The Value of Award Booking

The Value of Award Booking

There is a lot of debate ongoing in the frequent flyer community about the value of a mile. Many blogs and threads have been created to discuss this topic, and I feel the need to discuss here as well, as there are too many bad ways to spend a mile.  I like to use the price point of about 2 cents per mile in general, but little of this is based in hard science.  What matters more than their "actual" value is what you can get out of them.

Let's go back to my honeymoon trip as an example - Business class tickets from LA to the Maldives and Singapore, then back again.  What are they worth to you?   In pricing these tickets out, I realized very quickly that there is a lot of possible variability with regard to perceived value.  

Perceived value

First, the perceived value of the trip needs to be determined.  This is really a subjective measure.  To me, this means looking carefully at what you would have paid for the tickets if you paid in cash.  Looking at the price for the trip in coach was my best proxy for perceived value, but even so - I'm not sure I would take a journey like this if not for frequent flyer miles.  So, the cash price for flights to and from the Maldives looked to be about $1,800, with no stop in Singapore.  I think that this is a reasonable estimate of what I would pay if I booked myself in cash.  Subtracting the fees paid for this portion of the trip (about $300), it appears that my 120,000 miles are worth about 1.25 cents per mile.  Adding in the trip to Singapore doesn't really add much value in coach, as the amount of fees is nearly the same as a coach fare on MH.  

Now the question is, what's the cost for sitting up front?  Why haven't you considered this yet.  Below is a breakdown of the cost for ticketing my flights all in J.

Los Angeles (LAX) to Male (MLE) - Fri, Jun 28 Los Angeles (LAX) to Guangzhou (CAN) -  China Southern 328 Dep: 11:00PM Arr: 5:20AM 15h 20m Airbus A380 Business (J) Layover in CAN 11h 10m Guangzhou (CAN) to Male (MLE) - China Southern 3083 Dep: 4:30PM Arr: 7:50PM 6h 20m Boeing 777 Business (J)    Male (MLE) to Singapore (SIN) -  Male (MLE) to Kuala Lumpur (KUL) -  Malaysia Airlines 176 Dep: 10:45PM Arr: 6:10AM 4h 25m Boeing 737 Business (C)    Layover in KUL 3h 15m Kuala Lumpur (KUL) to Singapore (SIN) -  Malaysia Airlines 611 Dep: 9:25AM Arr: 10:20AM 0h 55m Boeing 737 Business (C)    Singapore (SIN) to Los Angeles (LAX) - Singapore (SIN) to Guangzhou (CAN) - China Southern 354 Dep: 1:30PM Arr: 5:30PM 4h 0m Airbus A320 Business (J) Layover in CAN 4h 0m Guangzhou (CAN) to Los Angeles (LAX) - China Southern 327 Dep: 9:30PM Arr: 7:00PM 12h 30m Airbus A380 Business (J)    Cost per passenger (including taxes & fees) $6,827.70 Total cost for 1 passenger $6,827.70

Given this price, minus the $600 in fees, I would assign the value per mile at 5.19 cents per mile.  This is a significant price difference over the value of a coach fare (and all the more reason to book in J). 

I think that paying cash, I would suffer through sitting in Y (coach) for all of the hours necessary to get me to my destination (about 22 in-air to MLE) - but this was not happening with miles (and I'm glad I don't have to ).  I had saved these with a goal in mind, and that goal was a luxurious honeymoon, and one which involved flying in J.  

There is no way, given my current financial situation, that I could dream of paying for a ticket to MLE in J, so why would I assign this value to my miles?  This is an answer each person must come to separately.  For me, it's certainly more than 1.25 cents and less than 5.19 cents per mile, and probably on the lower end of this range.  

Making sense out of award pricing

The real key to understanding this math is that it's dynamic.  The relative price depends on your goal with the miles and what you're willing to give up to use them.  When booking awards, two major items are forfeited: Flexibility and miles (status gaining miles as well).  

Flexibility is lost, as it is unlikely that you'll be able to book exactly the trip you want if using miles.  This is because airlines release limited numbers of seats for awards, and you may be forced to fly a less convenient schedule or less optimal connections

Miles are lost because airlines do not award redeemable or other miles when flying on an award ticket.  No biggy you think?  Look at the example above.  Worst case scenario with our miles, they are worth about 1 cent per mile, but best case they're upwards of 5 cents.   Make sure you factor in the cost of lost mileage into your cost of redemption!

What not to do

I suppose there is a moral to this post, which is to be goal directed.  Miles should be saved to reach an aspirational goal.   Don't ever redeem your airline miles for cash or "pay with points" as both guarantee you a rate of 1 cent per mile.  You can certainly do better that this.  Always evaluate your potential gain over what you could do yourself.  How much money are you saving using those points, and how much better with they make your trip if you book in J?

Whatever you choose to do, just make sure it's what you feel is best for you at that moment.  Only then will you be certain that it's a good value!

Best of luck!