The Value of a Point
 

What's everyone's experience with the true value of a FF point with different reward programs when purchasing flights? The theory is 2 cents, but with NW Worldperks, I generally find something around 1 - 1.5 cents is the best I can do when comparing the $ rate Northwest would charge me for the same flights (and a little worse when compared to online discount travel services).

I'm hoping that if enough people reply with their findings when purchasing, readers can get a feel for what value they need to get in order to feel that they're getting a good deal.

Also, if anyone is aware of a source or site that has already done more extensive analysis of this sort, please let everyone know. I'd love to also find out the value of hotel points, etc, but one step at a time...

PGARY's website (http://home.earthlink.net/~pgary/MilesFrame.html) lists this as a good way to calculate your value, and states that he uses 1.6 cents as a baseline, for example:

"To compute the value of one mile;

First subtract the dollar charges for using miles from the dollar cost of buying the ticket. This is the dollar amount you save by using miles.

Then add the miles you would get by using dollars to buy the ticket to the miles you would be charged for the ticket if you were to use your miles to get it. This is the total number of miles the ticket would cost you.

Now divide your dollar savings you just computed by the total miles you just computed to find the cost per mile."


[This message has been edited by Statistician (edited 06-29-2003).]

[This message has been edited by Statistician (edited 06-29-2003).]

Statistician, welcome to FT! http://www.flyertalk.com/forum/smile.gif

If you use the helpful Search feature, you will find that this topic has been discussed to death once every 4-6 months on average.

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Vasant

Thanks, Vasant. I searched before posting this, and somehow didn't find anything, and now that I've embarassed myself, of course I'm finding the volumes you refer to quite easily.

Reading through it, it looks like anyone who wants to fly on roughly specific dates in coach class typically gets the 1 - 1.5 cents per mile that I'm finding. People who fly higher classes or spend them on upgrades can evaluate them higher (as high as 8 - 14 cents), but my opinion is that the $ price for those first class seats isn't something I'd pay, so I'm not getting the 8 - 14 cent value out of them.

So I'll be happy if I can fly where and when I want in coach for more than about 1.25 cents per mile.

Of course, I'm happy to have the moderator go ahead and close this with reference to the earlier strings.

http://www.flyertalk.com/forum/tongue.gif

Thanks,
Chris

Just redeemed 140K AAdvantage miles for a CX ticket between YYZ and JNB in First Class. 28,000 miles of travel. Figure the retail cost of such a ticket is around $10K, so that's 7-cents a mile. Spent about $3K on two vacation trips (Mileage Runs) and three business trips to earn this mileage, along with some credit card charges. That works out to be about 2-cents a mile. So I spent 2-cents, got that travel plus another 7-cents worth in return. No wonder the airline business is losing billions a year!

Sometimes I get an NWA award at the last minute, and the cost of a purchased round trip on the same itinerary ranges from $600-$1500. Then I know I got a good deal, but when you can buy an advance round trip ticket for, say, $200, it's a waste of the miles to get an award ticket. Also, the miles are a good deal on a European upgrade and for awards to Asia. Every situation is different.

They spend about 50 bucks for your meal. Maybe another 50 bucks for incidental costs. Sell the seat for more than $9,000 more than a coach seat, or 80,000 more miles. I don't think they're losing money here.

The cost of First is definitely a little more than $100 premium over coach. Usually you can configure more than 2 times the number of seats in intnl coach as in intnl F. Airlines find F expensive enough that they reconfigure it into J or Coach when the yields are low. Many don't even offer F and instead settle for J or premium J.

I personally feel that the best value of miles/points is international premium travel (F in particular). Taking your spouse/SO in intnl F if you are into that sort of thing is made so much easier by miles. RTWs and discounts do cheapen the value of miles redeemed in F or J.

Please, don't link or even imply that a "good deal" using FF miles is the reason the airline business is losing billions a year. It's been noted numerous times, but apparently still needs repeating...the airline's FF programs are the most (and perhaps the only) profitable part of their business. The reason the airlines are losing money are many; poor management, fewer travelers due to a poor economy, etc. FF programs are NOT one of those reasons.

In your example, you price the airline ticket at $10K. The airline doesn't necessarily lose this revenue because you decided to use an award. If you or someone else would have purchased the ticket for $10K anyway, in the absence of mileage awards, then perhaps they did lose out. I say perhaps because it is only a loss of that magnitude if all the FC seats are full and the airline lost the opportunity to sell the seat to someone who was willing to fork over $10K. I believe this happens so infrequently as to be insignificant. And most people simply will not pay that kind of money for an airline ticket, particularly leisure travelers. Most would opt to travel on the lowest price coach ticket they could find or not go at all. That is why the incremental cost of carrying the award traveler is the correct assessment of what the airline loses. Incremental cost would be the cost of carrying the passenger (extra food/drink and fuel basically) plus some very small % of that $10,000 to cover when a plane is full and the seat occupied by an award traveler could have been sold for cash. Again, that is probably no more than a few dollars.

Please also see:

http://www.flyertalk.com/forum/Forum1/HTML/003114.html

Again, after reading the other strings on this from a few months ago, I think a moderator should go ahead and close this with reference.

One parting shot... I strongly feel that you can only place a value on your points that's up to the amount you WOULD HAVE OTHERWISE PAID, not the value the airline would have charged you. In coach class, these are roughly the same as long as you weren't willing to take some off-the-wall cheap alternative to get a lower price than the airline would have charge. But when people talk about getting 8 cents per mile for their FC tickets to Europe or for their upgrade to Hong Kong because the airline would have charged $8,000 for those seats otherwise, I have to ask... If you had no miles and wanted to take that trip, would you have gone in FC or Coach? If the answer is Coach, then the value you got for your miles is the airline's Coach rate plus whatever the difference between Coach and First is worth to you personally. That makes your $8,000 more like $1,000 - $2,000, which is more like the 1 to 2 cents per mile that Coach travellers get.

I also support the response that the airlines don't lose money on this for a similar reason. It's only a loss if they actually would have sold that seat for that amount and wound up flying with the aircraft full and a paying customer left behind.

Thanks!

I discuss the value of your miles extensively on my web site below. Click on Value of Miles.

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Free Frequent Flyer Miles

This is exactly, 100% correct, and it's a point that is lost on enormous numbers of people.

While that makes perfectly logical sense, what about the trip which you would NEVER have taken if you had to pay for it?
Are the miles priceless or worthless in this instance? http://www.flyertalk.com/forum/wink.gif
There could be an economic argument that you would have eventually saved the money to go, but I'm thinking of, for instance, a business traveller who has accumulated enough miles by commuting/consulting/whatever that he/she can fly a RTW, for instance. They may have never even thought about paying the equivalent value for such a trip, but can go because of the miles.

I think valuing miles is totally internal, and only an individual can really decide their "comfort level" based on what they want to do with them and how they are earning them.

You completely misunderstand. The value (to you) is the price that you would pay for a particular trip and class of service.

Consider a business-class ticket from Boston to London and back. The price is $8,000.

The value to you is what you would be willing to pay for that ticket. Moreover, and here is a key, the value is different for each individual. For example, if you knew that you could buy an economy-class ticket for $500, you might be willing to pay $1000 for the business class ticket. Someone else might be willing to pay $2000, a business might be willing to pay the full $8000, and a student with limited funds might be willing to pay no more than $525.

MKE-MR is correct. There are two groups of people... One is for those that have few enough miles that they need to place a value on what they have in order to evaluate a decision of whether to pay for a trip they intend to make with miles or $$. Those people should probably evaluate using the "what they would have otherwise paid" rule, which I believe is somewhere around 1.25 cents for breakeven. The other group is for those who accumulate so many miles so fast that they can spend them all on whatever they please. For those people, there is no point in attributing a value because they should go wherever they want and always fly first class. Those folks have earned that situation by spending the time on the aircraft to earn those volumes of points, so it becomes more of a scenario of being a truly elite customer instead of obtaining a currency to be evaluated.

I beg to differ, and actually believe you have it backwards. Almost everyone who travels regularly and is posting on FlyerTalk, i.e. those who rack up the miles, most certainly attribute a value to those miles. However, we don't necessarily agree on what that value is. These folks use their miles very judiciously.

Most of the people who don't travel regularly and have relatively few miles are the ones who don't assign a particular value to their miles. These folks target an award level, redeem when they get there, and pay little/no attention to what the cash cost of that travel might be. Thus, you see people redeeming miles for coach tickets to Orlando or on the US Airways Shuttle from DC to NYC, tickets that could usually be purchased for well under $200 each.

I have more than enough miles (around 3 million) yet don't fly first class on all my award trips. Yes, I am going FC to Hawaii in October on award tickets. But I flew on a coach award ticket to Bismarck last August. For shorter flights, I feel you get better value redeeming for the coach awards.

For what it's worth, I value my miles at about 1.32 cents each. That doesn't mean I don't get more "value" for them; I frequently do. That figure represents my hurdle rate, i.e., if I can buy a ticket for less than that I will rather than use miles for an award.

Might as well go back to the concept that it's all individual and that the critical point is "how much you would have otherwise personally been willing to pay for the same trip". That's the simplest way to evaluate, and it varies from person to person.

Factors that go into this include your current personal financial situation, your current point balance, your rate of incoming points, how close you are to the next status level, your willingness to take funky flights to spend less $$ or earn more points, the premium you're personally willing to pay for FC or BC seats, etc.

In my case, I used to travel a lot for business, but recently got out of consulting and mostly travel for vacations and holidays a few times a year. I have a few hundred thousand miles, but am not earning many now. I'm doing ok financially, but not so well that I wouldn't rather spend the points when I can get a "good deal". I started this discussion to try to define the threshold for a "good deal", and I think I'm comfortable that for me, that's somewhere around $0.0125.

I suspect that the majority of people out there would evaluate their threshold somewhere in the 1 - 1.5 cent range when pushed to not evaluate their FC seats at the airlines' rates. The exceptions are:

1 People who fly so infrequently that they're better off using the points as soon as they have enough (MileKing's scenario). For these people, point value is not very relevant.

2 People who earn points so fast on business travel that they can't spend them on their demand for personal travel fast enough. For these people, point value is not relevant. This was the case I was tring to make that MileKing disagreed with, but I think it's still true if your point balance and earning rate exceed your personal demand by enough.

3 People who's point balance and earning rate are out of proportion to their financial balance and earning rate. For these people, point value may still be relevant, but not evaluated at the same exchange rate. For example, if you have 500,000 miles and you get fired, you're likely to spend your points on any necessary personal travel where the cash alternative isn't super-cheap (say, a rate of 0.6 cents/point) until you can get a new job.

I guess point #3 may also explain the variation among people who aren't at extremes either (those that would evaluate between 1 cent and 1.5 cents). My point balance is a bit high for my financial standing, so I might be willing to take a flight at 1.15 cents at the moment.

MileKing wants 1.32 even though he has 3 million miles, so clearly he's loaded financially. http://www.flyertalk.com/forum/tongue.gif Kidding.

I don't understand valuing miles at 1.25 cents. I would love to travel from NYC to Hawaii for $375.00. (30,000 award on Delta) Is this realistic?

[This message has been edited by sergio (edited 07-02-2003).]

Sergio - My point is that if you are actually able to book that flight to Hawaii for 30,000 points, you got a great deal because you're right that at 1.25 cents per mile, that would be fantastic. I have found (at least with NWA) that unless I booked it during a full moon immediately after midnight 12 months in advance, I couldn't get the flight. For NWA, that means doubling their 35,000 rate to 70,000 to get the "rulebuster" award. That works out to $875, which seems like a reasonable break-even point to me.

This is before taking into account the additional costs that I pasted earlier from PGARY's website. If you account for the opportunity cost of miles you could have earned and subtract any transaction fees from your savings, the breakeven for 70,000 is more like $950.

If other airlines are more generous in how available they make their seats and/or have lower point costs to book flights, then it definitely makes sense to evaluate your points differently on those airlines. If you cna regularly book flights NYC to Hawaii for 30,000 points, then those points are worth more, and I'd like to start flying that airline. If it's hard to get those seats, though, then I'd evaluate the points at 1.25 cents and be very excited about the deal I got if I went to Hawaii fo 30,000 points in the same manner that I would be excited if I got a $300 fare.