MilesBuzz! - What value do you place on one frequent flyer mile for personal accounting purposes?

Being an accountant I regularly do a personal balance sheet, adding up my assets and liabilities, to see how my net worth has changed.
One of my assets is my frequent flyer mile balances. I add up my miles in the four accounts that I have and have a good chance of redeeming tickets from and then multiply the miles by x cents per mile.
This has the effect of "charging" myself for a ticket when I redeem the miles.
Do any of you place a value on your miles, and how many cents per mile do you value the miles at?

I do exactly what you are talking about, and use a rate of 1.5 cents/mile. I think you will find that the most common industry yardstick is about 2.0 cents/mile.

In the current Kellogg's AAdvantage promotion, miles are assigned an average retail value of 2.222 cents.

The practical effect (for me) of assigning a value to my miles is that when I plan travel, I compare the value of required FF miles to the cost of a paid ticket, and use whichever method results in a lower cost.

[This message has been edited by HKG_Flyer1 (edited 05-12-2001).]

MarkinDallas -- Welcome to the Board!

You may also want to know that this topic has been quite extensively discussed in this thread (http://www.flyertalk.com/forum/Forum1/HTML/003114.html).

Eugene, Thanks for the welcome. I'm new and went to the thread as indicated.
I'm trying to figure out how (if only slightly) the downturn in the economy affects the value of FF miles.
One thought is that with slightly lower systemwide enplanements on Delta, American, and United they might open up the room allocated to FF seats making it easier to get the seat you really wanted and increasing the value of the miles.
My other thought is that with negative sentiment in the population, people might opt to sooner use the miles for flights rather than pay cash for leisure travel (those people that enjoy having large accrued mileage balances).
Personally, my FF mile balance is the only item in my portfolio that grew in this past year. But that is another story....

for me:
Mileage Plus miles: SFr 0.03 (= 2 US cents)
Mileage Plus status miles: SFr 0.09 (= 5 US cents)
(LH) miles&more miles: SFr 0.02 (= 1 US cent)
(LH) miles&more status miles: SFr 0.06 (4 US cents)
(SR) Qualiflyer miles: SFr 0.03 (= 2 US cents)
(SR) Qualiflyer status miles: no value for me (I am not looking for, and will never achieve any status in that program)

To me the value of a FF mile depends on several variable factors. I'll limit my comments to miles acquired by, and used for flying only

I primarily use my miles for First/Business rewards on long haul flights, tickets I would never buy if I had to pay cash. Also, I'll use mileage for last minute emergency trips for friends and family. I've saved people who are important to me thousands of dollars over the years.

I recently chose to pay almost $1000 for a last minute trip to attend a funeral. I could have done the trip for 20,000 FF miles. Why pay when you can go for free?

First, I wanted to conserve my mileage balance for a future trip to Europe.
Second, with the paid ticket I was given Elite upgrades, and with bonuses added about 10,000 miles to my FF account.

The "cost" to acquire a FF mile varies considerably a recent trip on a competitive fare match yielded over 10,000 miles including elite and internet booking bonuses on a fare of $140., a yield of over 70 miles/dollar. Not bad considering that I got the transportation and FC upgrades to boot!

Maybe the best way to determine the value of the FF mile is to look to the marketplace, and see what the brokers are buying and selling frequent flyer rewards for.

Markin,

In reality,the miles have no value. http://www.flyertalk.com/forum/eek.gif
That's because many of us here are in the business of collecting miles. Cash them in?
As Steve Martin would say, "Excuuussseee me."

But you seem like a nice person anyway. Welcome to FLYERTALK. http://www.flyertalk.com/forum/smile.gif

Dan



[This message has been edited by dhammer53 (edited 05-13-2001).]

I have a somewhat cynical attitude toward personal accounting.

I value things at the cash I could get for them if I were out on the street and needed to liquidate everything immediately. Thus, most personal possessions (say, clothes) would be valued at pennies (if even that) on the dollar. My car is valued at whatever a dealer would pay for it if I walked in desperate to sell immediately. And so on.

Given that, and given that there is no surefire way to turn miles into cash, I value frequent flier miles at exactly 0. Using frequent flier status miles as an asset in your personal accounting? I think you're deluding yourself.

Pynchonesque, you are correct that in a balance sheet with market values then FF miles have a zero value.
I travel for my own business and have this year moved to billing clients a fixed amount for travel "x" plus a fee per day "y". So two days of my time costs x + 2y.
At the end of April I might have two tickets purchased for May engagements and these get classified as assets, "prepaid expenses."
Client doesn't mind how I get there and so I have the option of buying a ticket or using FF miles, which is why I like to place a value on those miles, since they are similar to prepaid tickets.
Side issue: I have read that a ticket acquired using FF miles has a deduction for tax purposes of zero (because the cost is zero according to the IRS). However, I believe that I'm better off by flying with a zero cost (for tax purposes) for the tickets acquired with miles than paying (say) $1,600 (DFW-DCA-DFW) and getting a tax deduction of $1,600.

Mark, we agree then. I definitely think that miles-accounting is useful, especially in your case, when you bill clients for travel. (Actually, I've done the same, billing for the cheapest available equivalent of my award ticket.)

But your first post talked about a calculation of net worth. And including ff miles in that calculation is ludicrous, although I'm sure many people do it. A CPA once told me about some of the things her clients include when trying to calculate their net worth -- including the "retail value" of clothes, jewelry, pets, etc.

I guess all the foreclosure sales in Silly Valley right now should serve as a warning against that kind of accounting: all the people who thought that because their options were worth "so much," they could go out and spend it right then and there.

My favorite accountants' saying is "only cash is cash." http://www.flyertalk.com/forum/biggrin.gif

[This message has been edited by pynchonesque (edited 05-13-2001).]

Originally posted by MarkinDallas:
Pynchonesque, you are correct that in a balance sheet with market values then FF miles have a zero value.
I travel for my own business and have this year moved to billing clients a fixed amount for travel "x" plus a fee per day "y". So two days of my time costs x + 2y.
At the end of April I might have two tickets purchased for May engagements and these get classified as assets, "prepaid expenses."
Client doesn't mind how I get there and so I have the option of buying a ticket or using FF miles, which is why I like to place a value on those miles, since they are similar to prepaid tickets.
Side issue: I have read that a ticket acquired using FF miles has a deduction for tax purposes of zero (because the cost is zero according to the IRS). However, I believe that I'm better off by flying with a zero cost (for tax purposes) for the tickets acquired with miles than paying (say) $1,600 (DFW-DCA-DFW) and getting a tax deduction of $1,600.

One question, I think, is how you treat payments from your clients. Presumably, you're declaring those payments as income rather than expenses, so that means you getting "paid" for your miles but also getting taxed on them. Alternatively, if you'd bought a ticket and charged your clients the amount of the ticket, it would be a wash in terms of income. Depends on how much you value the after-tax income on those tickets versus being able to use tax-free for personal travel.

Of course, I have no professional training in taxes so I could be spouting nonsense.

I think to value FF miles at "0" is even more absurd than placing a high value on them. If you value everything you own at "firesale" prices, you would immediatly place little or no value on stocks in thinly traded public companies, real estate holdings with sale limitations, rare collectables and your own business that was just begining to catch on.

My wife and I currently have in excess of 10 million miles & hotel points nearly all of which can be inherited and which we have willed to our three childred. Since in some views expressed here they have no value, I suppose none of our children would argue over them if we did not leave detailed instruction in the event of our demise. Yeah right!

The value may be somewhat difficult to quantify due to their restricted usage but value they have none the less.

I think to value FF miles at "0" is even more absurd than placing a high value on them. If you value everything you own at "firesale" prices, you would immediatly place little or no value on stocks in thinly traded public companies, real estate holdings with sale limitations, rare collectables and your own business that was just begining to catch on.

My wife and I currently have in excess of 10 million miles & hotel points nearly all of which can be inherited and which we have willed to our three childred. Since in some views expressed here they have no value, I suppose none of our children would argue over them if we did not leave detailed instruction in the event of our demise. Yeah right!

The value may be somewhat difficult to quantify due to their restricted usage but value they have none the less.

Magmile, Yes, when client pays me $z for the trip, the whole $z goes in as income and there is no deduction for the miles used to acquire the ticket.

In response to the prior post,
Are their any accountants out there who know how the IRS values miles for Estate Tax purposes? - assuming that they are an item that can be passed on to heirs.