I thought I’d say something since I started this blog (MileValue) about the value of frequent flier miles, and my first post was titled How Much are Frequent Flier Miles Worth? A Guide.
What I want to say is that frequent flier miles are weird. Let’s look at the difficulty in deciding how much my map is worth and how much harder it is to value a frequent flier mile.
It costs $25 on Amazon. We know it’s worth at least that much to me because I bought it for $25. That’s called a revealed preference. I value the map at $50.
But what does that mean? That’s not the price you would have to offer me to buy the map. I’d sell it for $26. I could buy a new one for $25 and pocket the profit.
Nor is $50 the price I’d pay for the map. Remember, they are for sale for $25. So I wouldn’t buy one for $50 unless I didn’t have this one and $50 was the best price out there.
Nor is $50 or $25 or any other amount the amount I would pay for infinite quantities of this map. I would pay the cheapest price up to $50 for my first South America map this size, but for the second I would pay $5. For the third, I would pay $1. After that, I would have one in every room, and I wouldn’t pay anything for a fourth map.
So how much do I value a South America map? $50, $25, $5, $1, some other amount that involves averaging?
Now replace South America map with 1 United mile or 5,000 AA miles.
Except that the market for miles adds new problems. Namely miles themselves are worthless.
They can’t be sold.
They can’t be enjoyed as miles. Miles must be exchanged for experiences (and in some cases goods) that have cash prices.
Putting all that info together, what you need to know is that my mile valuations on the Mile Value Leaderboard are based on the value of the awards that the miles are used to book.
I did those valuations in a series of articles on several major mileage currencies. In each series, I considered the value of the miles on several awards, took the best several awards, averaged the value of the miles for those awards, and finally made adjustments based on the program’s rules and how those rules compared to buying a cash ticket.
When valuing individual awards, for the value of the ticket, I take the lesser of the cash price of the ticket and the subjective value of the flyer. The reason is that it’s unfair to plug in an astronomical cash price if you would never buy the ticket with cash. And it’s silly to use your subjective value if you could simply purchase the same flights for less cash.
Using this system, I get good estimated for the value of the miles for “reasonable balances” of the mile. Let’s look at United miles, which I value at 1.81 cents each.
That 1.81 cents is how much I value United miles over reasonable balances. Reasonable balances differ for different people but should be something like the number of miles you could use in the next two years.
That means I don’t value the first mile in my United account at 1.81 cents. A balance of one mile is, instead, worthless. Nor would I value my 50,000,001th miles at 1.81 cents. That mile is probably worth 0.1 cents since I would value the ability to give away business class awards to Europe to friends at $100 ($100 divided by 100k miles is 0.1 cents per mile).
But for United miles 25k to 500k, I would value them at 1.81 cents each.
Does that mean I would buy them at 1.8 cents each? No, the Frequent Miler often writes about ways to “buy” Ultimate Rewards for less than that, so why would I buy for higher than the market rate?
Does that mean I would only sell them for 1.82 cents each or more? (Miles can’t be sold, but if they could…) I would sell them for much less–any amount greater than the amount I can buy them back for using Frequent Miler’s tricks assuming those could generate infinite miles. It would be a great arbitrage opportunity.
Then what does 1.81 cents mean? It’s just my value for my United miles. It’s the amount I would multiply by my mileage balance when figuring out my net worth. It’s stored travel value.
What you should take away from this
You should have a value in mind for your miles and points. You shouldn’t use that value to determine when to buy and sell miles. You should use the values for ratios between the miles and points to determine what the best miles/points deal is.
You should use mile values to determine which awards to book–40k United miles or 65k Delta or $700 cash ticket?
You should use mile values to determine which card to get–30k SPG points or 40k Ultimate Rewards (don’t forget about rebate percentages here though)?
And you should read all the bloggers mentioned in this post. They’ll help you earn the most miles and redeem them for the most value. Whatever miles are worth, that’s obviously the best strategy.
I hope I’ve thoroughly confused you and opened myself up to interesting offers for my South America map.
PS- This all started with what a Hilton point is worth. Gary says 0.5 cents. Ben says 0.8 cents. I don’t value hotels highly, so I recently got 0.38 cents per point on an award, and I was happy.