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Airlines

What is the value of a mile?

If you want to play the miles game, a very important concept to understand is how to value a mile.

The recent SQ devaluation, as well as some insights I’ve acquired from speaking to fellow miles collectors, has led to a need to revisit this topic. This article should be read in conjunction with “What you need to know before you buy miles“, because presumably the price you’d be willing to pay depends on what you value them at.

In this article we will be discussing the value of a Krisflyer mile.

Theoretical Value

It’s probably easier to start by thinking about the theoretical value of a mile.

The theoretical value of a mile is the implicit rate at which the airline is willing to substitute miles for cash

Note that I say “implicit” because SQ may price a seat at S$2,000, but it doesn’t mean the cost to them is S$2,000. That’s just how much they hope to earn from it. The explicit value of a mile should form the floor, and that’s 1 cent per mile, the rate that SQ is willing to substitute miles for cash under its (poor value) Pay with Miles scheme.

Here’s an example of the theoretical value based on a round trip ticket to Paris on SQ.

The first thing you should note is that with the exception of economy to premium economy, as you move up the cabin classes the implied value of a mile increases. For the sake of simplicity I’ve only looked at one destination, but the figures above are pretty reflective of the average cent per mile value throughout the SQ network

  • Economy- 1.5-3 cents per mile
  • Premium Economy- 1.5-2.5 cents per mile
  • Business- 3.5-4.5 cents per mile
  • First- 6-7 cents per mile

This is because the incremental price increases more significantly than the incremental miles. Business Class cost 156% more money than premium economy but only 36% more miles. First Class costs 128% more money than Business Class but only 35% more miles.

Why the exception from economy to premium economy? Because SQ’s premium economy is horribly overpriced from a miles (and many would say money) point of view. Premium economy tickets require 75% the miles of business class. And given the huge gap in comfort, you’d be hard pressed to justify redeeming premium economy.

no prizes for guessing which is which

There is a price step up from economy to premium economy, but depending on what economy fare you book the step up can be very marginal, or even negative as we see in the CDG example above.

Based on this, we can formulate a general rule that

The value of a mile depends on what cabin you redeem for. Miles are worth the most when you redeem for first class and the least when you redeem for economy

Indeed, this general rule forms the mantra of many a miles collector- if you’re going to redeem your miles for economy class travel, you may be better off with a cashback card.

Actual Value

So that’s the theoretical value and although it remains a good starting point for our valuation of a mile, it cannot be the end. As this section shows you, valuing a mile is more art than science, and in some places even veers into the realm of the philosophical.

Here are some additional factors to take into account in valuing a mile.

What is the likelihood of finding saver space?

Availability for 2x business saver award tickets. A= Available, W= Waitlist, N/A= Not Available. See the full article here

In the theoretical valuation section, I’ve used the saver award bucket when considering how many miles were required. But anyone who has spent 5 minutes trying to book an award ticket with SQ knows about the horrors of the waitlist. On popular routes like SIN-LHR or SIN-JFK, finding saver award space in premium cabins can be very tricky, if not impossible (I challenge anyone to find 2 instantly confirmable business or first saver seats on SQ25/26).

So we need to somehow factor in the probability of finding saver space. This isn’t a calculation I’m equipped to do because it depends on so many different factors like route, time of booking, number of seats etc.

I do know, however, that if you were to redeem standard awards instead of saver, your valuation would look like this (premium economy only has saver awards)

  • Economy- 1-2 cents per mile
  • Business-2-3 cents per mile
  • First- 3-4 cents per mile

That’s about half the value of saver awards. Therefore your value of a mile is likely to be lower than what we calculated previously. I personally have never paid standard award prices (I find it too painful especially when I know what the price “should” be) but in an emergency situation I can see some people biting the bullet to do so.

Would I really have paid $10,000 for first class?

Image result for sq first class

When I first started playing the miles game I’d tell people very proudly “I just got a $10,000 first class ticket for only $400 in taxes and some miles” and allow them to bask in my warm, enlightened glow (mind you, this is still how a lot of travel bloggers pitch stories to journalists because “YOU WON’T BELIEVE HOW THIS MAN GOT $20,000 OF AIR TICKETS FOR FREE” is a heck of a lot more attention-grabbing than “Man meticulously plans vacation through intelligent use of frequent flyer programs”)

I’d then lecture them about thinking twice for paying 2 cents per mile because “you can redeem them for first class and get 6-7 cents of value. It’s pure arbitrage!”

Ah, callow youth.

When Ubereats is (very often) late and gives me a $5 credit, I can safely say that I’ve saved $5 because I wouldn’t think twice on shelling out $5 of my own money on Ubereats in the future. But the only way I can take the first class ticket at face value is if I were genuinely willing to shell out that money in the first place. So I wasn’t wrong from a theoretical point of view, but implicit in what I’m saying is that I’d have been willing to pay $10,000 for a first class ticket.

And that’s the philosophy that some people take towards buying and redeeming miles. They tell themselves- I will not pay more than $2,000 for a return ticket to San Francisco, regardless of class. And then they’ll see if they’re able to buy/generate miles at a cost less than or equal to that. FYI, you’d need to buy miles at 1.1 cents each if you wanted to fly to SFO in Business Class and not pay more than $2,000.

This implies that you should think about all your alternatives when redeeming miles. If I don’t get my award seat, would I still fly with SQ?

Suppose I was going to Sydney. I could get there direct with BA, Qantas and even Scoot. So should I value my miles based on the retail price of a First Class ticket, or based on the retail price of the alternatives I’d be willing to accept? Just how much do I intrinsically value that flight to Sydney? You can see how this can quickly become a philosophical discussion more than anything.

Put it another way- if you’re the sort who would normally never pay for Tiffany jewelry, and Tiffany has a 10% sale and you buy a $10,000 ring for $9,000, you’d be stretching to say you really saved $1,000.

What is the opportunity cost of building miles?

A big part of building your miles as quickly as possible involves using the right card in the right situation. But that sometimes means forgoing discounts you could otherwise have received by using a different card.

Case in point- Citibank has a host of gourmet dining deals for its cardholders. 

However, Citibank does not have a specialized dining card. The question I then face when I dine out is- do I value a 10% discount more than earning 4 mpd with my UOB PP Amex?

Of course if the discount is large it’s a no-brainer, but there are other situations where the opportunity cost is more subtle. Consider the Standard Charted Bonus$aver account, which awards you 1.88% bonus interest if you spend upwards of $2,000 a month on SCB credit cards.

SCB also doesn’t have a miles earning dining card. But it’s very hard for me to, on the fly, calculate the opportunity cost of not earning that 1.88% interest because of an individual transaction that may or may not cause me to fall short of the $2,000 mark. If you wanted to be completely accurate, you’d need to take this into account as well.

What about the miles I would have earned buying a revenue ticket?

Award tickets do not earn miles. Revenue tickets do. Therefore it’s necessary to factor the value of foregone miles into our calculations.

Business Class tickets usually earn 125% of the miles flown, so a return flight from SIN-SFO would earn 1.25*8,440= 10,550 miles, before you take into account the 25% elite tier bonus that Krisflyer Elite Silver and above gets. If you take a fairly conservative valuation of 2 cents per mile, that’s about $210 of value which you should offset from the revenue price of the ticket as a form of rebate.

How much do I value flexibility?

Award tickets have a great deal of flexibility. You can change the date for free, you can change your route/cabin class or award type for US$20 or cancel an award for US$15-30, depending on your status (and I know from experience that if you ask them nicely for a one-time exception they’re not above bending the rule)

This is more of an issue in economy, where tickets can range from fully flexible to highly restricted (although it should also be noted that the cancellation fee for a revenue business class ticket is US$150-300 versus US$15 for an award ticket) . So it’s not fair to compare the cheapest bucket of economy to an economy award ticket. An SQ super deals ticket to San Francisco may cost $1,408, but good luck if you need to make any changes to it.

Valuing a mile

And now we come down to the final question- how much should I value a mile?

My (very cop out) answer is that it depends on you.

  • I personally value miles at 2 cents each.
  • Ben over at OMAAT and TPG value miles at 1.5 US cents (or 2.05 SG cents) each.
  • PointsHacks values them at 2.1 Australian (2.28 SG cents) each.

How you value miles is inherently linked to the kind of traveller you are. People who believe in saving money above everything else will value them lower, because miles are “free” (assuming you don’t pay explicitly for them). That’s why they’re willing to trade them for economy class tickets. People who believe in accessing experiences they couldn’t otherwise have afforded will value them slightly higher, because they’ll invariably redeem them for business or first. And people who buy first and business class as a matter of practice anyway will value them the highest, because to them it’s simply a replacement mode of payment.

So that’s my take on the valuation of a mile!

New “Secure My Fare” feature allows call option on SQ flights

Airlines have always been looking for new revenue streams and one common trend we’ve seen in recent times is the offering of a “hold my fare” option.

How it works is simple. Suppose you see an airfare you like, but you’re not sure yet if you’ll be able to travel on those dates. You could

  1. Buy the fare now and make changes/cancellations later for a price (assuming the fare rules allow such things)
  2. Wait and hope that the fare doesn’t disappear or change in the period you’re deciding

Hold my fare gives you a third option- to pay a small fee to lock in the dates, flights and routes in question. Some airlines (like Lufthansa) even allow you to offset your holding fee from the final ticket price should you decide to go ahead and purchase.

SQ isn’t going to that extent, but they are offering a new “Secure My Fare” option that just popped up on the website. It currently covers only economy class and non-redemption bookings. Depending on the length of your flight, you can pay $5/$10 each way per passenger to hold a fare for up to 72 hours.

Flight Segment Length             ‘Secure My Fare’ Fee
< 5 hours                                       SGD 5.00 per passenger each way
≥ 5 hours                                       SGD 10.00 per passenger each way

I say “up to” 72 hours because SQ mentions there may be shorter hold periods for promotional fares. In practice, though, it appears that for now all the hold periods are 72 hours regardless of booking class. I went to look at fares to Perth and regardless of which bucket of Economy I picked, I was offered a 72 hour hold time.

I would say this is a valuable service because it buys you more time- go sort out other logistical aspects of your trip and come back within 72 hours to secure your fare. There’s no obligation to buy the fare you have on hold, and your maximum loss is limited to the secure my fare fee you pay.  I could easily see myself using this in the future, although it is interesting that they’ve only implemented this for economy class bookings for now. My guess is that they believe leisure travelers would value this service more than price-insensitive business travelers who are booking on company money.

A colleague asked me if I thought SQ should implement this feature for award flights, but really there’s no need to, because you can buy call options on award flights for US$15 (US$30 if you’re a regular Krisflyer member),  the cost of cancelling an award booking that you don’t need. Award bookings are in any case flexible, so if you see something you like you should always lock it in, and make changes/cancellations later. If you’re averse to paying the cancellation fee, you can try out Jeriel’s nifty hacking the waitlist method to buy yourself more time to decide for free.

(HT: hclee01 on FT)

How I’m dealing with the Qatar travel blockade

Everyone by now should be aware of what’s going on in Qatar and the broader region. I’m going to stay far, far away from any political commentary and talk about what this blog vertically integrated e-commerce media conglomerate is focused on- the travel implications.

As you may remember, I need to get from DAR to DOH for my RTW trip. I had identified that it was cheaper to fly DAR-DOH-DXB instead of directly from DAR-DOH.

DAR-DOH direct- $2.6K
DAR-DOH-DXB, $811!

At first I was thinking of throwing away my DOH-DXB ticket, but then realised that DOH-DXB was booked as First Class, as that’s the level above Economy on inter-gulf flights. That was fantastic, as it meant I would get a chance to review the Al Safwa First Class lounge in Doha. It also meant that I got to spend my weekend in Dubai instead of Doha.

Image result for qatar airways first class lounge

As you can guess, the current flight restrictions have wrecked that plan, with Qatar Airways banned from flying over or landing in the UAE, Saudi Arabia, Bahrain, and Egypt.

I quickly worked out an alternate routing from DOH-DXB that involved transiting in Muscat and taking MCT-DXB via Oman Air. My understanding is that Qatar is working to rebook affected flyers to DXB/AUH via KWI or MCT. With this in mind I called up QR to see if they’d rebook my proposed routing for me.

Now, Qatar Airways’ official policy regarding the current situation is that rebookings for flights affected by this disruption can be done within 72 hours of flight departure. I say “official”, because it seems from what I’m reading online that this is a classic case of YMMV. But this is also a classic case of the benefits of HUCA (hang up, call again).

Case in point- I called up the Doha office at the 72 hour mark and got a CSO who insisted on rebooking me on DAR-MCT-DXB, entirely on Oman Air. This made no sense at all to me- wouldn’t QR rather keep the revenue they were earning on my DAR-DOH-MCT legs at least? Why would they want to do the whole flight on a different carrier? But she insisted there was nothing else she could do, and to top it all off the flight she proposed left from DAR one day later than I originally intended. I hung up.

I called again and got a CSO who was perfectly ok with the routing I proposed, but said that they were not able to book this for me until 24 hours before departure. 72 hours is already cutting it way close but 24? I asked about the 72 hour policy and he said that where rebooking was happening via other Middle East airlines, the policy was 24 hours as they’d seen airlines like Etihad/Emirates cancelling bookings that were done by Qatar.

I called again (a day later) and got an extremely cheerful CSO who listened to my proposed flights, said “no problem sir” and after a 5 minute hold told me it was done. I got the e-ticket shortly after hanging up. The whole call took less than my wait time.

My revised itinerary looks like this:

DAR-DOH Depart 1630 Arrive 2345
DOH-MCT Depart 0730 Arrive 1010
MCT-DXB Depart 1425 Arrive 1540

Why would I do such a long layover in Doha? Counter-intuitive as it sounds, it’s so I can get a better rest. I could easily have connected to a QR flight that departed DOH just after midnight, done a 5 hour layover in MCT (at 330am no less) and reached Dubai around 9am, but that would leave me knackered (plus, a 5 hour layover in MCT is no joke).

My new arrangement allows me to spend the night not in a transit hotel, but in the QR First Class lounge. That’s right, one of the cool features of the Al Safwa lounge is that it has sleeping rooms. Not darkened areas with recliner seats, but proper, hotel-style private rooms with beds and an attached bathroom.

Image result for qatar airways first class lounge bed

My reading of this FT thread tells me that –

  • No reservations for the rooms are allowed, they’re allocated on a first come first serve basis
  • Rooms are only available if you have >4 hours till your flight leaves
  • A maximum of 6 hours use is allowed, beyond which QAR 450 is payable for another 6 hours
  • Only bottled water is allowed in the sleeping rooms.

All of which suits me just fine. The only beverage I’d take to bed is champagne, and now that it’s Ramadan the QR lounges in Doha are dry anyway…

So assuming I make it to the lounge around midnight, I can do a 6 hour stay and wake up to grab breakfast, take photos and then head on over to catch my flight to MCT. And I save one night of hotel expenses.

The other interesting development, aviation-wise, is that QR is now operating a different kind of A320 on the DAR-DOH route. Qatar used to operate the version that had your standard regional business class recliner seats, which aren’t great for a flight that’s decidedly medium-haul.

Image result for a320 qatar airways business class
photo credit: airlines and me

But because of the blockade, QR1348 now needs to take a longer route from DAR-DOH, adding about 90 minutes to a flight blocked at 5h 50 mins. You can see the diverted route here:

I don’t know if it’s an aircraft range issue or just QR wanting to redeploy narrowbody aircraft it can’t use on intra-gulf routes anymore, but the A320 on this route has been switched to the version that has full flat seats in business class.

Image result for a320 qatar airways first class
photo credit: one mile at a time
photo credit: bangalore aviation

This is the same aircraft that normally plys intra-gulf roots and which premium cabin is sold as first class, but because of the current restrictions is getting redeployed elsewhere (sidenote: it does seem like such a waste of resources that QR would normally deploy a flat-bed seat aircraft on routes that are 2 hours or less)

Image result for oman air b737 business class
oman air business class

I’m not thrilled about a 4 hour layover in Muscat, but at least I’ll get to review the Oman Air lounge in Muscat and try their 737 regional business class. Hopefully their lounge is decent enough to get some solid work done.

It’s amazing if you sit back and think about our supposedly connected world. By denying Qatar air links and passage with its neighbours, what should have been a no-nonsense 1h flight between DOH and DXB stretches to almost 5 hours including transit. And involves flying in the “wrong” direction between each destination.

No one has any idea how long this will last, but it’s sure to have an impact on your travels if you’re heading to the region anytime soon. Hopefully cooler heads will prevail and we’ll see a restoration of something approaching normality soon.

In the meantime, if you’ve got a QR itinerary that’s been affected by what’s going on, it’s good to call up customer service with alternative routes already in mind. And if the first CSO tells you no, don’t take that for a final answer. Keep trying until you find a CSO who can accommodate you.