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Okay so here’s the basics of how this stuff works. Airline miles (or hotel points, bank rewards, or other similar things) are generally thought to be worth 1-2 cents each. Some more, some less, depending on the airline / hotel / bank.
Just like with anything, the idea is to buy low and sell high. Or in our case, earn points for a small upfront cost, and use them for travel expenses with a much higher value. How do we do that? Well, answering that question could take weeks if not months and is not only the subject of blogs, but entire INDUSTRIES. Still, I’ll give a small idea. What else were you expecting from a post titled “The Basics”!?!?! 😀
The “old” way to get miles was, you know, ACTUALLY FLYING. 😀 Sometimes I forget about that – that’s why they call them “miles”. You get 1 mile for every mile (what they call ‘butt-in-seat’) that you fly. So, as an example, back in 2012 (before I was smart) I flew CVG-LAX-CVG.
From Cincinnati to Los Angeles is a nice even 1900 miles. So I earned 3800 miles for that flight. Now, I paid $320 for that flight, so in a sense I “bought” those 3800 miles at a rate of 8.4 cents per mile (cpm). We’ve already talked about how miles are worth between 1 and 2 cents, so obviously paying 8 cents for a mile is crazy, and had I flown that flight for the purpose of earning miles, that would be ludicrous. Now there are people that still do what they call “mileage runs” (flying only to earn miles) but generally a “good” mileage run is one where you might pay 3-4cpm. Why would you pay 3-4 cents for something that is only worth 1-2 cents? There are actually some reasonable reasons to do that but usually it is to earn “elite” status on airlines, which, for folks with “a crew” is almost never worth doing (if it’s ever worth doing at all)
The easiest way to get cheap miles is credit card signups
Look at it – for a $99 annual fee, you can earn 50,000 points on Southwest Airlines, which is “buying” them for 0.19 cpm (or about 40 times less than if you flew from CVG-LAX). You just conjured enough points for 2 roundtrip flights (and actually probably more, depending on how you spend your points)!!
There are also other ways to get miles at a reasonable rate, such as shopping through airline / hotel “shopping portals”, or promotions that are offered, that I’ll cover in a separate post/
The other half of the strategy is to spend high. Even though these points are nominally “worth” 1-2 cents, there are many ways that you can strettttch their value. One example is the Southwest Companion Pass, where you can take a companion along for free. So our 50,000 points actually become 100,000 points. Or if you have the Club Carlson Visa card, the last night of any award stays is free. My wife and I used that on a recent trip to Miami. We paid 28,000 points for 1 night at a Country Inn and Suites, and the 2nd night cost us nothing! Considering we earned 85,000 points just for signing up for that credit card, that’s a pretty good deal!
The other way to do that is by taking advantage of airline award charts. I just did a sample search on United for some Pacific travel. From Guam to Auckland, New Zealand, and then from Sydney, Australia to Tokyo, Japan.
Spending 42,500 miles instead of $8,947.50 gives a value of over 21 cents per mile! Now, to be fair, this isn’t a completely fair example 1) because I didn’t want to spend the time to match the exact flights and 2) because if you were wanting to pay for this flight, you wouldn’t just take the first paid fare you came across (as I did) but instead would shop around for a better deal. Still, this IS an accurate depiction of a very real phenomenon.
So, what did we learn? Get your points cheaply, and spend them where they’ll have the most value.
A final word of caution. Points are what we like to call a “deflationary” currency.
There is no central bank or international monetary standard. Example – Southwest Rapid Rewards points were worth a fixed 1.67 cents. So our 50,000 points we earned up above were worth $835 towards flights. A few months ago, Southwest sent out a press release, waved a magic wand, and POOF! All points are now worth 1.43 cents. So our $835 became $715. $120 just up in smoke! This is not an isolated incident – Hilton, United and several others also announced major devaulations just in this past year.
That is why our mantra is “Earn and burn.” Don’t hoard points – as you earn them, make sure and spend them and get out there and see the world!