How I Decide Whether To Redeem Miles Or Pay Cash For An Airline Ticket

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Some people view miles as being “free,” and think that if they can redeem miles for a ticket, they should always do so. I don’t want to say that’s necessarily a bad approach (at the end of the day everyone should use miles in a way that works for them), though personally I view miles as a currency, just as I would cash.

I put a value to all of my miles, and then when I consider redeeming them I perform some basic calculations to decide whether to pay cash or redeem miles. Sometimes the math is straightforward, and sometimes it isn’t.

In the past I’ve shared how I value various mileage currencies, and Travis has also written a detailed post about how you should go about deciding how much specific mileage currencies are worth to you.

In this post I wanted to provide a slightly more detailed description of how I go about deciding whether to pay cash or redeem miles for a ticket. There’s nothing terribly complex here, though there are a couple of things that I think many people overlook, that could be useful.

On the most basic level, the math is pretty straightforward. You compare how many miles a ticket would require to how much that ticket would cost in cash. You divide one number by the other, and you then decide if that that cent per mile value is less or more than what you value the mileage currency at.

An example

Let me use a real life example. A few days ago I wanted to book a one-way flight from New York to Los Angeles, where I had two options:

  • Pay 32,500 AAdvantage miles for a nonstop business class award (it’s extremely rare these are available, but it was)
  • Pay $472 for an economy ticket and then upgrade (in this case I was booking shortly before departure and the upgrade was a sure bet, though usually it isn’t on this route)

So with the option of paying $472 or 32,500 miles, that’s the equivalent of 1.45 cents per mile. I value American miles at 1.3 cents each, so on the surface it seems like redeeming miles is a marginally better deal.

However, the way I see it there are three other factors to consider:

The miles you’re forgoing through credit card spend

When I look at the cost of airfare, one of the first things I do is discount the airfare by 5.1-8.5%, as that’s what I value the rewards that I earn through credit card spend on that purchase. As I shared in my post on maximizing points through airfare purchases:

  • The Platinum Card® from American Express offers 5x Membership Rewards points on airfare purchased directly from airlines; I value Membership Rewards points at 1.7 cents each, so to me that’s like a return of 8.5%.
  • The Chase Sapphire Reserve® offers 3x Ultimate Rewards points on all travel purchases, which includes airfare purchased directly from airlines, as well as airfare purchased through online travel agencies (which isn’t covered on the Amex Platinum Card); I value Ultimate Rewards points at 1.7 cents each so to me that’s like a return of 5.1%

In the case of this $472 ticket, I’d be earning 2,360 Membership Rewards points, which I value at ~$40.

The miles you’re forgoing through the frequent flyer program

In addition to the miles you’re forgoing through credit card spend, you’re also forgoing redeemable miles when booking an award ticket. Everyone earns miles at different rates, but as an Executive Platinum with American I earn 11 miles per dollar spent on base airfare. In this case base airfare is $426, so I’d earn 4,686 redeemable miles, which I value at ~$61.

The elite qualifying miles you’re forgoing

This is something that’s potentially tougher to quantify. When you redeem miles you’re forgoing the elite qualifying miles that you’d earn if you booked a cash ticket. The reason this is tough to quantify is because for many people, elite qualifying miles are worth nothing:

  • If you’re not going to qualify for status, then elite qualifying miles don’t get you anything
  • If you’re overqualifying for status, then with many programs the incremental elite qualifying miles don’t get you anything

My valuation of elite qualifying miles doesn’t necessarily come from how much I’d be willing to spend on airfare to earn status (in other words, what I’d be willing to pay for a mileage run), but rather how much I’d be willing to pay for the status with no redeemable miles associated with it.

In my case, I’d say Executive Platinum status is probably worth $3,000 per year, conservatively. That’s about what I value the four systemwide upgrades, the occasional domestic upgrades, the lounge access internationally, etc., at. I actually think that’s a conservative valuation, but I’d rather be conservative on this front.

That means I value each elite qualifying mile at three cents, meaning that for the above New York to Los Angeles flight I’d be earning ~$74 worth of elite qualifying miles.

Crunching the numbers

Now let’s add that all up. I can redeem 32,500 miles or pay $472. If I paid $472, I’d earn $40 worth of Amex points, $61 worth of American redeemable miles, and $74 worth of American elite qualifying miles. By my math, that’s $172 worth of “value” I get from that paid ticket, meaning that the options are between spending 32,500 miles and being “out of pocket” for $297. Redeeming miles would get me less than a penny per point, and at that that rate I’m better off paying cash.

Again, everyone’s math will be different:

  • It’s perfectly reasonable that some people will value elite qualifying miles at zero
  • Non-elite members would earn 5x miles rather than 11x miles for the airfare
  • Many people don’t take a neutral approach towards cash vs. miles in the way I do, because they’d only take a trip if they could redeem miles, etc., and that’s perfectly fair

This also comes to show you that if you value things similarly to how I do, you can almost get paid to fly. For example, take the below Qatar Airways business class fare from Colombo to Philadelphia, which costs $1,411.

If you booked this you’d earn:

  • $120 worth of points if paying with The Platinum Card® from American Express (7,055 Membership Rewards points)
  • $517 worth of redeemable miles as an Executive Platinum member (39,780 redeemable miles)
  • $814 worth of elite qualifying miles (27,123 AAdvantage elite qualifying miles)

When you add that all up, you’re getting more value than the cost of the ticket.

Bottom line

I don’t expect others to have the same valuations as I do above. Actually, please don’t, because we should all value these things differently based on what we want to redeem miles for, how we earn them, etc. However, hopefully this is a useful general framework for deciding whether to redeem miles or pay cash for a ticket.

The math could work out wildly differently for others, and I also recognize many people don’t view miles as a currency in the same way I do. In that case, please ignore all of the above. 😉

How does your approach when deciding whether to pay cash or redeem miles differ from mine?

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Comments

  1. Thanks Lucky, interesting process. But, shouldn’t you also consider tax impact? It’s something I certainly take into account. Cash fares I can deduct as a business expense (if traveling for business purposes) whereas mileage redemptions I cannot. So I usually discount the cash fares further in my mental math comparison. You don’t?

  2. Same question as @VirtuosoEric. Since, pretty much be definition, any flight you take is a business expense, don’t you consider the 30% or so that would have been taxes as a straight cash discount on the price?

  3. Don’t forget that you need to factor in taxes & fees on award tickets as well, which can further discount the cost of a paid ticket. Of course, this would be very insignificant on a domestic award, but adding another $50, $100 or $200 on top of the miles you’re using could push the math even more in favor of paying rather than redeeming.

    Then of course there’s the intangible of the routing. Oftentimes a paid ticket with a perfect routing may not be available on miles, so are you willing to add another connection that adds a couple of hours, added chances of a mis-connect, etc? Yet another factor that could push you towards paying for the ticket…

  4. i’m curious about you evaluating Executive Platinum worth $3000?!

    2x system-wide upgrades on a $1500 RT coach fare from LAX – GRU turn it into an $7000 RT business class itinerary.

    2x system-wide upgrades on a $1100 RT coach fare from LAX – SYD turn it into an $8000 RT business class itinerary.

    1 meal for you + guest at Qantas or Cathay first class lounge before each flight = ~$120 a head in food and alcohol

    3 free backs for myself traveling with suitcase, pelican case, and/or sporting equipment…

    not to mention constant (yet seemingly random) complimentary upgrades on other OW carriers like Qantas, Cathay, BA…

    etc. etc. etc.

  5. The miles are not tax-deductible but the fees and surcharges are. One example of a low mileage, high surcharge award is KE skyteam J award US to europe .

    A cheap paid premium ticket is almost always advance purchase, roundtrip and non-refundable. Most mileage programs allow changes with fees and cancellation with full redeposit of miles. Many programs allow oneway bookings.

  6. Lucky I completely agree with all your logic but one point I think you left out is the opportunity cost of using cash and having $472 less dollars in your pocket. Investing $472 (like into the stock market) could easily be worth $600+ one year from now, obviously it could be much more or much less. However 32,500 AA miles is almost guaranteed to depreciate over time, so it is best to use them sooner rather than later. Like you said, it will depend on your situation so there is not a clear cut answer, but I just think it should be noted that spending cash now does come with an opportunity cost. The same thinking applies to everything one spends money on since you can always be channeling your money to investments that will grow over time.

  7. You said you’d buy an economy ticket and upgrade. With miles, I assume, no? In that case, that “cost” should also be factored in.
    The conclusion we seem to be arriving to is that booking a ticket with miles is not a great idea! Imagine that!!

  8. Also, I’m curious about the 11x executive plat. Do you make 1100% the miles flown? How does that work? (my measly flying blue gold status gives me only 75% more…)

  9. @ PV — As an Executive Platinum member you receive complimentary space available upgrades, including between JFK and LAX.

  10. Usually I’ll pay cash for my domestic flights and I’ll use miles for international flights.

    I mainly fly economy on domestic legs and each mile is only worth 1-2 cents on these itineraries, wheras for international business class, I’ll be getting between 5 and 10 cents per mile, making much better use of my mileage balance.

  11. I think there’s a scarcity factor thats overlooked here. Sure you and I may value AA miles around 1.3 cents.
    Maybe I’d take advantage of redeeming 32K miles in Lucky’s example if I have 200K AA miles, but I’m less likely to if I am looking forward to booking an award that costs 60K miles and have either just enough (70K) or almost enough (50K).

    Sure, I could probably buy back the points during a future mileage sale, but I subconciously value a currency differently depending on how many I have, whether thats entirely rational or not.

  12. That would work for American but for Delta it is a slightly different proposition. With rollover MQM’s, there is always some incentive to have a paid ticket, and with the new MQD requirement for Diamond, until 15k in spend is reached, a paid ticket is the way to go if Diamond is the goal. However, taking MQD out of the equation, if one is looking purely for MQM’s, using “Pay with Points” can be a good option for low cost tickets because while SkyMiles aren’t earned, MQM’s are, which you may learn if you really are flying Delta more….

  13. I’m surprised you assigned a dollar value to EQM. I’ve only ever seen that in relation to buy up offers. Makes sense!

  14. And this is why I have ton of AA miles right now. With space so tight for award flights to Europe on AA metal it makes it difficult to spend miles for domestic flights when you can get a complimentary upgrade and earn status, etc as you noted.

    Best use of AA miles is on partners IMO anyways.

  15. I have trouble believing Lucky will risk flying in Economy class for a transcontinental flight, especially when he outsources all his economy class reviews.

  16. @ David — Not sure what you have a hard time believing? It was the day before departure and there were still 10 empty seats in business class and economy was mostly empty. The flight ended up going out with no one on the upgrade list.

  17. @ Evan — True, there definitely is a scarcity factor, though the flipside of that is that there’s a cost to hold onto miles. As mentioned by some others, if you have cash then you can invest it, earn interest on it, etc., while miles only devalue.

  18. @ morgan — Everyone is going to value stuff like this differently, though personally I don’t value the upgrades at the cost difference between economy and business. That’s partly because I’d never pay $7,000 for a business class ticket, and partly because upgrade space is so limited that you have to apply a huge discount for the risk associated with the upgrades. So in reality I probably value an international upgrade on American at $400-500 per direction, rather than the $3,500+ per direction you’re calculating above. Like I said, there’s no right or wrong answer, everyone values this stuff differently.

  19. There’s another issue besides value which I think hasn’t been mentioned yet: being able to cancel at low fees is important to me and this is where miles are the much better option. I happen to do more transatlantic than domestic flights, losing a $200 domestic ticket is one thing, losing a discounted $2,000 business class ticket issued 90 days before travel very much different.

  20. I think I’ll make elite for 2019 but 2020 is questionable. If so, I will try to burn miles and travel only on awards in 2020.

    I used to want to maximize the miles by spending only on economy class awards. After all, if you want to go to Paris, you could spend 40,000 miles on an off-peak economy class ticket or 115,000 miles in business class. 40,000 miles would be the cheapest to get you to Paris even though the business class award is cheaper in terms of air fare saved (couple thousand dollars).

    Once someone has too many miles, the equation changes and some want business or first class.

    The short of the story is that I no longer want too many miles. I want to earn as many miles as possible for the travel I do (hence Alaska is a good airline for that) but I don’t want a huge balance in my account. I don’t think I will be buying AS miles.

  21. @Lucky I absolutely agree, I’m all about burning the miles I’ve accumulated. The point is my value is elastic depending on my inventory.

  22. @ Miz — No, sorry, I thought the questions were more rhetorical regarding that. I wasn’t trying to ignore them. Certainly if travel is tax deductible then people should consider the savings there when crunching the numbers. Much of my travel is tax deductible, though for the purposes of an example that doesn’t seem like something that’s worth factoring in, since for most travelers deciding between paying cash and redeeming miles, that’s not the case.

  23. @lucky inversely, when is the last time you booked a longhaul coach fare?

    if you deliberately book flights around SWU confirmable flights… then i think it is fair to calculate in the amount of money you are saving in the fare difference of coach and business?

  24. @ morgan — I’ve booked two in the past year, and in both cases was very flexible so that I could lock in upgrades at the time of booking. I still wouldn’t calculate it based on the retail cost since I’d never spend $7,000 on a business class ticket. There’s almost always a business class fare sale that could get me a better deal.

  25. The guy who is photobombing the top photo should be arrested for interfering with a crew member and jailed for life in Qatar.

  26. The math is all wrong because it uses the average REDEMPTION value of miles to estimate the COSTS of ACQUIRING miles — a mistake this and other travel blogs make almost daily…

    G’day.

  27. Tickets you are mentioning were mostly priced normally (neither very cheap, nor very expensive). So for normal price tickets, it is better to pay because using miles do not result in getting a lot of value.
    Also for cheap tickets, it is better to pay because using miles do not result in getting a lot of value.
    For very expensive tickets, who actually pays for them? So they are not relevant to our calculations of value.

    So may I ask where does your, seemingly exaggerated, values for miles come from?

    I understand and fully accept your points and reasoning about benefits of buying paid tickets, and exactly because of those, and also due to a few other factors (like availability, and schedule), I have significantly decreased my valuation of the miles. For example AA miles is worth .85 cents in my book for redemption purposes. (and I am willing to sell AA miles, if I dare, for 1 cent a mile). I think your valuation of the miles has not sufficiently adjusted to fast pace of explicit and implicit devaluations during the last few years.

  28. For AA you need to factor that Saver Awards can be rare so you sometimes need to grab them when you can. The restrictions on saver inventory is a wildcard

  29. This is complete OT: I just got my new no-fee “Hilton Honors American Express Card”, which replaces the no-fee Hilton Honors Citi card.

    — Activate: starting on January 30, 2018.
    — Use: starting on January 30, 2018.

    Check your snailmail; your new HH AMEX card that replaces your HH Citi card (no-fee or Reserve) might also have arrived!

  30. If I can redeem one mile for 3-4 cents, I usually would. Nowadays, first/ business class tix are cheaper so I rarely get 7-8 cents per mile on award redemptions.

  31. Great article Lucky! question – I’m a platinum for AA, but haven’t had any lucks with coach ticket and upgrade to business. If I could guarantee an upgrade at the time of booking the ticket, I would purchase a coach ticket with an upgrade rather than booking an award ticket, but how can I find out the upgrade possibility, like you did?!

  32. This analysis (which I also apply sometimes) has an inherent flaw . . . there’s a bias in favor of paying cash for tickets in order to maximize the value of the points already acquired (i.e., “I won’t redeem under 2 cpm”). This leads to stockpiling of points, often across multiple programs. Which often leads to inefficient uses (“I need to burn my UA miles before they devalue again”) and spoilage. So ultimately the real world value of the points acquired is less than the value I placed on them at acquisition, which means I might have miscalculated in the initial calculus of redeem vs. pay cash so I can acquire yet more points, which I will continue to have trouble using because (a) I’ve set an artificially high threshold for redemption, and (b) award availability keeps getting worse across virtually all major programs. This can be a nasty cycle.

  33. I am lucky that I have the opportunity to earn lots of points (150k to 250k per month) using credit cards paying for materials and supplies for our company. It is hard to pay cash for a fun ticket if you have lots of points

  34. @DCS, if most of the miles you get are from credit card spend, then the cost to acquire miles is hard to define. It’s not like you can increase your credit card spend just for the sake of getting more miles (well you can with manufactured spending but that’s drying up and in most case the return on the time invested is not that great). So, in the case of miles earned by credit card spend, it’s better to look at the redemption value of miles.

    For some miles like Avios where there are often reliable ways to buy them for around 1.3 cents then it makes sense to also look at the acquisition value but that’s not the case for all miles.

    So, as an example, most of my credit card spend is done in a different currency than my credit card, so if I look at the acquisition cost of my miles, it costs me 0.5 cent per mile (4 miles per $, around 2% transaction fee) but that’s not a useful value since I’m not about to increase my credit card spend. On the other hand, I know that if I compare the price I’d be willing to pay for business class (not necessarily the actual price of the specific fare I book with miles), I’m usually redeeming my miles at around 1.6 cents per miles. So, whenever I make decisions on weither or not to use the miles, I look if the redemption cost is higher than that, if I value the flexibility of using miles for that flight (usually changes are easier) and compare that to what I’d get in term of miles by booking that ticket and decide based on that.

  35. Q Tang had the best question unanswered. How does one upgrade to a business class
    seat even if one is NOT an AA Platinum?

  36. i dont ever expect to fly from columbo to philly

    i fly infrequently and can not generate the type of miles you talk about from flying.

    I have used my excess aa miles to fly super saver tickets at the last minute when prices have skyrocketed and still pay 80 for each trip. I see the main benefit being international flight but then i dont fly internationally much.

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