[Update 19/11/16- this article should be read in conjunction with Jeriel’s analysis on how we should value a mile]
- Miles have variable value- the value depends on how you redeem the mile
- If you redeem miles on Singapore Airlines, the approximate value you get is
- Economy- 2-3 cents per mile
- Business- 4-5 cents per mile
- First- 6-7 cents per mile
- Therefore the best use of miles is for premium cabin travel
This is a very important question because all our calculations of how worth it the points and miles game is to play hinges on the value of a mile.
The value of a mile depends on how it is used.
Suppose I’m looking to redeem a round-trip ticket from Singapore to London. Let’s examine several scenarios.
The cheapest return economy class ticket on SQ to London would cost me S$1,186.20. Alternatively, I could spend 59,500 miles and S$686.20. This implies a value of (1,186.20-686.20)/59,500=0.84 cents per mile. The reason for the low value is that you still need to pay government taxes + fuel surcharges, even on redemption tickets. Therefore the amount you save by doing an economy class redemption is minimal.
You could argue that this is not entirely an apples to apples comparison because the redemption ticket is cancellable with minimal penalty whereas the revenue ticket is not. Also, the revenue ticket will earn miles (10% in this case) but the redemption ticket will not. That’s true, but it doesn’t change the story a whole lot. Let’s compare, for argument’s sake, the Flexi Economy ticket (the highest class of economy ticket there is) with our redemption ticket and do the same calculation.
Here, we get (2,706.20-686.20)/59,500=3.3 cents per mile. This value is somewhat overstated because the Flexi Economy ticket will earn us ~13,500 miles which lowers the actual cost of the ticket somewhat. In any case, let’s just assume that the ceiling value you would get from an economy class redemption is 3 cents per mile. Higher than 0.84 cents, surely, but we can do so much better.
Let’s look at business class.
A business class ticket will cost you S$7,416.70, whereas redemption would be 136,000 miles + S$866.70. Note that although the mile requirement increased by 130%, the cash portion of the redemption ticket only increased by 30%. That is, your out of pocket cash costs only increase marginally.
This implies a cent per mile value of (7,416.70-866.70)/136,000=4.8 cents per mile
A First class ticket costs S$14,493.90 versus 182,750 miles + S$893.90. Here, the mileage requirement has increased by 35% but the cash requirement increased by only 3%!
The imputed cents per mile value here is (14,493.90-893.90)/182,750=7.4 cents
So you can see that in order to maximize the value of your miles, you should be redeeming at least business class tickets with your miles. Anything else is a waste. I will therefore set the value of a mile at 5 cents for the purpose of all analysis on this site.
(If we want to be super technical about this, I’ll concede that I’m looking only at Saver award space, which is the most restricted category there is. But it quite frankly makes no sense at all to redeem at the Standard level (don’t even get me started on Full), so Saver should be the benchmark we compare to.)
(You could also point out, quite rightly, that because saver awards are not always available, we should take a haircut on this 5 cents to reflect the probability of us finding an award. But my stance is to never redeem for anything lower than business class, so my realized value on my miles will always be ~5 cents. If we were using our miles for a mixture of economy + business redemptions then yes, you should lower the expected value)
Miles no doubt have value. But on a more philosophical level, I believe that miles are more important for access, rather than value.
To me, it doesn’t make sense to spend my miles on economy class tickets, because those are something I could have afforded anyhow. However, I wouldn’t have been able to buy a business or first class ticket to London if I had to pay cash out of my pocket. The only way I can access those products, then, is though miles. Yes, I will probably be able to do more flights if I use my miles for economy redemptions, but the value I’m getting will still be less.
Miles therefore grant one access to products that one wouldn’t otherwise have been able to experience. The same argument applies for hotel points- would you be willing to spend your own money for a $1,000 a night overwater villa in the Maldives? The only reason you’re able to experience something like that is that you have an alternative currency to pay with- points.
On Miles + Cash Redemptions
Singapore Airlines recently started allowing Miles + Cash payments. Under this scheme, any Krisflyer member with a minimum of 3,000 miles can apply this balance towards covering the cost of a revenue ticket. Many people have been confused by this, particularly because the website lists the options one on top of the other (as opposed to other websites, where Pay with Miles only becomes an option after you’ve indicated you’re looking for a revenue ticket as opposed to an award ticket).
Because you’re essentially searching for revenue ticket availability, you’re not subject to the vagaries of waitlisting and hunting for elusive saver awards. However, the value you get from this is pathetic- approximately 1 cent per mile. There is absolutely no scenario when you should be using this as an option. Unless, of course, you’ve got a very small mile balance which is going to expire soon and is insufficient for an award redemption anywhere else.
The upshot is this- if you spend your miles entirely on economy class tickets, then you’re better off getting a cashback card, because you’re effectively getting a 3-4% rebate on your spending. You should only be in the miles and points game if you want to redeem for premium cabin travel