You get a bunch of free rewards point or airline miles and now you want to know how much they are worth. Depending on how you value ‘free’ will depend on how much each rewards point or airline mile is worth to you. But for the rest of us, we want to know what cash value do our rewards point or airline miles have. I’ve always wanted to get the most out of my money, time and free rewards, so you won’t see me paying 80,000 airline miles for a domestic First Class ticket when I can fly free for 25,000 miles. Others might value ‘free’ differently than I do and will pay the 60,000-80,000 miles for a First Class ticket.
Not all miles and rewards points are valued the same. Some rewards programs will give you cash for your rewards points at 1 cent per point, while redeeming rewards miles with other programs will give you a value of 2-3 cents each. You can also get gift cards from most rewards programs. American Express offers $100 gift cards for 20,000 membership rewards points, that doesn’t even come to 1 cent per point! They value cash rewards at half a cent ($0.005)! Don’t waste your time and rewards points on those lousy gift cards.
Bonus Miles With Delta
Delta is offering a 75% bonus on miles you ‘buy’. They seem to offer bonuses quite often for purchasing miles and while 75% bonus may seem good, they have offered 100% bonuses in the past. With buying miles, you basically pay upfront for airline miles, receive a bonus for whatever you buy and then use them later. With a 75% bonus, this will bring the total cost of each mile down from 3.5 cents to roughly 2.2 cents each. At a 100% bonus each miles then becomes 1.1 cents a piece.
So How Do We Find The Value Of Miles?
First of all we have to compare apples to apples and try to keep the math and ratios as close to the same as possible, therefore this might get a little confusing. We have to find the cost of the plane ticket divided by the cost of the plane ticket in miles, this will give you the cost of each mile. You first have to find out what it would cost per mile to fly from point A to point B. Lets say I wanted to fly from Anchorage (ANC) to Tampa (TPA) to go visit granny for a week. The cheapest tickets I could find in May 2012 were $700 round trip with a round trip distance of 7,640 miles. You can easily find how many miles a flight will be by using this mileage calculator. This would make each mile I flew worth $0.092. This gives us our magic number of 9.2 cents per mile. Now I have to find out how many miles it will cost me to fly the same route. Usually a basic economy fare will cost you 25,000 miles and up to 40,000 miles depending on if you fly during a peak travel time, but since I live in Alaska ticket prices are usually $200+ per ticket and 7,500-15,000 more in rewards miles than in most of the lower 48 states.
So how do we find the value of miles now? We know that the cost of traveling from Anchorage to Tampa cost me about 9.2 cents per mile I fly ( $700 / 7,640 = 0.0916). To get a ticket paid with miles from Anchorage to Tampa, I will have to pay a minimum of 32,500 miles. 7,640 miles goes into 32,500 miles 4.25 times. 4.25 now becomes our other magic number which we use to multiply the cost of each mile if we purchased them. If we bought the miles at the 75% bonus, each mile will cost us 2.2 cents, but to equal a ticket paid in miles we need to multiple that number by 4.25 which gives us a cost of each mile at 9.35 cents. Now without getting into more math, when you redeem an awards ticket you pay a $10 tax charge, which will make purchasing miles versus purchasing the ticket about the same cost. The only way you can win in this situation is by purchasing miles at a 100% bonus and finding the cheapest tickets in terms of miles spent. At the 100% bonus my cost per mile drops down to 7.44 cents, making it a better deal to buy miles and then use them rather than purchasing the ticket at the full price of $700.
You also need to take into account that if you live in the lower 48 US states, your cost per ticket will be much less than what I can get living up in Alaska.
Its safe to say each miles is worth 3.5 cents when purchasing, but when redeeming miles for ‘cash’, most rewards programs will only pay you 1 cent/mile. When buying miles, you can expect to pay between 1.1 cents and up to 3.5 cents per mile. If you earned 1200 free Delta SkyMiles from something like SkyMiles Dining then you can figure out what you would have paid to get those same miles from Delta’s website. With the base cost of each mile at 3.5 cents, 1,200 miles would be worth about $42.