Randy Petersen's Opening Remarks – September, 23 2010

Randy Petersen's Opening Remarks – September, 23 2010

October is turning out to be a rewarding month. We have the news that Marriott Rewards is officially, and finally, welcoming their Ritz-Carlton brand of very fine hotels into the program after nearly 15 years of initial investment in the chain. I’m very glad to finally see this and it marks another item off the “Things To Do” list in this industry. I’m sure we’ll see much success with this new relationship. Also, I’m pleased to welcome the Ritz-Carlton Rewards customer to our world of point programs.

And let me also recognize the efforts of both American Airlines and British Airways to usher in a new day of compatible frequent flyer program earn and burn across the Atlantic. This move instantly strengthens the oneworld alliance and this “Things to Do” item for this industry only took 13 years.

Now on to other topics. After hearing yet another reader ask what the value of a mile is, let me compose everything you need to know to be an expert on the topic.

The number of “experts” who think they know what a mile is worth is similar to the number of “experts” that can tell you when the world will end. The truth is that none of us knows for sure. Like knowing art when you see it, the value of a mile is known only to the person redeeming their miles. It has a one-to-one relative value to what the comparison cost would be on an exact fare with an exact purchase window and exact routing.

All members can figure the basic value of a mile by dividing the applicable airfare by the number of miles required to “purchase” it. For instance, if you were to consider redeeming miles for an award from San Diego to New York and the fare is $800, and you know that the 25,000-mile award is available, your value of a mile for this exact situation is 3.2 cents per mile. The key is that it has to be relative to the exact purchase because as many of you know, fares change. That same $800 ticket might have cost $268 if purchased four months ago, which would have given you a mile value of just over a penny a mile. As well, what if this same routing is not available at the lower 25,000-mile award redemption level? At 50,000 miles, the $800 ticket now has a value of only 1.6 cents per mile.

There is also the notion of mile-cost averaging and that is often achieved by taking a leading indicator of the average ticket cost, published in data such as the Bureau of Transportation Statistics’ Passenger Origin and Destination (O&D) Survey, which is a 10 percent sample of all airline tickets for U.S. carriers, excluding charter air travel. It measures average fares charged by the airlines plus any additional taxes and fees but does not include any other fees such as baggage or booking fees.

In using these comparison statistics, one needs to be prepared to adjust the value of a mile accordingly. The average airfare in Q1 of 2008 was $358.00, Q1 of 2009 was $301.30 and Q1 of 2010 was $328.10. In each of these samples, the value of an average mile varied from 1.4 cents to 1.2 cents to 1.3 cents. But, if you were using “average airfares” to determine a mile value, you would also need to use average mileage redemption, which frankly I know of no one other than InsideFlyer who actually even considers this in a mile value determination. As you and others have likely read or even experienced, frequent flyers do sometimes use more than 25,000 miles to secure a basic coach award for travel here in the U.S. When doing so, the average mileage value to use in comparison rises, having a parallel effect on the value of a mile. And I’ll try not to bore you with the cross comparison of averages by airline—the average award redemption miles required for a United Mileage Plus award does vary from a similar award using US Airways miles. So, using this matrix, the use of averages would change when considering that the average award redemption for a coach class award these days is 29,184 miles. This changes the original mile value downward by almost .2 cents per mile, with new average mile values from Q1 in 2008 now at 1.2 cents per mile, followed in 2009 by 1.0 cents per mile and this year Q1 with an average mile value of 1.1 cents per mile.

At the end of the day, the value of a mile is determined by two factors—where average airfares are tracking toward (higher airfares equal higher mileage value, lower airfares lead to lower mileage value) and then of course the comparison value of the exact routing which is not averaging, such as the San Diego to New York example of searching for a particular date to use an award, and the airfare at that time, and the booking window in advance.

Ultimately, my best advice is that there are times when you throw out all this and simply enjoy the award for what it is—a reward for your loyalty–well, to a point. For instance, if one researched San Diego to New York and the fare was $218 and you weren’t able to get an award at 25,000 miles, but had to use a hybrid two one-way awards and it cost you 37,500 miles, that mile value would be .06 cents per mile and I personally would suggest you beg or borrow (never steal) the money to buy the ticket and save the miles for another day when you could at least find a mile value of the current average of 1.1 cents per mile.

A final note, it is true that miles used for international upgrades are the best use of almost every mile you will ever earn. That’s my story and I’m sticking to it.

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