This post is part of a four-part series. In Part 1, we looked at the mechanics of the AAdvantage program. In Part 2, we looked at the mechanics of a stopover, including how to use them to get free oneway trips within North America. In Part 3, we valued specific AAdvantage awards. In Part 4, I’ll put a number on one AAdvantage mile.
In this post, I’ll explain why I value one AAdvantage mile at 1.77 cents per mile, but your value will be different. To start I’ll go back to the values for the redemptions I found in Part 3. To find your value, you’ll need to start with your possible redemptions. My redemptions:
- HNL-LAX//LAX-LIM (B) 2.33 cpm
- LAX-MIA-MVD (E) 1.89 cpm
- TPA-MIA-LAX//LAX-HKG-BKK (E) 1.78 cpm
- TPA-MIA-LAX//LAX-HKG-BKK (F) 1.71 cpm
- LAX-MIA-MVD (B) 1.66 cpm
- MEL-LAX//LAX-DFW-TPA (B) 1.64 cpm
- LAX-DFW-TPA//TPA-LGW, LHR-ORY (B) 1.53 cpm
- LAX-DFW-CUN//CUN-LGW (B) 1.39 cpm
- LAX-CHO (r/t) (E) 1.15 cpm
I’ve put in bold redemptions I would still consider doing now that I’ve run their values. These range from 1.53 cents per mile to 2.33 cents per mile. Here’s where the math stops and the estimation begins. We want to get a single number, so pick a number from inside the range of great redemptions. Base your decision on which redemptions you’re most likely to make and which will take the bulk of your miles. I’ll pick 1.80 cents per mile. I think most of my trips in the next few years will be to South America and Asia, and I think I’ll tack on a few stopovers to HNL in the future, so I think 1.80 cents per mile is the right number here.
The last step is to make adjustments to the figure you’ve chosen based on how the rules of American Airlines’ program differ from paying with cash and how you value these differences. We need to do this because when we value AAdvantage in cents per mile, we are putting a cash figure on a mile, thus comparing the program to cash. We talked about the rules of the program in Post 1. Here are the relevant differences between booking with AAdvantage miles and cash:
- Stopovers, open jaws, and oneways don’t cost extra with AAdvantage miles. They usually do with cash. Advantage AAdvantage. I value this flexibility in routing quite highly because I like my trips to include several cities without backtracking.
- A close in ticketing fee of $75 within 21 days of departure. Of course, there are no close in ticketing fees with cash, but prices tend to go way up. AAdvantage prices go up too. Too close to call.
- When there’s space, AAdvantage awards cost the same every day of the week. It’s often most convenient to fly Friday or Sunday, but paid tickets cost the most those days. It’s great to be able to book awards any day of the week for the same price. There is definitely a pattern of better award availability midweek, but it is not as pronounced as the ticket price increases on weekends. Slight advantage AAdvantage.
- Cancelling a cash ticket costs $150 for most airlines. Cancelling an AAdvantage ticket costs the same. Wash.
- Awards are allowed to exceed the Maximum Permitted Mileage on a route by 25%. This allows some routings and stopovers cash doesn’t. Advantage AAdvantage.
- While AA availability is good, and its partner availability is good to great, obviously availability with cash is better. Every flight is available with cash, only a portion are available with AAdvantage. Huge advantage cash.
Availability is fine on AAdvantage compared with other programs, better really, but cash obviously has much better availability, which is the major drawback of all (non-fixed-value) frequent flier programs. To me, the benefits of AAdvantage awards over cash listed above are less valuable than the one major drawback of AAdvantage awards compared to cash. I love being able to book Fridays, Sundays, oneways, open jaws, and stopovers, but the fact that awards aren’t always available when I want them hurts the value of AAdvantage miles like all miles. For that reason, I will lower my 1.80 cents per miles valuation that I came to above to 1.77 cents per mile. If you prefer roundtrip vacations to one place, flying midweek, and have no flexibility in when you can take trips, you should lower the value of an AAdvantage mile. If you really like openjaws, stopovers, and oneways; flying on the weekends; and have total flexibility in when you can take trips, you should raise the value of an AAdvantage mile. Again this is a stage for personal valuation and estimation.
Understand the American Airlines award program, understand its stopover provisions, find good awards for you, value those awards, and finally adjust that value for how cash and AAdvantage tickets differ. Do that, and you’ll be able to put your own value on an AAdvantage mile. And best of all, you can exploit the AAdvantage program.
I value one AAdvantage mile at 1.77 cents per mile.
I have earned millions of points, primarily though credit cards, to travel the world in first class for pennies. This blog will show you how to earn and redeem points to do the same!
this is one of the more thorough analyses I’ve seen for miles. I can see you’re using a range based analysis similar to poker.
some other factors that I’d love to see discussed somewhere would be:
time value: it takes awhile for the average person to use up their miles, often over a year for people who work 9 to 5 jobs. a non-interest bearing mile that has 1.77 ct of value when redeemed in 2 years is not as good as 1.77 cents of cash today bcuz the cash can be invested or deposited to earn interest.
- devaluation risk. airlines frequently change award charts. I think ignoring this biases the valuation upwards. maybe there is a 75 pct. chance they don’t devalue and youll get your 1.77 cents of value out before they devalue but there is a 25 pct chance they devalue and your 1.77 cents are worth x, assuming they haven’t raised the minimum for the award you were hoping for to some number you can no longer reach. this leads me to my next point.
- breakage. it’s extremely rare for an individual to finish with a zero miles balance. think about all the orphaned miles you have in various miles programs. those miles have nearly no practical value. the avg beginner collector is not going to realistically get all those orphaned balances to a redeemable level. as a frequent mile collector you might think you will get all your balances up to redeemable levels but even for AA miles, you will still likely finish with some odd balance at some point in the future. let’s say you redeem 500k AA miles over the next 5 years but then something happens so hat you quite trying to collect AA miles and leave behind 24k miles. you’d have to adjust the 1.77 for the 24k of breakage. you might quit AA and leave behind the 24k for various reasons. maybe you move and no longer find AA hubs useful. maybe the airline liquidates. maybe they change the award chart so much you get disgusted. maybe you settle down and have kids. maybe you die. these might sound extreme but again your avg 9 to 5 traveler suffers breakage much more frequently than the average fter. the avg person probably redeems 100k AA miles in 2 years and then orphans a bunch of miles and let’s them expire.
one more point on time value. for those of us with large miles balances, time value is important for the incremental miles we earn. if you have 1 mil AA miles in the bank, you are prob non longer earning current AA miles at a 1.77 rate. the current miles will be redeemed after the 1 mil, so the time value is worse. so in many cases time value can be more critical to the avid miles collector/hoarder.
the same is true for devaluation risk.
Great comment. I agree with your analysis. I just didn’t want to cram any more of these issues into my already probably-way-too-dense posts. Devaluation risk and time value are two very important points that decrease the value of miles. Another is the fact that they can only be spent on one airline whereas cash can be spent on any or airline or not on air travel at all.
Breakage I don’t think is too much of an issue these days with transferable points programs and the ability to buy miles. In reality, I think most people could empty their accounts to a pretty low level.
Also I’ve neglected one factor that actually increases the value of miles, which is menu cost. Award charts are devalued, but not as rapidly as prices rise. Air fare prices have soared in the last year. But charts haven’t devalued yet because of the costs associated with changing one’s chart, so miles have gone up in value.
Overall, you’re completely right, but it would be too tough to go that level of analysis and there are some offsetting factors that make me think I haven’t overestimated mile values too much.