It's been awhile since we looked at How Much a Frequent Flyer Mile Is Worth, and since it's a question I get a lot, I thought it would be useful to look at it by frequent flyer program, starting with United. Rather than arrive at a single value that everyone should use, I'll explore the different ways you could calculate this value, why you might choose to use that valuation or not, and finally what I personally value United miles at.
But first, what's the purpose of trying to figure out how much a mile is worth? Here are a few common situations:
- Should I use miles, cash, or cash + miles to upgrade for this ticket?
- Should I book an award with Airline X miles or with Airline Y miles?
- If I sign up for this credit card, how much is the bonus really worth to me?
- My relative/friend really needs this ticket, can't pay the full retail price, and I could book it for them with my miles. What's fair compensation?
The nominal value is the easiest one to calculate, if you're looking at a specific ticket. All you need are:
- Miles to book the award
- Award Fees to book the award (taxes, fuel surcharges, any unavoidable phone booking, close-in ticketing or other fees)
- Cost of the ticket if you paid cash
- Miles you would have earned if you paid cash
Calculate: [(Cost of Ticket) - (Award Fees)] / [(Miles to Book Award) + (Miles You Would Have Earned)]
- Easy to calculate
- Objective: every factor in the calculation can be objectively measured, even though some components will differ slightly (e.g. elite frequent flyers usually are exempt from close-in ticketing fees, and would earn more miles if they paid cash due to elite level bonuses)
- Results in a high valuation per mile or point in the case of premium international travel, so you can boast "I got 16 cents per mile with my redemption!" ;-)
- Usually not the most accurate measure of value, unless you really would have otherwise paid the retail rate for your ticket
- Isn't as helpful when you don't yet have a specific award in mind
Say I'd like to fly Lufthansa First Class from the U.S. to Europe using United miles. Roundtrip is 135,000 United miles + $181.50 in fees, the revenue ticket is $16,201, and the miles foregone, since I'm not an elite member, are 4462. The nominal value would be (16201 - 181.5) / (135,000 + 4462) = 11.5 cents per mile. Sounds pretty good, although would you actually ever pay $16K for the ticket?
Given that most people would not pay the face value of first class international tickets, it's important to consider what the ticket is actually worth to you. That is, what would you actually pay for the ticket? In the price you would pay, you should also aim to take into account the specifics of the award and frequent flyer program you're using to book it. For example, some negatives when booking a Lufthansa First Class award with United miles: Lufthansa First Class isn't released in advance, and there are close-in ticketing fees if not elite. On the other hand, some positives: United doesn't do Starnet blocking, allows one way awards, and you can use the Web site to book many awards without having to call in, unlike US Airways.
- Better measure of what a mile is worth to you, given your travel preferences
- Helps focus you on the award travel you actually want, vs. awards that simply represent high nominal value
- Subjective by nature: each person values a given trip and the specifics of an award and frequent flyer program differently
- Usually results in a lower valuation per mile or point in the case of premium international travel, compared to Nominal Value
I'd value Lufthansa First Class roundtrip from the U.S. to Europe at ~$3200, so plugging this in results in 2.3 cents per mile. A far cry from 11.5 cents per mile, but arguably more accurate. Naturally, if you'd be just as happy flying coach to Europe, your valuation will be much lower.
The "Priceless" Value
Remember MasterCard's "Priceless" slogan? "Some things are priceless. For everything else, there's MasterCard." That resonates pretty powerfully with many, and some people make a similar argument for miles, in terms of the special first class experiences they alllow you to have. The problem is that these aren't truly "priceless" because there is, in fact, a retail price at which they can be purchased, even if it's a price you're not currently able or willing to pay.
Opportunity Cost / Cost of Best Alternative
It can be helpful to look at the opportunity cost of earning your miles and of redeeming your miles. For example, let's say you're trying to figure out whether you should sign up for a given credit card bonus that has significant minimum spend, such as the Ink Bold or Ink Plus.
The opportunity cost of earning the 50,000 signup bonus is what else you could do with that $10,000 spend. Let's say you would otherwise put that $10,000 on a 2% cash back card, earning $200. It's important then that whatever you use those miles for be worth more to you than the opportunity cost of $200, otherwise you may as well have simply used that cash back card. This actually explains why a number of folks who dislike travel will never get into collecting frequent flyer miles or points--if you don't like what they can be redeemed for, there's little point in collecting them.
You could also look at opportunity cost in the context of redeeming your miles. If you have millions of miles or points, this doesn't apply to you, but if you have lower amounts of miles, you may be weighing whether to redeem them towards an award booking to Australia vs. an award booking to the Maldives. This will be a more subjective valuation, since only you can decide how much it's worth it to you to postpone one trip in order to take the other.
Cost to Buy Miles
As we covered in How to Buy Ultimate Rewards Points, you can buy up to 5000 Ultimate Rewards points per month for $125, which equates to 2.5 cents per point = 2.5 cents per United mile, since Ultimate Rewards points transfer 1:1 to United miles.
- Easy objective "ceiling" in value for United miles: since they can be bought for 2.5 cents, why would you pay more, i.e. the higher United miles price of 3.76 cents per mile?
- The 5000 maximum per month is pretty low, if you need larger amounts of United miles quickly
- Consider that using credit card bonuses, category bonuses and the Ultimate Rewards Mall, you can acquire United miles much more cheaply than 2.5 cents per mile.
So How Much Is a United Mile Worth?
It's hard to argue that United miles are worth more than 2.5 cents per mile, given that you can buy Ultimate Rewards points for that price, and these transfer instantly into United miles. That said, I'd in any case put greater emphasis on the Subjective Value measure rather than what you can acquire miles for.
If you hate traveling and you never use United miles, you might well value the miles for next to nothing, since you can't sell miles, only gift them to family and friends.
Most people will agree that the value of a United mile lies somewhere between 1 cent per mile and 2.5 cents per mile, with most consensus around 1.8-2 cents per mile.
My own valuation for my family's travel using United miles is 2.3 cents per mile, because we highly value international first class to Europe and Asia, as well as domestic flat bed seats to Hawaii, which is what we'd use United miles for. We'd get a bit more subjective value out of using United miles for first class to Asia via Europe, and a bit less for flat bed seats to Hawaii, so 2.3 cents is an average for the redemptions we'd make. We'd never use United miles for coach class awards, and rarely, going forward, for business class, hence the relatively high valuation.
Does this mean I'd buy United miles at that price? No, because as noted above I can accrue them much more cheaply with:
Would I sell United miles at that price? Maybe: but not if we were about to redeem for an award we wanted and selling would mean I wouldn't have enough, since I'd place an additional premium on miles that enabled me to book our family vacation.
In other words, by all means use your own likely award travel with United miles to calculate what a United mile is worth to you in order to compare alternative awards or evaluate the relative value of credit card bonuses, but recognize that it may have little to do with the price at which you can acquire United miles. Your valuation is probably closer to what you'd be willing to sell United miles for (if you could sell them), but even then it may not match.
How much do you think a United mile is worth?