There has been much learned debate about what a frequent flier mile is worth. There will never be a precise answer, but it sure ain’t worth what it used to be.
Let’s say that a passenger redeems 25,000 miles for an airline ticket that would otherwise have cost $500. In this case, each mile is worth 2 cents. Indeed, many experts estimate the value of most airline miles between 1 and 2 cents, although some argue that it can be higher if the miles are used judiciously.
Anyway, let’s average that to an assumed value of 1.5 cents per mile. The 208,000 miles I’ve accumulated would be worth $3,120. But is that realistic?
It’s hard to say. As the New York Times pointed out in an extremely enlightening piece last week, miles are a form of currency. And, as with all currencies, the value fluctuates.
The article pointed out that passengers are earning more miles lately and redeeming them for more tickets, while the number of awards seats available has remained flat. And the rate at which passengers are earning miles is outpacing the rate at which they are redeeming them. So the unredeemed miles are piling up.
If I remember Economics 101 correctly, too much currency chasing too few goods represents an imbalance between supply and demand. It creates inflation, and that devalues the currency. It certainly appears that the value of a mile is dropping, even against that other unfortunate currency — the U.S. dollar.
Let’s return to the example of a passenger redeeming miles for a $500 ticket. As the competition increases for seats available as award tickets, it might cost 50,000 miles to get the ticket that used to be available for 25,000 miles. (Airlines increase the availability of seats at higher award levels.) Now each mile is worth only 1 cent.
A couple of airlines now have programs that allow some frequent fliers to exchange miles for a discount on any ticket. Typically a passenger gets $100 off the fare for every 10,000 miles, an exchange rate of 1 cent a mile. (The same airlines will sell you miles for closer to 3 cents per mile.)
This is not to say it’s impossible to get a rate of more than 1 cent for your airline miles if you shop hard and stay flexible on schedules. But it’s getting tougher, and it can take more planning to get a high-value ticket at the lowest possible rate. (I booked my last award trip 10 months in advance.)
All this provides a reason to redeem your miles as soon as you profitably can. That’s certainly my intention. Here’s another reason: when an airline goes belly up, its mileage program may go with it. Members of the Aloha Airlines frequent flier program found out recently that their miles were worth exactly nothing.