The key to redeeming miles lies in how the airlines value them. Since miles rewards programs were introduced, the industry rule of thumb has always been that a mile was worth about two cents. The underlying formula: 25,000 miles were required for one round-trip domestic coach ticket, which was estimated to have an average price of $500. (In other words, $500÷25,000=$0.02.)
But discount airlines and Internet fares have forced ticket prices down: the average domestic round-trip fare was $362 in the third quarter of 2008, according to the Bureau of Transportation Statistics. One mile has depreciated to around 1.5 cents today.
To decide how much an award ticket is worth, make some calculations. If you find a particularly good airfare deal, snap it up in cash and reserve your miles for times when fewer deals are available. Taking award seats makes the most sense when the cash value of a ticket is roughly in line with its cost in miles (say, when you find a last-minute flight to a popular European city that costs $600, and you can put down 60,000 miles -- or 1 cent per mile -- to buy it).
April 29, 2009
How to maximize frequent flier miles
CNN has some useful advice for how to maximize frequent flier miles.