Brad wrote in with another question for my open forum as he debates whether he should buy a traditional revenue ticket or redeem miles for an award ticket. As usual, my answer reflects my specific needs and interests and what I know about Brad. The purpose of this post is to illustrate my thought process so you can use different inputs and come to your own conclusion. For example, if you don’t value elite status as highly as either of us, then you might prefer an award ticket because elite qualifying miles have less value.
I’m headed to Rome and Munich in September with two choices and haven’t decided which is better:
Pay ~$1,550 for an economy class ticket with a few domestic upgrade chances and possibly a GPU chance (flying United), which ends up earning about 14,200 RDM. Adding my Premier Platinum bonus the total is 24,850 RDM. The EQM is of high value to me.
Redeem three one-way award tickets totaling just under 100K miles plus about $180 in taxes and fees. It’s almost the same itinerary except that the return routes via LOT’s 787 in business. As a Premier Platinum I can cancel this at any time without penalty. The ability to keep my plans flexible is of moderate value (i.e., eating the change fee for the paid ticket isn’t too much bother as I know I’ll be able to use the credit).
Compared to the time and money spent to do a mileage run, I’m now leaning towards booking a paid ticket vs. an award. How would you view it from a miles/economics perspective that you routinely do so well?
Sites like MileWise, which is no longer operational, tried to answer this question by comparing the cost of an award ticket to the cost of a revenue (paid) ticket. MileValue has his own calculator that you can use instead, with somewhat less clear instructions on what it measures. However, the math is pretty simple, and for reasons I’ll explain you should probably do it yourself.
Let’s take a look at Brad’s example. I’ll use my standard valuation of 2 cents per mile. I’ve reached this number because I can often find good redemption opportunities where I save more than 2 cents per redeemed mile when I book award tickets. It won’t be on every trip, but it will be on many trips. This is roughly comparable to booking a domestic economy award for 25,000 miles that would otherwise cost $500 (I go to some expensive low-traffic airports) or an international business award for 110,000 miles that I value at $2,200 (not the real cost, closer to $5,500, but a price I would be willing to pay if such a fare were offered).
Option A: Brad can buy a $1,550 ticket that will earn 24,850 redeemable miles. Those miles are worth $497 to me, though Brad may have a slightly different number. His net cost is $1,053.
Option B: Brad can redeem for a ticket that will cost $180 and 100,000 miles. Those miles are worth $2,000 by themselves, with a final cost of $2,180.
On the surface, you can compare these two costs and choose the one that is lower. In fact, it’s lower by about half, which makes the revenue ticket very attractive at first. There are a few other considerations I’ll discuss, but you can run similar numbers with any ticket, even if you are only looking at a short flight that earns 1,000 redeemable miles. This leads to our first important question: Will you ever be able to use those miles?
Discounting a Flight with Earned Miles
Brad buys enough revenue tickets and redeems enough award tickets that miles are always flowing in and out of his account. Whether I have 4,000 miles or 400,000 miles they are still worth 2 cents each — he’ll earn enough miles soon enough that he will be able to put that 4,000 to some good use.
If you don’t earn miles as easily, a small number of miles could languish and expire. Though there are plenty of ways to keep an account active, someone who does not expect to use the earned miles should not discount the price of a revenue ticket. For that person, the comparison would be between $1,550 for Option A or $2,180 for Option B, a much narrower gap.
This is one reason why many people find it reasonable to rely on award tickets for most of their travel needs. The award ticket is not that much more expensive, and may actually be cheaper if you earned the miles for free with a credit card bonus and don’t value them highly. But I hope you also realize that for frequent travelers like Brad and I who benefit from elite bonuses and the like, the cost of a revenue ticket offset by the value of earned miles can be more attractive.
Valuing Elite Status
And that leads to my second important question: Do you value elite status? I do, and so does Brad. That status is part of the reason he will earn almost 25,000 redeemable miles with an elite bonus if he books a revenue ticket and not the base 14,200 miles — an extra $213 value right there. He also pointed out that he can get some flexibility if he books an award ticket thanks to fee-free changes, normally $75 each or $150 for a redeposit.
Not everyone values elite status, and that’s fine. But those who do realize how difficult it can be to earn and maintain. You can’t just go apply for a credit card or manufacture a few hundred thousand dollars in spend to earn elite qualifying miles with most programs. Usually you have to actually sit in a plane. For that reason, elite qualifying miles are very valuable — I tend to value mine at 4 cents each, double that of redeemable miles.
If Brad chooses to use a similar valuation, that means he is gaining an additional $568 from the elite qualifying miles earned, and we need to subtract that from the cost of his revenue ticket, as well. This brings the net cost down to $485. If you don’t value elite status at all, or if you value those elite qualifying miles less, then you would settle at a higher number.
Comparison to Mileage Runs
I am going to take a short pause here to compare Brad’s trip to a mileage run, which he is trying to avoid. I normally look for mileage runs that cost 4 cents per mile or less, and as a Premier 1K I earn a 100% redeemable mileage bonus. Using the numbers above, where a redeemable mile is worth 2 cents and an elite qualifying mile is worth 4 cents, you would expect that I would be willing to book a mileage run that costs 8 cents per mile, double my normal target.
The difference is that a mileage run, by definition, excludes any purpose to the trip. It costs me time and energy and creates conflicts with my schedule at home. I also don’t see any reason to earn miles at the exact price that I’m willing to redeem them. There’s no “profit” in such a scenario. The intangible costs of a mileage run mean I want to pay half those prices at most, and that’s how I arrive at a mileage run target of 4 cents per mile.
Brad’s trip will allow him to earn these miles in the course of ordinary travel, visting actual destinations for more than a few hours in the airport. For that reason, I used the full value of redeemable and elite qualifying miles in his calculations.
Intangible Benefits
Finally, we get a host of non-financial benefits that distinguish Brad’s two options. If he books a revenue ticket, he might get upgraded but has no guarantee. If he books an award ticket, that upgrade is confirmed. Brad’s a young guy who can survive economy class, but he’s also used to getting his company to buy him business class tickets for work. He’ll have to decide for himself how important this is based on his own standards for comfort and the odds of his upgrade clearing.
Brad is also looking at slightly different itineraries. How does Brad feel about the difference between United’s business class and that on LOT Polish? How important is the opportunity to fly on the 787 Dreamliner? Are the arrival and departure times and the number of connections significantly more convenient for either one? I’ve been known to book tickets for cash even when award tickets were available because only the revenue option allowed me to pick the specific carrier and departure time I wanted.
Update: Brad reminded me that he also places some value on lifetime miles (which he can only get on a paid fare traveling on a United-operated flight) and EconomyPlus seating (which is a reasonable backup if his upgrade doesn’t clear).
Conclusion
If I were Brad, I would pick the revenue option and apply a systemwide upgrade. The cost of the ticket is fairly low, I’ve already traveled on the 787 before, and the redeemable and elite qualifying miles earned are quite tempting. The price isn’t low enough to qualify as a mileage run, but for a trip he plans to take anyway that will allow him to avoid two or three domestic mileage runs at a future date, it seems like a good deal. For that, I would be willing to pass on the confirmed business class seat offered by an award ticket.
