Buying airline miles… Is it worth it?
🙋♂️ This was a reader submitted question. If you have any questions that you would like James to answer, ask here.
With many airline rewards programs, you can buy points. Is it worth it? Are points cheaper than cash when it comes to ticket pricing? Let’s find out.
For this we’ll use the AAdvantage program, but you can do this type of math with any rewards program. Currently, in February, 2019, AA is running a bonus miles promo. While it’ll expire at the end of the month, most carriers on most months run promos similar to this.
Let’s go over the cost of miles and the bonus that comes with them.
|Miles (M)||Cost (C)|| Bonus miles (BM)||Per Mile Cost (C/[M+BM])|
Here’s an interactive visual representation of that data:
Let’s go over these charts. Chart 1 depicts several things. The yellow bars show the cost per mile. The blue and red bars show the total miles, and amount of miles and bonus miles that make them up. The most important takeaway from this chart, is that the more miles you buy, the more bonus miles you get, which push up the total miles.
Chart 2 is created to show the fairly linear growth of the cost of total miles (take a look at the trend line). Refer back to chart 1 to see how many miles, and how many bonus miles make up the total miles.
The most important part about chart two is the line graph showing the total cost per miles. It’s not linear, and there’s a good reason for that. By going from 27,000 miles to 55,000, you’ll save on the cost per mile but spend more money. This psychologically pushes you to to purchase more miles, because there’s a bigger mile bonus. However, between 55,000 miles and 110,000 miles, there’s a much more gradual decline in the cost per mile. This is probably because many people don’t need a push to buy in these categories. Finally when you buy 142,500+ miles, the cost per miles drops again.
You’ll save the most money per mile by buying more miles*. The greatest value is the 55,000-82,500 category (note this is total miles. The total minus bonus would be 40,000 and 60,000 respectively.)
There’s a slight caveat to that. The cheapest cost per mile pricing is for 100,000 miles. This is because you get 42,500 bonus miles. If you buy more than 100,000 miles (you can get up to 150,000 at once,) the cost per mile increases, because it’s based on the number of bonus miles. When bonus miles remain the same, but miles increase, so does cost per mile. The CPM for 100,000 is $0.0209. With the bonus miles, you’ll end up getting 142,500 miles total. The CPM for 150,000 miles is $0.0231 (the same as the 0-20,000 miles category). 150,000 miles cost $4460.00.
Now we know a few basic things.
- As you buy more miles, you get more bonus miles.
- Cost per mile is influenced by bonus miles.
- The “best value” would be buying 40,000-60,000 or 100,000 miles.
- To get the lowest cost per mile, buy 100,000 miles.
Comparing Bought Mile Pricing to Bought Ticket Pricing
If you were to pay for a ticket with miles that you bought, would it be worth it?
Here’s the base pricing again:
|Miles (M)||Cost (C)|| Bonus miles (BM)||Per Mile Cost (C/[M+BM])|
Now, here’s a more in depth view of the pricing break down (by miles):
If we look back to the findings in the section above, bonus miles directly correlate to the Per Mile Cost. That means that buying 20,000, 40,000, 60,000, 80,000 or 100,000 will give you the lowest cost per mile and highest value. Any more than that, and the CPM (cost per mile) goes up until you reach the next bonus mile tier (which is every 20,000 miles).
This is to incentivize you, the buyer, to more buy miles. There’s a good reason that you get more for your money as the prices increase, and that it’s not a linear relationship (referring to CPM). Also, take note of how little the pricing varies when going from XX,000-X1,000 miles. For example, 91,000 miles costs $2719.50, while 92,000 costs $2749.00. That’s only $30 more… for 1000 more miles. This pricing method is just another way to get you to buy more.
Now, let’s take a look at ticket pricing (both in dollars and miles). We’ll use the three most traveled domestic fight paths. Keeping everything constant, we’ll be flying a round trip as 1 adult. Both flights will depart in the early morning. We will leave June 30th, 2019 (a Sunday), and return July 7th, 2019 (a Sunday). All flights are sorted by price (starting at the lowest), and the first one in the results is selected.
New York (JFK) – Los Angeles (LAX)
With the current bonus miles promotion, if you buy 60,000 miles, you’ll get a bonus of 22,500 miles. It would cost you $1805.00. This option is the best value, but compare that to the $727 per person, and it’s pretty clear which one wins on price.
Los Angeles (LAX) – San Francisco (SFO)
With the current bonus miles promotion, if you buy 31,000 miles, you’ll get a bonus of 7000 miles (which isn’t the best value, but the cheapest option). It would cost you $949.50. Compare that to the $357 per person, and it’s pretty clear, once again, which one wins on price.
New York (LGA) – Chicago (ORD)
With the current bonus miles promotion, if you buy 60,000 miles, you’ll get a bonus of 22,500 miles. It would cost you $1805.00. This option is the best value, but compare that to the $558 per person, and it’s pretty clear which one wins on price.
With all flights, if you were to move your travel dates to “off-peak” flying days, you could reduce the cost by up to 50%. Additionally, flying on weekends always inflates the costs, and I’m assuming that the 4th of July also inflates the cost.
That being said it’s pretty clear that buying points is not a smart decision, economically. Lets review:
- Airlines set the pricing to incentivize you to spend more money.
- The more miles you buy, the bigger the bonus.
- Because of that, $1 will buy you more miles, the bigger the order (per mile cost).
- In all situations (even off peak days), buying miles rather then paying up front for a flight is a bad decision.
The Most Common Situation When It Comes To Buying Miles
Most people don’t decide to drop $2985.00 on 100,000 miles. That’s probably a very uncommon situation.
A situation that’s more common is somebody spending $94.00 on 2,000 miles. They’d probably do this to be able to buy a ticket with points, rather than cash. In this situation, all of the points come from rewards (credit card, eCommerce…). A ticket costs 50,000 miles, but they have 49,321 miles… so close! To push the balance over, they spend $94.00 and get 2,000 miles, rather than just buying the ticket in full.
Is it worth it?
The answer: it depends on your personal circumstances. Here’s how to figure it out for yourself.
Step 1: Figure out the mile cost and the dollar cost for your flight.
For example, say a flight costs 37,500 miles. The same flight in dollars costs $357.00.
Step 2: Find out now many miles you need to afford the flight (in miles).
If the flight costs 37,500 miles, and you only have 35,000, than you need 2,500 miles.
Step 3: Follow this rule of thumb: if the miles needed costs over 5% the value of the ticket, then buy the flight with cash.
If you need 2,500 miles, you would need to buy 3,000, which costs $123.50. That is well over 5% of the ticket, so just buy it in full.
If you have almost enough points, but need to buy some more to get the flight with them, then you devalue your points, while inflating their cost.
Here’s what I mean. Point’s don’t have a dollar value unless they’re compared to flight prices (what we did in step 1). With that example, if you had 37,500 points and the flight cost you $357.00, then those points are valued at $0.009 per mile (keep in mind, it changes per flight). When you buy miles, you value them at a higher CPM – it ranges from $0.020-0.025 per mile depending on how many you buy.
Thinking back to the example above, say the flight costs 37,500 miles, and you only have 35,000. You need 2,500 miles.
At the time, and compared to your flight, the 35,000 miles are worth $0.009. The 3,000 miles that you’d buy to bridge the gap would be worth $0.0412, a difference of 128%, while only making up 8% of the total mileage count (37,500).
Essentially, if you bought points to bridge the gap, you would value of your existing points (given that they weren’t bought, but earned with rewards programs) 128% less than the ones you just bought.
On the surface, it may not look and feel like that, because price-wise, you’d be spending less money then buying a full ticket. However, when it comes to value, it’s another story.
If you’re considering buying points to bridge the gap, remember that they’re not going to go anywhere. Rather than devaluing them on this flight, you can spend them in full on the next one. If you’ve earned them with rewards, then it’s pretty much free.
⛔✋ This article is very circumstantial. Pricing and values change all the time, so rather than using the figures from this article, do the math yourself. However, the principles and findings uncovered are universal. Buying points is a horrible idea, and a massive waste of money. If you’re considering doing it, run the numbers first, and maybe you’ll reconsider.