There are several ways to figure out how much miles are worth. When I was growing up the rule of thumb used to be 2 cents, which was wrong on many levels but made intuitive sense to someone that hadn’t thought about points for very long: “25,000 miles pays for a $500 cross country ticket.”

Of course not all tickets were cross-country, many tickets were less expensive, award travel gives up earning miles, using a domestic ticket as the benchmark ignored some of the best uses of miles, and of course capacity controls (and back then, even blackout dates) weren’t factored into the value.

Award chart changes and tighter capacity certainly has changed the value of a mile since then. But how much are miles worth today?

I’ve written in the past that the value of a miles is the point at which you are indifferent to holding miles versus holding cash. That’s self-evident. You’ll buy miles if you prefer miles over cash, and you’ll hold cash if you do not.

But in this post I will suggest that your point of indifference will change (they will be different, even for the same person) based on how many miles you have at a given time in a given program, and what you can confidently expect to do with those miles.

Miles Buy Travel That Would Have Cost A Certain Amount

The simple thing to do to value miles is to divide the retail price of a ticket by the number of miles the trip costs. That’s how much purchasing power your miles had.

There are two problems with that:

  • You might not have been willing to pay the retail price. So you should use a lower figure — the amount of money you’d have been willing to come out of pocket for the trip, and divide that by the number of miles you spent.
  • Mileage tickets are generally more restrictive than paid tickets — at least in terms of getting to pick which flights you fly (they may be less restrictive in terms of their ability to be cancelled and redeposited). If you’re faced with capacity controls, you may travel on a different day than if you had been paying or at different times or you might wind up on connecting flights. That could be worth less to you than the paid trip.

Regardless of the value you come up with for your redemption, that just yields an average value for your redeemed miles. It doesn’t tell you anything about the value of the miles you have left (unless you are certain you will redeem those in the same way and at the same mileage cost, and even that ignores present value discounting).

In addition of not telling you anything about the value of your remaining miles or those you will accumulate in the future, it doesn’t tell you the value of the first mile you earned as part of the redemption, or the value of the last mile you earned towards the redemption. Their value is likely not the same. And it’s the value of a given mile when you are deciding to earn that mile that needs to guide your decisions.

At what margin?

US Airways sells miles at over 3 cents apiece. To me, and most of the time, that valuation is crazy.

They also regularly offer a 100% bonus on the purchase of miles. Using the promotion you can buy miles at just under 1.9 cents apiece. That’s a better deal, and many people take advantage of it. Starting from scratch that means ‘buying’ a business class ticket roundtrip between North America and Hong Kong for less than $1900. That’s a good deal compared to buying that ticket with cash, though of course you are constrained to flights with award availability, but US Airways will let you hold an award before you buy the miles so that reduces risk somewhat.

Still, I wouldn’t buy miles at 1.9 cents apiece because I have so many. I’m not going from 0 to 90,000; I’d be going from a very larger number to a vary large number plus 90,000 — so I’m not immediately using the miles I’d be buying. That means I do not know the value at which I’ll redeem the miles in the future, because I don’t know my future award travel needs, future available when I have those needs, or what the award chart will look like.

In fact, since I’m always earning more miles, I may never use my last 90,000 — so I’m giving up the cash and in that case actually not getting anything. What’s more, miles don’t pay interest (although Chase Ultimate Rewards pay a 7% annual bonus on the points earned during the prior year).

On the other hand, miles can be worth far more than 1.9 cents apiece.

If I had 89,000 miles and needed 90,000 for that business class ticket to Hong Kong then you’re darned straight the last 1000 miles would be worth well over 10 cents per mile and indeed well over 15 cents per mile. I would gladly pay more than $100 or $150 in addition to the miles I had in my account in order to make the award trip happen.

The value of miles necessarily changes based on your circumstances. The value of an additional mile spikes as your mileage balance approaches the amount you need for an award. The value drops for the first mile you might earn (since that mile alone can do very little) and for additional miles as you have more than you will likely use in the near-term given both time, uncertainty and inherent risks to the future value of miles.

Towards a Personal Rule Based On Your Own Circumstances

A generalizable rule that says miles are ‘worth’ a certain amount can be unhelpful at best.

That said, I still have personal rules like if I can buy US Airways miles at a net cost of half a cent, as I did four years ago during a major promotion, I will buy lots and lots of them — because I’m reasonably confident that no matter how tight the inventory and no matter what the airline does to its award chart I will be able to get more htan half a cent in value out of each mile well into the future. And indeed even at a 1.2 cent per mile cost I’m tempted…. though while US Airways miles are worth more than that to most, at 1.5 cents I wouldn’t buy US Airways miles and given the recent devaluation and my own accrued balances I wouldn’t buy United miles at 1.5 cents anymore either.

And yet I’d still buy Starwood Starpoints at 2 cents, given the ability to transfer to so many airlines (including American, with increased speed, and Japan Airlines which is great for distance-based first class awards) as well as the ability to liquidate those points for hotel stays at at least 2 cents on a regular basis.

It’s important to ask when valuing miles, at what margin?

  1. Nathan said,

    I love how an economy saver award can get you from a small airport back home at a good price. I wanted to do this crazy trip going from Seattle up S.E. Alaska and end in Whitehorse, Yukon Territory by train (and bus). I could have flown back from Anchorage at a decent price, but I used 12,500 miles to fly from the small Whitehorse Airport to Vancouver and then to Newark. That ticket was 700 CAD, so I was very happy to pay much less for it. I think the same reasoning goes for taking flights to Jackson Hole or other small regional airports that normally run $500+ for a ticket.

  2. patricia said,

    i think most bloggers always advise “i won’t buy speculatively at XYZ cpm” (no matter how low XYZ is) is just a way to protect themselves from liability in case someone does buy but can’t find seats to redeem at.

    Miles are always worth at least 2cpm to me. This summer alone, i made super last minute bookings for my parents to attend a funeral using miles – EXCELLENT value during difficult times.

    The reason why hotel point games are much less worth playing is that at last minute, there are rarely rooms in which points are available that exceed the value from rack rate (and they rarely have any “last room” availability either)

  3. HikerT said,

    patricia, very few bloggers will buy speculatively at the cpm they claim. I would say the true value of miles is the value you will buy them. Talk is cheap. :)

  4. CaroleZoom said,

    Is there an IRS accepted value?

  5. Gary said,

    @CaroleZoom – the IRS uses valuation that a willing buyer and seller would come to, so programs usually report the value at the price they sell miles for (think over 3 cents per mile) which really isn’t useful in this context

  6. Gary said,

    @HikerT – You and I agree on this. They are worth the point at which you are indifferent to holding miles vs holding cash, so if you are unwilling to buy miles at a given valuation then you don’t value the miles as much as you say. Caveat — each person’s valuation is different, not just because of the intrinsic value of the mile, but because of how many miles they already have and what they plan to do with the miles.

  7. Lark said,

    As a Plat or 1K (Gold too?) on UA, my miles are worth much more than a GM or Silvers miles.

    I make many speculative bookings, which I can change or cancel at no charge, to hold flights for potential trips.

    The flexibility this offers is invaluable to me.

  8. DaveS said,

    Thank you for your very valuable discussion. It seems to me that there are really two valuations for miles – how much each individual values them in terms of cash we’d willingly pay for their acquistion; and how much we value them in terms of what we’d pay cash for as an alternative at the point of redemption. At the moment, because of the factors you mention in the post, I probably wouldn’t pay more than about 1 cpm (because I can otherwise get them cheaper than that) for AAdvantage miles, but nonetheless wouldn’t redeem them for less than 2 cpm. I think these are two different valuations and the spread can be very great because of the nature of the systems that are in place.

    These factor into decisions on buying miles, paying an annual fee on a credit card, or using a miles card vs a cash back card. It’s truly complex.

  9. Ben Hughes said,

    I view miles as having increasing marginal returns, then (like most things) decreasing marginal returns. That the valuation is a function of how many miles you already have, and is more stochastic than other things, doesn’t make the concept of valuation any less helpful, even if it’s far more nuanced than a simple static price point.

  10. Carole Zoom said,

    @Gary thanks for clarifying!

  11. RogerWilco said,

    Miles perceived value really depend on how much one already have. If I have 500k miles lying around, another 10k have very minimal value. Also if a had 0 miles, 10k have very low value. OTOH as Gary said if you miss 10k for a RTW in F, their value is really high.

    Speculative buying miles is just that – with the added risk of unexpected devaluations, with the expectation that you’ll actually fly (while cash is cash) and with the limited award availability (while at most times cash does buy a ticket

    So personnaly I buy points/miles only if I actually need them for something specific.

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