How To Decide Whether To Redeem Miles For A Ticket?

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Reader Alexis asked the following question on the “Need award help” page of the blog:

Hi there- i have approximately 180,000 Chase Sapphire points saved up. I’m currently planning two trips for my boyfriend & myself:

1. Boston > Reyjkavik in July/August 2015 (approximate cost: $650 or 60,000 points/per ticket)
2. Boston > Bangkok in February/March 2016 (approximate cost: $1,000 or 75,000 points/per ticket)

Simultaneously, I switched from using my Chase Sapphire Preferred® Card to my Starwood Preferred Guest® Credit Card from American Express for ALL purchases (Except rent- can’t do credit) to load up on points (currently have 22,000 and counting)

Questions: Which trip should I use points vs cash? Which card should I primarily use?

I am so lost! Thank you so much for the help!

This is an especially interesting question, given that I think Alexis might want to reconsider her miles & points strategy.

What award is a better value?

Looking at the two trips, Alexis can redeem her points for the trip to Reykjavik, where she’d be getting ~1.08 cents of value per mile, or she could redeem them for the trip to Bangkok, where she’d get ~1.33 cents of value per mile. What the above totals don’t factor in, however, is the following:

  • There are taxes and sometimes fees on award tickets, which aren’t factored into the mileage costs above. In other words, the value she’d be getting per mile is even less than the above.
  • You don’t earn miles on award tickets, so when you factor in the mileage cost you have to account for that as well. In other words, if you’re flying from Boston to Bangkok on a paid ticket you might earn up to 20,000 miles, which essentially means that in relation to a $1,000 fare, the “real” cost of that award is 95,000 miles, since it’s the 75,000 miles you’re paying, plus the 20,000 miles you’re forgoing by booking an award ticket

Adjusting the above numbers slightly, here are the real costs of the options:

  • Iceland: 65,000 miles (60,000 miles plus the 5,000 miles you’re forgoing)  or $650 — value of 1.0 cent per mile
  • Thailand: 95,000 miles (75,000 miles plus the 20,000 miles you’re forgoing) or $1,000 — value of 1.05 cents per mile

So the Thailand value is marginally better, but still isn’t a very efficient use of points, in my opinion.

In both cases she’d actually be best off using the “pay with points” option of the Chase Sapphire Preferred® Card, whereby she could redeem each point for 1.25 cents towards the cost of a flight. And then she’d also earn miles for those flights, since Chase is essentially paying for the cost of the ticket.

And that’s still far from the best use of Ultimate Rewards points.

“Traditional” points/miles aren’t for everyone

Generally speaking, traditional mileage currencies are most valuable for people:

  • Looking to redeem for first/business class redemptions, given that they can be exponentially more expensive on cash tickets, yet are often only marginally more expensive when redeeming miles
  • Those booking last minute tickets or tickets in markets where airfare is really expensive

In this instance, I don’t think either of Alexis’ trips fit in the above category, given that she’d only be getting about 1.0 cent per point of value, or 1.25 cents per point of value using the “pay with points” option.

Where should Alexis focus her spend?

I’ve said it before and I’ll say it again. For certain travel patterns, cash back credit cards represent a much better value. For example, the Barclaycard Arrival Plus™ World Elite MasterCard® offers the equivalent of 2.1% cash back towards travel.

That’s because you earn two miles per dollar spent, plus a 5% refund when you redeem miles. Each mile is worth one cent, meaning you’re basically earning 2.1% cash back towards the cost of travel.

Then when you redeem the Barclaycard Arrival Plus miles towards the cost of a ticket, you’re really booking a revenue ticket, which means you still earn miles for the ticket. It’s a win-win.

Assuming the two upcoming trips are pretty representative of the types of trips Alexis takes, I think she’s best off with a cash back credit card.

If she wants a more generic cash back card, she could consider the Citi® Double Cash Card. That card has no annual fee, and earns 1% cash back when you make a purchase, and then 1% cash back when you pay for that purchase. That ends up being like 2% cash back with no annual fee.

Bottom line

While I’m a big proponent of the value of miles, I don’t think a traditional mileage currency is best for everyone. If your spend patterns are similar to Alexis’, you can’t beat a cash back travel credit card like the Barclaycard Arrival Plus™ World Elite MasterCard®, or if you’re looking for a more generic cash back card, something like the Citi® Double Cash Card is tough to beat.

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Comments

  1. Hi Ben,

    I am trying to redeem two business seats using AA miles on Eithad from ZRH to PVG (via AUH). Per your blog, I was able to find the available flights on Etihad website, then I called AA to book the ticket. However, I was quoted for 60,000 miles per person (instead of 52,500 on their published rate between Europe and North Asia), the agent’s explanation was because the connection flight (about 2 hours) is at AUH, so mileage was priced as from europe to middle east, and middle east to north asia separately. Is this correct?

    Also, I was charged for 20$ booking fees per person . I remember AA recently dropped the award booking fee for not be able to book the award ticket online, right? The ticket is currently on hold now, but I want to find the right argument when I call AA again and get them ticketed.

    Thanks,

    Shen

  2. IMO there is still a lot to be said for her getting a signup bonus every now and then. That could still go a long way toward covering the cost of a ticket.

  3. while booming economy awards may not make sense to everyone…it still represents a savings. When you see the joy on your father’s face when he steps foot on his ancestral lands….well, 1.25 versus 2.50 really makes no difference.

    Everyone should do what they feel is best for them.

    It’s still a free trip!

  4. Don’t forget that when paying cash, you don’t have to deal with award availability.

    I’ll redeem points for coach tickets if I’m getting north of 2 CPM in value, perhaps 3 CPM depending on how many miles are required.

  5. @ shen – AA doesn’t permit you to route from Europe to Asia via the Middle East (unless it’s via Doha on Qatar airways .) The problem isn’t the 2hr layover; it’s the routing, which needs to be calculated as two awards. Sucks.

  6. Lucky: A small correction. The Citi Double Cash, unfortunately, has a 3% foreign transaction fee: “Foreign Purchase Transaction — 3% of each purchase transaction in U.S. dollars,” according to the T&Cs. I recently got the card through a product conversion and, for me at least, it’s the greatest thing since sliced bread. In the United States.

    My situation is somewhat like Alexis’s, but with AA. So I think I’m going to end up with mostly the Double Cash for normal spending and the Prestige for air & hotels and for Europe. Recently, for Europe I used the US Airways card with its zero FTF and its 1.5x miles on all spending, but that 50% bonus is going away on June 30, as you know.

  7. The award tickets in this case might be an even worse value when you consider other fees and taxes you might have to pay which would drive the opportunity cost even higher. Miles are really only very valuable for premium cabins or last minute flights when the price is already high. Of course this assumes you can get the seats at all.

  8. @shen : AA does not allow transatlantic award routes if you are going USA-“Asia”. The only way you can do it is with 2 awards, but that only makes sense if you are stopping over in AUH. Better to look for awards on CX or JL.

    I put quotes around “Asia” because the Middle East and India are also in Asia according to my geography book, but in those cases AA does not allow transpacific routes, you must go transatlantic, even when tpac is shorter (e.g. SFO-MAA).

    I do not understand about $20 booking fees: the fee is never $20, it is either zero (for flights not bookable on aa.com) or $35. Agents have to remove the fee manually, so you may have gotten someone who doesn’t know. But the $20 suggests some confusion, either yours or the agents.

  9. Hi, Ben. Not entirely related to Alexis’ trips. Would you say that redeeming for coach using BA avios for short distanced flights is worth vs. paying cash? Thanks.

  10. @Airgyspy

    It depends on how much the flight costs when you book it. I can book SFO-LAX for 4500 Avisos as long as AA or Alaska has savers availability. If I know my plans far in advance I can snag a seat for less than 70 dollars all-in. That is less than 1.6-cents per point. If I decide to fly down last minute a fare can be closer to 225 dollars. That is 5-cents per mile and almost as good as a premium cabin redemption. Of course an award ticket might not be available in either case. Regardless, this general premise is why many who play the points game generally consider a credit card that earns miles/points to a non-revenue based redemption program superior to a cash back card or the equivalent.

  11. Citi double cash has foreign transaction fees…or at least I was charged them for use in Istanbul this March

  12. People, in order to get the most out of this hobby, you have to be willing to do some math for your specific situation. You can’t just ask vague questions. “Should I use avios for a short trip”. For the travel you are planning you should know:
    1) Whether you want coach or business/first (and whether business is essential or nice to have)
    2) What the approximate cost of your flight will be in cash and what the award price (including taxes) is.
    3) Roughly what your travel plans are for the next few years.

    For a given trip, you should take the above and figure out your cost per mile (including taxes). It is cash cost minus the award fees & taxes divided by the number of miles required. If you are less than 1.00 or 1.25 cents, you should probably consider cash or chase/amex travel agents. I think most people think that greater than 1.5c/mile becomes worthwhile, but the precise answer will be specific to you. If you have more trips than miles, you should figure out what the best use is, given all the trips. ie, if I use my miles for this trip where I’m getting 2c per mile, am I giving up a trip next year where I would get 7c per mile. The exception to the 1.25 rule is if you have more miles than you know what to do with and that were acquired cheaply (cough AA Executive cough) and then sometimes it is best to just pay miles, even if you aren’t getting great value.

  13. @Shen:

    Correct, there is no longer a booking fee for AA award tickets for flights that you cannot search online, which is the case for EY. When I booked my EY ticket a couple months ago, I was able to confirm this with the agent.

  14. @ Airgypsy — It certainly can be, though it does depend on the circumstances. As noted above, there are instances where short distance flights are cheap, in which case it can still make sense to pay rather than redeeming 4,500 Avios. So always compared it to the cost of a paid ticket, and if the ticket would be expensive then that’s a great use of Avios.

  15. @ Gurl — Of course, everyone is free to do what’s best for them, and that’s what I’m trying to help Alexis with — help her do what’s best for her. I’m not saying she needs to redeem for premium cabins, but am rather saying there are ways she can be better rewarded for the money she’s spending anyway.

  16. Few other advantages of using Award miles is that lot of the Airlines allow free Date changes or w/ some fees. Also, u can Upgrade the seat with more miles if u want to later on or u can book one-way tickets w/ half the cost…

  17. @Shen

    I actually recommend you take CX. I live in Zurich and they recently started service here. I think their product is superior than EY and comes out cheaper in miles. Given there is space available on your dates, CX is a pretty good choice in my opinion

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