What is the value of a mile?

[Update 19/11/16- this article should be read in conjunction with Jeriel’s analysis on how we should value a mile]

The Idea

  • 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

The Details

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.

Economy Class

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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.

Business Class

milevalue3

milevalue4

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

First Class

milevalue5

milevalue6

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)

Access argument

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

7 thoughts on “What is the value of a mile?”

  1. Hi Aaron,

    Thanks for the article.
    Not sure when this article was written but it was definitely a good read.
    On the technical side, I am curious about your thoughts on miles devaluation i.e. SQ decides to up the miles required for an award ticket. I see/hear airlines doing this quite a lot… what has been SQ’s pattern so far?

    Thanks a mil,
    JT

    1. hi JT- I wrote this article way back when the site got started. looking back, I wonder if I was a bit overgenerous with my valuation. when i read what the laojiaos have written on this subject, the consensus seems to be that krisflyer miles are worth 1.6 US cents (2.2 SG cents) each, versus the 4-5 cents I’m claiming. I think the reason for the discrepancy is this- expected value. If you can always redeem your miles for business or first class saver travel, you will always get at least 4 cents of value per mile. But that won’t always be the case. sometimes you will have no choice but to fly economy. Sometimes business saver will just not clear and you will book business standard just because you’re desperate not to spend a long haul red eye in economy. So you need to factor in some sort of probability calculation that says how often will i be able to redeem at 4-5 cents of value. I think when you do that the value comes down somewhat (whether it’s 2.2 cents I don’t know, but it will be lower than 4-5). Of course, if you redeem for first class saver 100% of the time, then you should be valuing your miles at 6-7 cents each. the fundamental principal is that you value your miles depending on your redemption pattern.

      as for your question on devaluation, SQ last did a major devaluation in 2012. The truth is, however, that SQ has probably been stealth devaluing their program for a long time through higher surcharges and less saver availability. I’m actually in the midst of an article about this that will hopefully answer more of your questions

  2. Hi Aaron,

    I would like your opinion on the calculations to evaluate which of these two is better:
    1) to redeem an SQ Biz class ticket to Europe, which will cost 68000 KF Miles & SGD300
    2) to buy an SQ Econ ticket for the same trip for about SGD750, and earn about 6500 miles

    My quandary is that I thought it seems like a bargain to earn 100% miles for $750 (flight to Europe); on the other hand, I’m afraid with a possible KF devaluation, my miles will drop in value the longer I wait to redeem them.

    Thanks for your advice!

    1. not sure how i missed this but i hope it’s still relevant to you. KF devaluation has come and all is well for now. i’d definitely redeem if you’re able to find saver availability to europe.

  3. Very good article, thank you! Didn’t ever consider using miles to redeem premium flight tickets, aka Business or First class. But when you put it into perspective, yes, I too agree that it allows me to maximise the value of my miles and I would rather now choose to buy premium class over economy flight tickets.

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