieve a level of comfort when using your awards. We don’t advise spending endless hours fretting over the value of your miles. Over time, and hopefully after reading articles such as this one, you will develop a fine sense of what feels right and what doesn’t when it comes to redeeming awards. When you begin to focus on enjoying the vacations and the experiences that your miles have earned you, and spend a lot less time and effort worrying about calculating a definable value, you will find that, regardless of their financial worth, your perception of the value of your miles will surely increase.

If you are the type that just has to know the “value” of your miles, make sure you fully understand the many ways in which your miles may have value. But, if you are like many of us, the value of a mile might best be summed up like this: Hotel room in New Orleans: $178, Mardi Gras beads: $7.50, Hurricanes at Pat O’Briens: $15, using miles to fly to New Orleans for free: Priceless (with apologies to MasterCard).

On close, let us say that Ed Perkins remains one of the wisest travel ‘gurus’ we know and, if we had been asked that particular question some 10 years ago, we would probably have said the same thing — a mile is worth two cents (not).

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