There are five basic types of frequent flier miles. I’ll detail each, including how best to take advantage of them. Then I’ll explain why it’s important to diversify across the types (not just across frequent flier programs.)
1) Region-to-region based miles. American, Delta, United, US Airways, etc
Region-to-region miles are the most common type of miles. These miles can be redeemed according to award charts, so a flight from North America to Europe costs a certain amount of miles regardless of where in North America and where in Europe and regardless of the (valid) routing. These miles are earned by buying paid tickets. The earnings depends on how many miles your paid ticket’s routing is.
Strategy: Buy cheap paid tickets, possibly with circuitous routings to earn miles. Redeem the miles for expensive tickets, especially premium classes, and especially to expensive-to-reach airports within a region. For instance these miles are put to better use to fly into Seville, Spain compared to flying into London. Also, many of these programs allow free stopovers, free open jaws, and even free oneways for no additional miles. Exploit those opportunities.
2) Fixed-value miles. Southwest, JetBlue, Virgin America
“Revenue-based” might be a more appropriate name since the value varies slightly because of taxes and other factors. The miles price of a ticket is based on the cash price of a ticket regardless of where the flight goes. Some airlines have a minimum amount a flight can cost in points, JetBlue at 5,000 oneway, and some have a maximum, Southwest at 19,200 roundtrip. These miles are earned by buying paid tickets at a set ratio of miles earned per dollar spent on the ticket, again regardless of where or how far the flight goes. Fixed-value miles are the only type that allow you to book any flight with miles; there is no need to worry about availability.
Strategy: Use the miles for cheap tickets. A roundtrip from LA to Vegas could be under 5,000 Rapid Rewards points, while it would cost 25,000 miles using region-to-region miles. The best way to earn the miles is by flying expensive tickets. If a last-minute fare between LAX and Vegas is going for $400 on United and Southwest, buy from Southwest. It will earn you six times the $400 for 2,400 Rapid Rewards points, while the United ticket will earn 1,000 miles.
3) Distance-based miles. British Airways Avios
Miles are earned in the same way as region-to-region miles, by flying paid tickets and earning one Avios per mile flown. Miles needed for an award are calculated by adding up the miles needed for each flight on an award. The miles needed for each flight are calculated by the distance of the flight. All flights within a certain band, 0-650 miles say, cost 4,500 Avios. Flights from 651-1151 cost 7,500 Avios and so on.
Strategy: Use the miles for short hops between expensive city pairs. Quito to Lima for 7,500 Avios plus taxes is a steal, for instance, because airfare between those cities can cost hundreds and hundreds of dollars.
4) Credits for flights. Airtran, vestiges of Southwest’s old program
One credit is earned per paid oneway whether that oneway is Tampa to Atlanta or Tampa to Las Vegas. A certain number of credits (8 for Airtran) equals a free oneway, whether it’s from Tampa to Atlanta or Tampa to Vegas.
Strategy: Buy cheaper, probably shorter flights to earn credits. Use the credits on more expensive, probably longer flights. For example eight roundtrips from Tampa to Atlanta on Airtran earns a roundtrip from Tampa to Las Vegas. Airtran and Southwest have merged, and both credit programs are being completely replaced by Southwest’s fixed value scheme. But while they last, there are some great earning and redemption opportunities.
5) Transferable Miles. Chase Ultimate Rewards, American Express Membership Rewards, SPG Starpoints
These points are not earned by flying at all. Each program has different transfer partners with different transfer ratios.
Strategy: Keep the miles in the transferable points program until you have a redemption in mind unless a transfer bonus is ending that is too good to pass up. That allows you to maintain the option value of having many transfer options, and it allows you to use the miles for their most profitable use: topping up accounts that are just short of a dream award.
Those are the five types of miles; did you notice they all have different exploitation strategies? That’s why it’s so important to diversify across the types of miles. You want to have the best mile for the job, and you want to use the types of miles in concert.
For instance, imagine you live in Las Vegas, and you want to take a dream vacation to Peru, Chile, and Argentina in business class. You recognize that you want to use region-to-region miles for your main award, since they offer the best value for a trip between the US and South America, especially in business class. But you can’t find any award space out of Las Vegas, only Los Angeles. For the $120 roundtrip flight between Vegas and LA, you’ll want to use fixed-value miles. On Southwest, these flights would be about 6,000 points many days of the week.
Then from Los Angeles, you can fly to Lima and return from Buenos Aires in business class with region-to-region (probably American Airlines) miles. Once you’re in South America, British Airways’ distance-based Avios will almost certainly be the best option for travel among the South American cities. Using the different types of miles in concert unlocks all of their best value redemptions.
Another reason to diversify among the miles is the same reason you should diversify any type of asset: the same returns with lower variance. Changes in the airline industry affect different types of miles differently, so a hedge against those changes is to hold all types. For instance, higher fares this year have devalued fixed-value miles–it takes me more points to fly the same routes–but has had no effect on region-to-region or distance-based miles–I can still fly the same routes for the same price. This has, in turn, increased the cash value of region-to-region and distance-based miles.
This post had two main points: use the right mile for the job by understanding the best uses of each type and diversify your mile holdings not just across programs but across mile types.
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