OK, FWIW I've (sheepishly and at flame risk) cross-posted this from AA-land, thinking that this model combines theory and practice and can be generalized:

Out of curiosity, I thought that I would try to develop a model and apply it to my latest redemption. Clearly, there are a number of individual factors that will cause valuation to swing wildly, not only trip by trip, but also person by person.

I recently cashed 300,000 AA miles for 4 tickets to Tahiti and Oz. Even if first class was available (it was not), I would not have gone in front because I won’t separate from my kids and I do not believe that a 5 year old should, or a 15 year old needs, to fly first class. That said, the parameters:

Value: This is the cost of the tickets minus taxes, which have to be paid on a reward ticket anyhow.

First Class Enhancement: This is the amount that I would pay OVER the cost of coach to go first class. Of course, this number cannot be greater than the actual cost of a F/C tix.

Marginal cost of money: It’s not so much what a ticket would cost, but how much money I would have to earn to pay for the ticket. FF miles are not a taxable event; income is. In California, a high tax state, my marginal cost is about 50% (including fed, state and FICA), so I would have to earn $2,000 to pay for a $1,000 ticket.

Accumulation Effort: Free miles aren’t free. I fly less convenient AA routings, use an AA Citibank instead of cash back, Idine, fax Hilton when AA does not post, etc, etc. I have to consider the opportunity cost of my time. An up to 5% deduction can be applied here.

Redemption Effort: Sometimes cashing in is seamless, sometimes not: I had to call in four times to match every 332 day window opened up. I had to go to the Airport to re-ticket. I’m taking the maximum 5% hit here.

Date Woes: Not being able to get the dates you want can reduce the valuation by up to 5%

Destination Woes: I might have very well have gone to Fiji rather than Tahiti, deduction of up to 10% here.

Routing Woes: Up to a 5% penalty applies for having to accept less than preferred routing, I might have been able to avoid a change in Auckland if I paid for the ticket.

Certitude of trip: If one has to go, then the value of the miles is greater than if one is going on a lark. This can have an up to 10% reduction in value of miles. I off to a family reunion, award tickets or no award tickets.

Excess Mileage Excise Tax: The more miles one has, the less value they have. One could die, become infirm, AA could go bankrupt, etc. I am taking the maximum 5% ding here for over a million available.


Value of tix $5,200 per mile
Miles redeemed 300,000 0.0173
F/C enhancement 0 0.0173
Marginal cost of $ 0.5 0.0347
Accum effort 0.05 0.0329
Redemption effort 0.05 0.0313
Date woes 0 0.0313
Destination woes 0.02 0.0307
Routing Woes 0.01 0.0304
Certitude of trip 0.999 0.0303
Excess Mileage 0.05 0.0288




So, speaking just for me, and just for this trip, I am comfortable with valuating the miles at 2.8 cents per.