After nearly 30 years of observing airline loyalty programs, Randy Petersen has reached a conclusion: You probably aren’t managing your frequent-flier miles very well.
“Most people don’t understand the personal finance of frequent-flier miles,” said Petersen, publisher of Inside Flyer magazine. “They’ll use them on a $200 ticket. Some discipline is required.”
And there is the first lesson of getting the most from your miles: Don’t use them just to use them. Here are a few more tips from the pros:
• Do the math. As Petersen said, spending 25,000 miles on a ticket that costs $200 isn’t getting much return. A widely accepted tenet says that ideally, a mile should be redeemed at about 2 cents per (that is, use 25,000 miles on a ticket that would cost about $500 otherwise). Using miles on international flights can yield a return of 3 or 4 cents per mile, but a minority of miles are redeemed for such trips.
• The 10 percent rule. Say you have a nest of 40,000 miles on American Airlines and find a ticket to Dallas for $340. But you have just a few points on Southwest, and it offers Dallas for $270. Is it worth the extra $70 to add miles to that American account? Petersen says no. His rule is 10 percent variance: He will pay 10 percent more than the cheapest price to acquire miles from a specific airline.
Otherwise, he pays the lower price and spreads his loyalty – and by extension, his loyalty rewards. The exception to the rule comes when approaching elite status. If spending an extra $100 on American will get him a year of free checked bags and the ability to skip security lines, he’ll make the investment.
• Use the tools. Considering the morass of loyalty programs and our ability to accrue miles more quickly than ever (through credit cards, the option to buy miles and the like), more websites are popping up to help manage those accounts.
For instance, MileWise ( milewise.com), which launched in September, allows travelers to consider their miles when shopping for flights. Searches are returned with price, as well as the options to fly on miles, followed by a recommendation on the most cost-effective way to purchase the ticket. Another bonus: It calculates “real cost” of a ticket based on how many miles you’ll gain.
• Decide your strategy. Petersen said most people tend to “earn and burn,” redeeming miles as soon as they can. But he’s a saver. “I view frequent-flier miles as my travel IRA,” Petersen said.
“People say your miles become devalued over time because price goes up, so use them as quickly as you can. But if you manage them well, it doesn’t happen.”
How do you do that? “I broaden out so that my loyalty and bank of miles is distributed through a number of airlines and hotel companies,” Petersen said. “If one program has a devaluation, generally you don’t see all the programs make major changes.”
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