Making the most of Miles

This article attempts to help readers become aware of avenues to earn and spend airlines miles such that they yield the greatest returns. It is meant to convey guiding principles but is not intended to hand-hold or spoon-feed. Indeed, some of the information that is relevant at the time of writing may become outdated over time. Readers will need to exercise due diligence in performing their own research; the contents of this article arose from many hours of the author's research, analysis and discussion with peers.


Introduction

Before I begin, allow me to introduce some very useful resources:

• Frequent Flyer, a twenty-minute video which offers a quick glance into the amazing world of frequent flyer programmes and airline miles.
• The FlyerTalk Miles&Points forum, which contains a wealth of information and discussion about the topic, and is the source for a lot of my information

I attribute no small part of my passion for this topic to having watched the film Up in the Air in 2010. I deliberately use the vague term "this topic" because there are actually multiple sub-themes that the world of frequent flying can be broken down into. Some flyers strive to achieve top-notch VIP status on the airlines they are loyal to. Others simply hope to earn miles at a low cost, and use them in exchange for the highest possible return. Some, as we shall see, may not even fly frequently at all. My objective in writing this guide is to address the second group: those wanting to earn miles at a low cost and spend them to get the most value.




Selecting a Frequent Flyer Program (FFP)

Not all FFPs are equal. My experience with FFPs has mainly centred around United Airlines' MileagePlus program, and after a few years as a member I would generally regard this as one of the best programs for my needs. Why? The airports I tend to fly out of are hubs of United and United's Star Alliance partners. This means that most of the flight options presented to me when I conduct a search end up with UA, US, ANA, SQ and the likes. This makes it easier to earn miles, and also makes it easier to redeem them for flights from these airports. I have also become acutely familiar with the ins-and-outs of the MileagePlus program, which I generally find to be easy-to-use, and has good availability for award tickets. There is no point in having a hundred thousand miles, but not being able to redeem them for anything of use to you.

It is impossible to recommended FFPs per se, but in the spirit of this article, I am able to provide guiding principles for those evaluating and comparing FFPs.

1. Understand your flying patterns. What is your home airport, and which airlines do you fly most frequently? Which alliance (if any) does this airline belong to? There are three main alliances in the world: Star Alliance, oneworld and SkyTeam. You are usually able to accrue miles flown on one alliance partner onto another alliance partner's FFP, but note the caveats: earning rates may not be the same. Check out the respective earning charts for each airline to get a better understanding.
• For example: Flying a Y-class ticket on United Airlines earns 125% award miles on United's own MileagePlus, but earns 150% on the Greek national carrier Aegean. Does this necessarily mean Aegean is better? No, because getting an award ticket from United has historically been far easier (via internet) than getting one from Aegean (need to make a call to their Greek office). So it's not so simple.
   
2. Ease of redemption of award tickets differ between airlines. Among the Star Alliance carriers, United and ANA have by far the best search tools for finding award availability. As alluded to with the Aegean example, some airlines require long-distance phone calls (and probably a good degree of patience as well) in order to make an award reservation.
    
3. Cost of redemption of award tickets differ between airlines. For example, if I am flying between USA and Japan, Airline A might require X amount of miles for a return flight, and Airline B might require Y amount of miles for the same flight. In some instances, X and Y can differ significantly, depending on origin, destination and class of travel. Furthermore, there is usually a cash component that needs to be paid in addition to the miles cost, going towards airport taxes, immigration and security fees etc. Some airlines have a policy of charging fuel surcharges for award tickets on some routes, others don't (United falling in this second category). So, my Hong Kong to New York award ticket could involve forking out an additional $500 in fees and fuel surcharge for an award ticket claimed through Airline C's FFP, but only $60 in fees for the same ticket redeemed through Airline D's FFP. This could be in spite of both tickets actually being identical itineraries--same flight, same operating airline.
    
4. Flexibility of redemption of award tickets differ between airlines. Simple case in point: Presently, US Airways allows for one-way award reservations, but for the same number of miles as a roundtrip award reservation. This means, if I am flying say, PHL-ORD one-way, I might need 25,000 miles to get a ticket through US Airway's Dividend Miles program, but through United's MileagePlus, not only is that halved, but I actually only need 10,000 miles because PHL-ORD is considered as a shorter flight and is less costly in miles to redeem. For the more advanced readers, consider this: Free One-ways on United Awards. Basically, taking advantage of United's routing rules for an award flight, I can get a free one-way ticket within the same region as my origin/destination. For example: an award SIN-EWR return is 65,000 miles in Economy (Saver). I can tack on an additional SIN-NRT one-way at the end of the trip (up to one year from my date of ticketing) for no additional cost in miles! Normally, a this one-way flight would have cost me 15,000 miles, so this is definitely a savvy exploitation of what the routing rules permit.
    
5. FFPs have different elite qualification criteria. This almost goes beyond the scope of the article since I am not addressing elite qualification per se, but as we shall see in the 'earning miles' section, elite status has implications on earning miles. So without going into too much detail, airlines may have different elite qualification thresholds (how many qualification miles/points you need to hit before getting your Silver/Gold etc) and they may have different elite qualification calendars (some reset on a calendar year basis, others reset on the anniversary of when you first joined the program--so you'll get slight different outcomes if your anniversary is, say, in June, and you do the majority of your flying from May to July: on the anniversary basis you get your eligible qualification miles split down at June, while on the calendar basis all your flying goes into one bucket, which, presumably, is what you want).
    
6. FFPs have different miles expiration policies. Similarly, some airlines may require a flight every 12-18 months in order for the account to be deemed active and for the miles not to expire. Other airlines may simply state that miles earned expire three or five years from the day they were earned. Expired miles are wasted miles (though some airlines reinstate them for a fee), so don't let your miles expire if you can help it!

Earning Miles

The key performance indicator when earning miles is cpm, short for cents per mile. It is basically a measure of how much money you are paying for each mile you earn. Of course, when earning miles, you want your cpm to be as low as possible. You can look at some examples on theflightdeal.com to see what the range of cpms are for flights that are considered to be "good deals". I have broken down the guiding principles for earning miles into a couple of sub-headings: creative routing, elite status, non-flight, credit cards and double dipping.

Creative Routing
There are endless possibilities in creative routing in order to achieve the lowest possible cpm. Say for example I want to fly from Anchorage, AK to Boston, MA. On United, I could probably find a few options such as ANC-ORD-BOS, ANC-DEN-BOS or ANC-IAH-BOS. If I am impartial to the take-off and arrival times of all the options, and if the prices are all the same, I would want to go for the third option, via Houston. Why? It is the longest route, so I earn more miles than flying via Chicago or Denver. Even if the third option is a couple of dollars more, I might still want to take the third option, depending on my own decision matrix as to whether that additional cash outlay is worth it.

The pinnacle of creative routing is what is known as a mileage run (MR). You will be able to find a lot more information about MRs on FlyerTalk, but in a nutshell, an MR often a flight taken not for the purpose of arriving at a destination but rather for the purpose of chalking up as many miles as possible at the lowest cpm. Does this sound crazy, paying for a flight to (effectively) nowhere? If it does, you probably haven't watched the Frequent Flyer video posted at the start of this article yet. You might want to check it out first before passing your judgement! Indeed, one of the benefits of mileage running is the ability to earn elite qualification miles/points (different from award miles) and therefore become a Silver, Gold or even better on the airline's FFP. This is a perfect segue into the next section.

Elite Status
Elite status is quite related to the earlier bit about selecting your FFP. If you are primarily going to fly Airline A (and will fly enough to become an elite on Airline A's FFP) then it often makes little sense to join Airline B's FFP and park your miles there. This is because there are often nice little perks reserved for the particular airline's elite members when they fly on that airline. Most of the perks are outside the scope of this article (you can find out more through the respective FFP's website) except for one: the elite bonus.

Let us take the oversimplified example that I am flying from Singapore to New York on a return economy trip, which is altogether 20,000 miles. If I fly on Singapore Airlines and if I am SQ's KrisFlyer Elite Gold, I get a 25% bonus if I accrue this flight to that FFP. If I accrue the same flight to United's equivalent Premier Gold, I do not get any bonus, so I only receive 20,000 miles. On the other hand, if I fly on United and if I accrue it to KrisFlyer as an Elite Gold, I receive no bonus (just 20,000 miles) but if I accrue it to United's MileagePlus, I get a 50% bonus as Premier Gold, and thus a cool 30,000 miles.

Considering that a domestic return ticket within the continental US is usually 25,000 miles, this means that you may (or may not) have earned enough miles for your next flight, depending on how you strategize your mileage accrual.

Non-flight earning
Some FFPs allow you to earn award miles (not elite qualification miles/points) on non-flight expenditure, such as hotel stays and car rentals. Take a look at some of United's examples. Personally, I haven't found these to be a good way to earn award miles, since most of my hotel stays are non-qualifying and many car rental agencies charge a surcharge fee if I request to earn award miles on my car rental. You'll have to figure if it is worth that extra dollar in fees for an additional paltry 50 miles from that car rental, and most of the time it probably isn't, up until you realise you have 24,950 miles and that 50 miles from two months ago would have come in useful... ouch!

Credit cards and Double-dipping
In my introduction, I alluded to a third group of people who might not fly frequently at all, yet the whole miles game is still highly relevant to. The advent of airline co-branded credit cards and travel rewards credit cards has allowed (in)frequent flyers to earn award miles as well. There are numerous tie-ups between banks and airlines, examples include the Citi AAdvantage Cards with American Airlines, the Chase MileagePlus Cards with United Airlines, and non-airline affiliated cards with travel rewards programs such as the American Express Membership Rewards, Citi ThankYou and Chase Ultimate Rewards.

A big plus for many credit cards is the generous sign-up bonuses offered. For example, the Chase Sapphire Preferred offers 40,000 Ultimate Rewards points after hitting a minimum spend. Similarly, the Chase MileagePlus Explorer offers 30,000 (sometimes 50,000) award miles after hitting a minimum spend. Now, 50,000 miles is the equivalent of two domestic return award tickets, so it's definitely nothing to be scoffed at.

Besides sign-up bonuses, many of these cards offer perks such as one mile or one point per dollar spent on the card, and for some cards, even more on certain categories such as restaurants, food or airfare. For example, the MileagePlus Explorer offers 2 award miles per dollar spent on united.com. This presents the opportunity for double-dipping, in that if I bought a $1000 ticket through united.com, I would be entitled to earn 2000 miles from my credit card transaction, on top of whatever miles I might be eligible for the miles actually flown (known in the frequent flyer community as BIS miles, short for butt-in-seat).

Most of the non-airline affiliated cards do not earn airline award miles directly, although many are convertible to airline miles at a fixed exchange rate. You'll have to evaluate the value of exchanging your miles, though, because many of these credit card travel rewards programs allow you to book air travel through the program itself, and often at a rate that is superior to the exchange rate offered for conversion to airline miles. A significant point also is that in most circumstances, using the travel rewards program to book your air travel is treated as if you are paying cash for the air ticket, and thus you may be entitled to earn BIS miles for that flight. If you convert your travel rewards points into airline miles for an award ticket, you will not be earning any BIS miles from that flight.

The labyrinthine intricacies of credit card rewards programs could take up a whole separate article on their own, but just keep in mind this one golden rule: What is given, can be taken back. Credit card companies have the liberty to alter their cards' benefits, and in doing so your points may be devalued (or in the rare instance, they may become more valuable). Keep an eye out for changes that could have implications for your points!


Spending Miles

At the beginning of the 'earning miles' section we talked about cpm. Actually, cpm is applicable to spending your miles as well, but because you are now redeeming your miles, you have the opposite objective: the highest possible value per mile redeemed.

Before I delve into how to best spend your miles, I would like to briefly discuss buying miles and similar "award accelerator" offers. Some airlines (United being one of them) offer to sell you what they may call "award accelerators" when you buy your ticket or when you check-in. Basically, they are trying to sell you miles. If you do some quick math, this will almost never be worth the money on a cpm basis, and neither will buying miles from an airline's website outright. However, in the unique situation previously illustrated where you end up just 50 miles shy of your 25,000 mile target in order to redeem an award ticket, the award accelerator may actually have been a worthwhile consideration. You could, of course, buy something for $50 (say, a gift card you know you will use) on a miles-earning credit card, but you'd have to wait until your next statement closing date before there's any chance that your miles will post.

Spending your hard-earned miles is the only way you can actually reap the rewards of your efforts (unless you derive great satisfaction from seeing a larger and larger number appear under your Account Balance), but knowing how to spend them is just as important as knowing to how earn them. There are two main questions to consider: 1) if you are getting your best value for your miles, and 2) what is the opportunity cost of spending your miles.

Getting the best value for your miles
Most airlines have different pricing tiers for award tickets. United has Saver and Standard, US Airways has low, middle and high. Common sense dictates that the best redemption option is at the lowest level, but what else is there to consider?

Firstly, keep in mind that flights differ greatly in cash pricing. If my Boston-Philadelphia flight is going on sale for $150 right now, it would make little sense to want to redeem an award ticket for it, not if I know that in the future I could use the miles for a more expensive flight to a further destination. Often, getting to smaller airports at more isolated locations requires a hefty premium if you are paying cash. Similarly, flying an open jaw (flying from New York to Rio de Janeiro and then from Sao Paulo back to New York) is usually significantly more expensive than a return flight. But under certain routing rules, the cost in miles for an award flight for such itineraries will be the same as an award flight for the simple itinerary. So if you plan on creating some creative itineraries, note that your miles might be your ace up your sleeve. Of course, always be aware that peak periods tend to lead to the cheapest award tickets being snapped up early, and it is usually not a good return cpm-wise to claim anything other than the cheapest award. Normally, I would recommend seeking a minimum return of 1 cpm, meaning that a domestic award ticket costing you 25,000 miles should have cost at least $250 if you paid cash.

Award tickets are also good for one-way flights, which are usually significantly more than half the price of the return cash fare. If your FFP allows for redemption of one-way tickets at half the miles required for a return trip, you are probably going to get good value using your miles on a one-way flight. For example, a one-way flight from Chicago to Singapore is 32,500 miles (half of 65,000 miles) in Economy when redeeming via MileagePlus. Considering that this one-way flight is usually no less than $800, the return is an outstanding 2.46 cpm. For Business- and First-class travel, the Saver one-ways for a similar itinerary are 60,000 and 70,000 miles respectively, and both are way above the 1 cpm baseline that I mentioned earlier.

Opportunity cost of using your miles
You are probably aware already that you don't earn award miles when travelling on an award ticket, so that is an inherent opportunity cost of redeeming an award ticket rather than buying a cash fare. But also realise that you also forego the elite qualification miles/points that you would have earned had you paid cash for the flight. You'll then have to carefully evaluate if it is worth saving the cash outlay by going ahead with the award redemption, or by saving the miles for future use (and making sure they don't expire!)

For example: I am just below the threshold of qualifying for Premier Gold, and I know that early next year I need to make a long-haul trip from the US to Asia, return. If I wanted to book a ticket for next month from San Francisco to Los Angeles, should I use my miles to get an award ticket, or should I fork out, say, $300 for the cash fare? Based on the 1 cpm baseline, I appear to get fair value from an award redemption since the ticket would have cost me $300, but what else am I actually foregoing? If the SFO-LAX trip allowed me to qualify for Premier Gold from Silver, all my flights thereafter on United for the current and following membership year will earn a 50% bonus instead of a 25% bonus. So on that 20,000-mile trip to Asian, I'm going to earn 30,000 miles instead of 25,000, and I am going to enjoy all the other associated perks of Gold while I'm at it. Is it worth it? In this case, probably.

But remember, your miles are only as valuable as whatever you are able to claim them for. If the airline implements some new policy that devalues its award miles, or if you are ultimately unable to use them for anything as a result of not claiming your your SFO-LAX trip on an award reservation, your miles are effectively useless.

Sidenote: What else can I spend my miles on besides flights?
Well, this differs from airline to airline, but options include gift cards, online shopping, hotel stays and car rentals. Young drivers in the US (under 25 years) may want to be mindful that some car rental agencies will still impose a young renter's fee on a rental paid for using miles.


Final Words

As is hopefully apparent, the world of earning, spending and managing your miles is a highly complex, arguably addictive affair. Airline programs change over time, FFPs merge as airlines consolidate (case in point: US Airways and American Airlines) and frequent flyers end up for the better or worse. The point is, miles can be a valuable asset, and I personally regard them as too valuable to simply throw away. After all, they have a real value when redeemed that is almost akin to cash. Just as a good investor knows how to maximize his return on investment and increase his wealth, a good frequent flyer should know how to smartly manage his miles. I hope that by writing this article, I have pointed readers in the general direction towards achieving this outcome.

As a final caveat, I feel that I have to add that this entire business of managing miles, unwrapping the intricacies of FFPs and weighing the pros and cons of when I spend my miles, is a time-consuming activity, just like many others. I treat it as a kind of a hobby, which is probably one of the motivating factors for writing this article to share my knowledge with others. For most, I don't recommend going down the same path, for it is too much detail and too much an expense of time. But there will be a select group that secretly enjoys the fun in doing all this. To these people, I say, enjoy what you do, and know that there are others who share this compulsive hobby, just like you, who are Up in the Air.