Airlines Strive to Restore Mileage Programs’ Lost Luster

The value of a frequent flyer mile lies somewhere between paltry and priceless. But where? Is a frequent flyer mile worth the fair market value of a comparable paid ticket, divided by the number of miles redeemed to secure it? Or, if no seats are available for booking as frequent flyer awards, are the miles worthless? It’s a question whose very existence has left many inclined toward a cynical view of mileage programs in general.

There was a time when the rule of thumb was that a mile was worth about 2 cents. The underlying calculation was that 25,000 miles were required for an economy-class round-trip ticket which at the time could be purchased for $500.

But the assumptions underlying that valuation have changed markedly. First, the proliferation of discount airlines has forced the average cost of a domestic ticket from $500 down closer to $300. And the airlines have reduced the number of seats available to frequent flyer program members redeeming their miles.

As a result, the value of a mile has deteriorated to 1.2 cents or less, depending on the extent to which limited award availability is assumed to reduce value. Since consumers aren’t privy to the arcane algorithms airlines use to determine award-seat availability for any given flight, miles’ value is tainted by a persistent and troubling element of uncertainty.

Certainty matters. After all, consumers were told very clearly what they had to do to fulfill their part of the bargain—earn 25,000 frequent flyer miles. But the airlines have been unwilling to commit to anything definitive on the award side of the programs, unless participants were willing to part with double miles to secure an unrestricted award ticket.

That uncertainty has played a leading role in the decline in value of miles, leading some disappointed and frustrated consumers to disengage from mileage programs altogether.

The burgeoning consumer disaffection has not been lost on the airlines, which depend on their mileage programs both to encourage loyalty and to generate revenue from the sale of miles to the hundreds of partner companies which award airline miles to influence consumers’ buying decisions.

To maintain the programs’ viability, a number of airlines have recently made efforts to shore up the worth of their frequent flyer miles by establishing a set value at which miles can be redeemed for travel and easing the restrictions on award availability.

The latest is Delta’s Pay with Miles option, introduced the last week of February.

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Using Pay with Miles, members of Delta’s SkyMiles program can pay for a Delta ticket with a combination of frequent flyer miles and a charge to their gold or platinum American Express SkyMiles credit card.

Under most scenarios, the miles are worth 1 cent each. And since the cash and miles can be used to purchase any Delta ticket available for sale on delta.com, there are no onerous capacity controls to contend with.

Delta’s is a more robust version of United’s Choices option, which permits Mileage Plus members to use miles earned for charges to the Mileage Plus Visa card for United flights, hotel stays, or car rentals. When redeemed for flights, the miles are valued at 1 cent each; they’re worth slightly less when applied toward the purchase of room nights or car rentals.

As with Delta’s Pay with Miles, Choices assigns miles a definite value and allows them to be applied toward widely available flights. But limiting miles redeemable for unrestricted flights to those earned for charges restricts Choices’ utility to consumers who rack up significant numbers of miles through credit card purchases.

A third approach is Northwest’s recently introduced PerkChoice. Like Delta’s Pay with Miles and United’s Choices, PerkChoice gives members of Northwest’s program the option of using a combination of miles and cash to purchase Northwest tickets. While PerkChoice doesn’t establish a firm baseline value for a mile, it increases the usability of miles by allowing program members to bypass award bottlenecks by using half the number of miles required for a round-trip award ticket for one leg of the trip, and paying half the applicable round-trip ticket price for the other leg. For itineraries where one leg is available for award booking and the other is not—an all-too-common occurrence—PerkChoice can mean the difference between using and not using miles.

Of the three approaches, Delta’s Pay with Miles yields the greatest benefit to the most consumers. But the restriction to American Express cardholders won’t sit well with consumers who would prefer a Visa or MasterCard, which are more widely accepted than American Express cards, or who simply don’t want yet another credit card in their wallet.

Mileage collectors can still shoot for the stars, aiming to get 10 cents or more per mile by, for example, redeeming 80,000 miles for an international business-class ticket that would otherwise cost $8,000.

But when limited availability puts the kibosh on such best-case redemptions, at least some programs now offer their members a way to sidestep award restrictions and receive predictable value for their miles. One cent per mile isn’t much, but sometimes it beats the alternative.