Monday, April 24, 2017

How much are Airline Miles Worth?

I got into this topic by reading MileLion's latest poke post on the KF UOB account, how bad it actually it and finally reading his post of how he value miles.


I think you guys would know this by now, but I find earning miles kind of lame.

Flying to me is just transportation. I get into my seat, I fall asleep, I wake up for the food, resume sleep, and I de-plane. I get on the cheapest and fastest flight, with some slight considerations on safety and route, and a final cost benefit analysis of transfers (eg. Save $50 for a 3 hour stopover? No. Save $400 on a 4 hour stopover? Yes!)

I have no desire to ever fly business or first class if I had to pay with my own money. I am sure many other people think like me. However, that is where our similarities end and the way that I think and the way that others think diverge.

Miles are positioned as "free" airtravel. I say "free" because they aren't actually free. Instead of collecting reward points or direct cashback, mile collectors are instead opting for air travel. The correct way to think about it is that the individual should be aware that he/she is giving up other forms of reimbursement if they choose 1 specific form over the over.

My personal preference is cashback. I know many, many people that go for miles. Then again, many people I know also can't tahan budget airlines and think that buying tickets directly from airlines and flying full carriers are the only way to go. To them, flying cheaper airlines is not an option. They already have a baseline.

In that case, their position and actions are justified and it makes sense. If they are only ever going to take SQ flights, why not collect KF miles with their spending and get some "free" travel? So, just how much are these miles worth?

MileLion has already given us a good figure to work with: 1 - 2c for economy redemptions.

However, redemptions are only one part of the equation. We now need to know how many miles do you get per dollar spend. I believe the commonly used term is mpd (miles per dollar).

The UOB PVRI card has 1.4mpd with 2.4mpd for overseas spend and 6mpd for major airlines and hotels* (booked through Expedia or them). However, min income is $80k.

The ANZ Travel card has 1.4mpd with a min income of $60k.

So, then what are the real rates that normal people can expect to yield? I believe it is the base of 1.4mpd. Perhaps with the UOB PVRI card it would be blended in with the higher tier spending to get something along the lines of 1.8 - 2 mpd.

At a yield of 1.4mpd and a value of 1-2c per mile, we are looking at real world rates of about 1.4 - 2.8% "returns", confined to the narrow category of economy airfare redemptions.

I would say that this is rather close to the 1.5% flat cashback rate that both Amex Cashback and SCB Cashback are offering, and up towards the higher end of 3.33% of the UOB One and my actual cashback returns of 3.3% with OCBC 365. (5% with UOB is possible too, but a bit tough imo)

Why am I only looking at general spending mpd rate instead of the special category rates? Well, cards like Singpost can get you 7% cashback on online spending, while the POSB promotion has 14% cashback on food delivery. But... those are special categories.  In which case, then it would be appropriate to use the DBS Woman's World card that yields 4mpd for online spending.

If we are comparing the special category of online spending, the DBS Woman's World card with 4mpd and 2c per mile works out to be 8% returns, which is slighter better than SCB Singpost's 7%.

If we are comparing the special category of dining, the Citi Clear Platinum has 2mpd and at 2c per mile, that's 4% returns. The OCBC 365 has 3% returns on weekdays and 6% on weekends, and if you distribute that by the days of the week, you get 3.86%, which is slightly lower.

Conclusion

I never really got down into more details about miles and their value because to me it is just not something that I would want to redeem. MileLion framed it in a very good way. If you had a choice between option (1) taking a $17,850 SQ Suite return flight to JFK or (2) take a $1850 economy flight and pocket $16,000, most, if not all people would go for option (2).

If you really think that your miles are "free", I think it's a good time to realize that you are giving up other rewards, like cashback or rewards redemptions (vouchers, products, etc).

My personal conclusion is that I made the right choice to choose to get back cashback compared to miles. The "return" rate is very similar, but I now get cashback instead of miles. I prefer cashback because I can decide to allocate my savings to anything I want, rather than to strictly confined to air travel, which I may or may not even redeem!

Of course, if you are the type of person that enjoys flying and flying in the premium classes, by all means, go for miles. As MileLion clearly explains, redeeming non-economy tickets are more "value" with conversion rates being as high up as 9c per mile! To each their own.

What sort of credit card programme are you in? Cashback? Miles? Rewards? Shopping? Let me know your thoughts on mile programmes and if your "return" is different from what I have calculated!

8 comments:

  1. cashback for me too!!!thanks for a good read :)

    any idea for paypal payment and axs with singpost/citi rewards/ocbc titanium attract the respective rebates/points?

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    1. Hi Anon,

      From my personal experience, paypal with singpost for the cash rebate was okay. However, the paypal must be a merchant account, if I am not wrong. The banks have been busy closing loopholes, but most legit charges should be charged, as long as you are aware of the restrictions of each category.

      I don't think AXS makes any difference, but I always pay by GIRO.

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  2. agree on this as well. cashback for me, more straightforward can i can just pay for budget flights when i want to travel. dont really see the appeal of business/first class

    i think the only situation when you should collect miles instead of cashback is when you have a large purchase that is above the cashback cap like wedding expenses. Get the miles then use them for your honeymoon trip which is what my cousin did

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    1. Hi Anon,

      Wow, good tip for when you have a big expense that would be over your cashback cap! My readers very smart~ That sounds like a great idea, I will keep that in mind!

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  3. I think the heyday for airmiles credit cards was back in the 1990s. Back then it was really exclusive and conversion of airmiles into actual airfares much better deals. Nowadays its mainly those who travel for work will really go for chalking up their airmiles. I know quite a few companies allow their employees to claim the airfare/hotel expenses but let them keep the airmiles for their own purposes. I can say that 1 or 2 govt ministries also allow this practice (think which govt entities have plenty of diplomatic & investment offices in major cities around the world?).

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    1. Hi Anon,

      Credit cards in the 1990s are lost on me since I was a primary schooler then, haha! I suppose it is hard for businesses to try to keep / claim airlines for themselves? Plus, there is no added cost to the company to let the employee put down their frequent flyer number and get the points.

      I think it is the correct business practice to allow travelling employees to chalk up miles, unless for some reason it makes things more expensive.

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  4. I'm on the cashback bandwagon too like you are, G. I think you aligned it very well, that there's merits to both sides (cashback vs. miles) and it is really just a matter of preference. I see flying the same way as you do - in fact, I try to stay awake (especially as I usually wanna maximise the time and watch the in-flight movies, haha) but I fall asleep 90% of the time. So flying economy is my top choice all the time, as I can save more cash and use it to pay for the other parts of my trip like food and shopping, which miles can't pay for.

    But having said that, I also do think the miles bandwagon is an extremely interesting field, and would love to understand more. I can't really relate to using multiple credit cards as part of a miles hack at the moment (because I'm lazy like that! just give me one card!) but I have a ton of respect for people like MileLion who have gamified the whole system. They're good.

    Also replied your comment on my post! :)

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    Replies
    1. While my current style is flying bargain basement cheap, I think age and comfort/convenience is getting the better of me. That said, economy class is still good enough for me, but the odd hours and the stress of budget airlines are slowly pushing me away from them, though they can be cheaper.

      I think most of the younger generation are fine roughing it out for cheap for the airfare if it means more money for the actual trip itself.

      One Anon up there had a really good suggestion to collect miles on big spendings. I actually think that I might play the miles game if I do the math, get a goal, and then I'll just simulate charing the excess of my monthly min spend to the card and see how quickly I can redeem a flight. If the math works out, it's a good way to deal with excess spending that isn't really optimized.

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