Valuation of AA Miles
Sep 22, 23, 3:16 am
#1
Original Poster
Join Date: May 2008
Location: PHL (kinda, no airport is really close)
Programs: AA Exp, but not sure for how long. Enterprise Platinum woo-hoo!
Posts: 4,524
Valuation of AA Miles
We're always curious to see different cash valuations of miles, so here's an interesting data point.
AA Shopping is running a contest where you get extra entries for doing stuff they'd like, and first prize is $2500 cash and 100K RDMs. The fine print says that the value of the first prize is $4910. Meaning that the value of 100K RDMs is $2410. So they "value" the miles at 2.41 cents per mile.
A curious contrast to the imputed interest for the Bask Bank miles account, which values them to you at 0.42 cents per mile. Admittedly, they have an incentive to make the exchange rate favorable because it reduces the taxes due from the account holders, and therefore makes the account more attractive.
AA Shopping is running a contest where you get extra entries for doing stuff they'd like, and first prize is $2500 cash and 100K RDMs. The fine print says that the value of the first prize is $4910. Meaning that the value of 100K RDMs is $2410. So they "value" the miles at 2.41 cents per mile.
A curious contrast to the imputed interest for the Bask Bank miles account, which values them to you at 0.42 cents per mile. Admittedly, they have an incentive to make the exchange rate favorable because it reduces the taxes due from the account holders, and therefore makes the account more attractive.
Sep 22, 23, 8:18 pm
#2
Join Date: Mar 2021
Location: RDU
Programs: HH Diamond; AA EXP
Posts: 10
This game we are all playing has a high skill ceiling, the pursuit of which draws us in. Flattening out valuations to a precise formula, like Rapid Rewards, would surely diminish rewards program engagement. I enjoy reading FT'er stories of optimizing redemptions. After reading one such FT story, we took a family trip for 20K pt per ticket (10 years ago spanning two spring breaks) from London to Maui with a 360 day stopover in our East Coast home airport. While the point of entry stopover and flat award for Europe to US no longer exist, they were a fun and interesting feature of the program, allowing for creative itineraries.
Sep 22, 23, 8:24 pm
#3
FlyerTalk Evangelist
Join Date: Oct 2014
Posts: 10,810
It exists, but not with AA. I've done it with AS. I'm not sure if anyone else still allows stopovers on awards.
Sep 23, 23, 9:29 am
#4
Join Date: Jan 2009
Location: WAS
Programs: AA EXP2M, DL PM, UA PP <=> HH G/Marr PE/Hyatt G/IHG P FT RA ( Recovering Addict)
Posts: 4,417
We're always curious to see different cash valuations of miles, so here's an interesting data point.
AA Shopping is running a contest where you get extra entries for doing stuff they'd like, and first prize is $2500 cash and 100K RDMs. The fine print says that the value of the first prize is $4910. Meaning that the value of 100K RDMs is $2410. So they "value" the miles at 2.41 cents per mile.
AA Shopping is running a contest where you get extra entries for doing stuff they'd like, and first prize is $2500 cash and 100K RDMs. The fine print says that the value of the first prize is $4910. Meaning that the value of 100K RDMs is $2410. So they "value" the miles at 2.41 cents per mile.
SUB 75k for a 99$ card and 4k spend = 200$ cost /75000 = 0.3 cpm
AA miles are always the most expensive from spend = lost cash 2.625c each
Bask bank - 3 miles +3x0.42c = 1.26c = 1$ kept for 1 yr = 5.25c in T bills; so 3 miles = 4c = 1.3c real pretax cost
Sep 23, 23, 11:22 am
#5
Join Date: Aug 2003
Location: Washington,DC
Posts: 1,814
Depends on how you get them;
SUB 75k for a 99$ card and 4k spend = 200$ cost /75000 = 0.3 cpm
AA miles are always the most expensive from spend = lost cash 2.625c each
Bask bank - 3 miles +3x0.42c = 1.26c = 1$ kept for 1 yr = 5.25c in T bills; so 3 miles = 4c = 1.3c real pretax cost
SUB 75k for a 99$ card and 4k spend = 200$ cost /75000 = 0.3 cpm
AA miles are always the most expensive from spend = lost cash 2.625c each
Bask bank - 3 miles +3x0.42c = 1.26c = 1$ kept for 1 yr = 5.25c in T bills; so 3 miles = 4c = 1.3c real pretax cost
(And your Bask bank calculations are off - you get 2.5 miles per dollar and the $0.42 per mile is the taxable part - not their cost)
Sep 23, 23, 1:30 pm
#6
Join Date: Jan 2009
Location: WAS
Programs: AA EXP2M, DL PM, UA PP <=> HH G/Marr PE/Hyatt G/IHG P FT RA ( Recovering Addict)
Posts: 4,417
True but valuations are subjective; I value my house at 10M but I paid 700k for it. I think the lost cash is the best metric as it is most objective.
I cannot take the most expensive house in the neighborhood as comparison, so I cannot take the listed cash price of tickets.
Thanks for catching that - it is worse than I thought - btw, it is 0.42c each (not $0.42 each = 42c)
Bask bank - 2.5 miles +2.5x0.42c = 1.10c = 1$ kept for 1 yr = 5.25c in T bills.
When they send a 1099 for 0.42c, you have to pay tax on it both Fed and State ; you do not pay state tax on T bills - only Fed - so Max 37% tax
so you get 2.5 miles + a liability of 1.1c income for taxes - instead of getting 5.25c from T bills
Pretax 2.5 AA -(1.1c) = 5.25c so 2.5 miles = 6.35c real cost 2.52c pre tax
Post tax comparison @ 40% tax (state+fed) 2.5 AA miles + paying taxes of 0.44c (40% of 1.1) = 3.5c after tax
so 2.5 AA miles - 0.44c cash paid out = 3.5c cash; so 2.5AA = 3.94c after tax = cost of 1.58c
To rephrase
AA sells miles routinely at 1.88c every yr- so I use that as my real "valuation"
My cost to get the miles "valued" at minimum 1.88 by the printer of the currency varies depending on the method.
Just becuase I got them for SUB at 0.3c does not mean I think of them as value of 0.3c, as I can not do this in unlimited quantities
I did buy a couple of MM miles during the trees MC promo 2 yrs ago- (should have bought another 5MM more )
- so at times I know I paid a lot less for them, but to me their "value" is 1.88c each still.
I do not want to redeem them for 1c each on domestic flights
I think in 2-3 yrs = most programs will go full cash value 1c per mile for partners awards too and will just sell the tickets to you at cost price, similar to DL now with AF.
Then it is time to get rid of all Airline cards and just focus on cash back.
I cannot take the most expensive house in the neighborhood as comparison, so I cannot take the listed cash price of tickets.
Bask bank - 2.5 miles +2.5x0.42c = 1.10c = 1$ kept for 1 yr = 5.25c in T bills.
When they send a 1099 for 0.42c, you have to pay tax on it both Fed and State ; you do not pay state tax on T bills - only Fed - so Max 37% tax
so you get 2.5 miles + a liability of 1.1c income for taxes - instead of getting 5.25c from T bills
Pretax 2.5 AA -(1.1c) = 5.25c so 2.5 miles = 6.35c real cost 2.52c pre tax
Post tax comparison @ 40% tax (state+fed) 2.5 AA miles + paying taxes of 0.44c (40% of 1.1) = 3.5c after tax
so 2.5 AA miles - 0.44c cash paid out = 3.5c cash; so 2.5AA = 3.94c after tax = cost of 1.58c
To rephrase
AA sells miles routinely at 1.88c every yr- so I use that as my real "valuation"
My cost to get the miles "valued" at minimum 1.88 by the printer of the currency varies depending on the method.
Just becuase I got them for SUB at 0.3c does not mean I think of them as value of 0.3c, as I can not do this in unlimited quantities
I did buy a couple of MM miles during the trees MC promo 2 yrs ago- (should have bought another 5MM more )
- so at times I know I paid a lot less for them, but to me their "value" is 1.88c each still.
I do not want to redeem them for 1c each on domestic flights
I think in 2-3 yrs = most programs will go full cash value 1c per mile for partners awards too and will just sell the tickets to you at cost price, similar to DL now with AF.
Then it is time to get rid of all Airline cards and just focus on cash back.
Sep 24, 23, 1:58 pm
#8
FlyerTalk Evangelist
Join Date: Oct 2014
Posts: 10,810
You are probably right.. if you assume that business is $2k per direction and econ in $600 per direction, then 25k miles + $350 copay + $600 fare is slightly better than 60k one way. But it's close and it really depends how many miles you have. I'm hovering around half a million and am going to earn 200k - 250k per year on my way towards status so if I don't burn then they pile up. So I would rather pay 60k than 25k + $950. The miles do have value but only up to the actual amount that you want to fly. Once you have more than you need they become kind of worthless. I won't turn down an opportunity to redeem if it saves me 2c or more per mile.
Sep 24, 23, 4:39 pm
#9
Join Date: Jan 2009
Location: WAS
Programs: AA EXP2M, DL PM, UA PP <=> HH G/Marr PE/Hyatt G/IHG P FT RA ( Recovering Addict)
Posts: 4,417
In most cases, when I use my miles instead to buy awards for my personal travel, I come out ahead compared to upgrades.
I started in the miles game in 2000 or so, when I realized LH to Asia could be upgraded for 35+30k UA miles in each direction
Then I found that it had to be YHMB fares on LH only - then I found that award space was at a premium
Then when I found that US-SIN was 120k on UA miles on the same flights + 200$ taxes, I realized that 140k miles +2k ticket with some chance of upgrade was a lot worse.
If my employer buys economy and I can use my miles for upgrades instead of paying cash, then the "value" is higher
But even then if price difference is 1k for a tanscon flight, I would suck it up and sit in the back if needed.
Using 50k miles instead does not make them worth 2c; I think the value is probably half that, but I would pay to upgrade the red eyes in a heart beat.
I think of miles as cash value and factor that in my purchases
AA miles - 1.9c
Any airline mile that can be got via most transferable currencies = 1.4-1.5c per mile usally (AF, EK, EY, AC, VS, BA, IB, QR, CX, QF etc)
Cost of miles by using transferable currencies
Most good cards are 2x instead of 2.625c cash back, so 1.3c + overhead cost of carrying extra cards and fees etc
UA miles - via Chase 1.75c or less (I think of it as 1.8c value for which I paid <1.5c in lost cash by getting UR at bonus rates)
DL miles - my acquisition cost is high 2.6c instead of cash back, but for years I justified it as worth the status (1.3 c for the miles and 1.3c prepaid for the upgrades and benefits of lounge). No longer. I will only use my Amex for airfare at 5x and use that for DL miles when I need them if ever.
You also have to factor in taxes and fees. e.g., our trip to Italy /Berlin in October
My kids are not sure of free time - so I booked them on AA +750$ fees on BA outbound
My value = 57.5x1.9c +750 = 1800$ - but I know cancels are free and it is going to be canceled now anyway
I booked us on CX miles on same BA flights +250$ taxes 61k miles (now 80k today) cost 800+250 about 1050 oneway
Future cost 1300 or so
Coming back again we are on CX miles 61k +450 = about 1250 total cost
Kids booked on AA 57k +400 - but free cancel again a factor
I got the CX miles via a group apporama on Capital 1 venture X business 30k spend = 150k bonus+ 2x = 210k miles = cost 0.3c
I still think of the value of CX miles as 1.3c min as my replenishment cost from spend is 2.6/2
I started in the miles game in 2000 or so, when I realized LH to Asia could be upgraded for 35+30k UA miles in each direction
Then I found that it had to be YHMB fares on LH only - then I found that award space was at a premium
Then when I found that US-SIN was 120k on UA miles on the same flights + 200$ taxes, I realized that 140k miles +2k ticket with some chance of upgrade was a lot worse.
But even then if price difference is 1k for a tanscon flight, I would suck it up and sit in the back if needed.
Using 50k miles instead does not make them worth 2c; I think the value is probably half that, but I would pay to upgrade the red eyes in a heart beat.
You are probably right.. if you assume that business is $2k per direction and econ in $600 per direction, then 25k miles + $350 copay + $600 fare is slightly better than 60k one way. But it's close and it really depends how many miles you have. I'm hovering around half a million and am going to earn 200k - 250k per year on my way towards status so if I don't burn then they pile up. So I would rather pay 60k than 25k + $950. The miles do have value but only up to the actual amount that you want to fly. Once you have more than you need they become kind of worthless. I won't turn down an opportunity to redeem if it saves me 2c or more per mile.
AA miles - 1.9c
Any airline mile that can be got via most transferable currencies = 1.4-1.5c per mile usally (AF, EK, EY, AC, VS, BA, IB, QR, CX, QF etc)
Cost of miles by using transferable currencies
Most good cards are 2x instead of 2.625c cash back, so 1.3c + overhead cost of carrying extra cards and fees etc
UA miles - via Chase 1.75c or less (I think of it as 1.8c value for which I paid <1.5c in lost cash by getting UR at bonus rates)
DL miles - my acquisition cost is high 2.6c instead of cash back, but for years I justified it as worth the status (1.3 c for the miles and 1.3c prepaid for the upgrades and benefits of lounge). No longer. I will only use my Amex for airfare at 5x and use that for DL miles when I need them if ever.
You also have to factor in taxes and fees. e.g., our trip to Italy /Berlin in October
My kids are not sure of free time - so I booked them on AA +750$ fees on BA outbound
My value = 57.5x1.9c +750 = 1800$ - but I know cancels are free and it is going to be canceled now anyway
I booked us on CX miles on same BA flights +250$ taxes 61k miles (now 80k today) cost 800+250 about 1050 oneway
Future cost 1300 or so
Coming back again we are on CX miles 61k +450 = about 1250 total cost
Kids booked on AA 57k +400 - but free cancel again a factor
I got the CX miles via a group apporama on Capital 1 venture X business 30k spend = 150k bonus+ 2x = 210k miles = cost 0.3c
I still think of the value of CX miles as 1.3c min as my replenishment cost from spend is 2.6/2
Last edited by ffI; Sep 24, 23 at 4:50 pm
Sep 25, 23, 3:35 pm
#10
Join Date: Sep 2002
Location: Thousand Oaks, Ca., USA
Programs: AA Lifetime Plat; Bonvoy Titanium Lifetime Elite;Hyatt Globalist; HHonors Diamond; United Silver
Posts: 7,970
True but valuations are subjective; I value my house at 10M but I paid 700k for it. I think the lost cash is the best metric as it is most objective.
I cannot take the most expensive house in the neighborhood as comparison, so I cannot take the listed cash price of tickets.
Thanks for catching that - it is worse than I thought - btw, it is 0.42c each (not $0.42 each = 42c)
Bask bank - 2.5 miles +2.5x0.42c = 1.10c = 1$ kept for 1 yr = 5.25c in T bills.
When they send a 1099 for 0.42c, you have to pay tax on it both Fed and State ; you do not pay state tax on T bills - only Fed - so Max 37% tax
so you get 2.5 miles + a liability of 1.1c income for taxes - instead of getting 5.25c from T bills
Pretax 2.5 AA -(1.1c) = 5.25c so 2.5 miles = 6.35c real cost 2.52c pre tax
Post tax comparison @ 40% tax (state+fed) 2.5 AA miles + paying taxes of 0.44c (40% of 1.1) = 3.5c after tax
so 2.5 AA miles - 0.44c cash paid out = 3.5c cash; so 2.5AA = 3.94c after tax = cost of 1.58c
To rephrase
AA sells miles routinely at 1.88c every yr- so I use that as my real "valuation"
My cost to get the miles "valued" at minimum 1.88 by the printer of the currency varies depending on the method.
Just becuase I got them for SUB at 0.3c does not mean I think of them as value of 0.3c, as I can not do this in unlimited quantities
I did buy a couple of MM miles during the trees MC promo 2 yrs ago- (should have bought another 5MM more )
- so at times I know I paid a lot less for them, but to me their "value" is 1.88c each still.
I do not want to redeem them for 1c each on domestic flights
I think in 2-3 yrs = most programs will go full cash value 1c per mile for partners awards too and will just sell the tickets to you at cost price, similar to DL now with AF.
Then it is time to get rid of all Airline cards and just focus on cash back.
I cannot take the most expensive house in the neighborhood as comparison, so I cannot take the listed cash price of tickets.
Thanks for catching that - it is worse than I thought - btw, it is 0.42c each (not $0.42 each = 42c)
Bask bank - 2.5 miles +2.5x0.42c = 1.10c = 1$ kept for 1 yr = 5.25c in T bills.
When they send a 1099 for 0.42c, you have to pay tax on it both Fed and State ; you do not pay state tax on T bills - only Fed - so Max 37% tax
so you get 2.5 miles + a liability of 1.1c income for taxes - instead of getting 5.25c from T bills
Pretax 2.5 AA -(1.1c) = 5.25c so 2.5 miles = 6.35c real cost 2.52c pre tax
Post tax comparison @ 40% tax (state+fed) 2.5 AA miles + paying taxes of 0.44c (40% of 1.1) = 3.5c after tax
so 2.5 AA miles - 0.44c cash paid out = 3.5c cash; so 2.5AA = 3.94c after tax = cost of 1.58c
To rephrase
AA sells miles routinely at 1.88c every yr- so I use that as my real "valuation"
My cost to get the miles "valued" at minimum 1.88 by the printer of the currency varies depending on the method.
Just becuase I got them for SUB at 0.3c does not mean I think of them as value of 0.3c, as I can not do this in unlimited quantities
I did buy a couple of MM miles during the trees MC promo 2 yrs ago- (should have bought another 5MM more )
- so at times I know I paid a lot less for them, but to me their "value" is 1.88c each still.
I do not want to redeem them for 1c each on domestic flights
I think in 2-3 yrs = most programs will go full cash value 1c per mile for partners awards too and will just sell the tickets to you at cost price, similar to DL now with AF.
Then it is time to get rid of all Airline cards and just focus on cash back.
I got a lot of my miles by taking out multiple Citi Exec card back in the day. Cost me much less than that.
