Best Value for Miles: Premium Flights

One of the recurring debates about the booming loyalty marketing industry is whether rewards provide notable value … and which rewards are the most valuable. To answer this, IdeaWorksCompany conducted booking research using United’s MileagePlus program (largest in the world) to determine which rewards provide members the greatest dollar value.

That’s the teaser for the latest study from industry consulting company IdeaWorks. The study’s conclusion is front and center in its title: “Premium Class Rewards Provide Best Value for Frequent Flyers.”

Specifically, based on 170 test bookings, IdeaWorks found that premium awards to Europe or Asia delivered more than 5 cents-per-mile, versus just over 1 cent-per-mile for coach awards.

It’s not a particularly nuanced analysis. For example, there’s no attempt to adjust the value of a capacity-controlled award ticket to reflect the hassle factor of booking scarce seats. And fees associated with award bookings aren’t factored into the calculations.

Nevertheless, the conclusion is incontrovertible. While we may quibble with the degree of the disparity, premium awards do offer a superior return on redeemed miles.

But we already knew that, right? If you accept the premise that the dollar value of miles is the price of a comparable revenue ticket, then it doesn’t take an in-depth study to conclude that premium-class awards, priced two or three times higher than coach awards, deliver the best cents-per-mile, since paid premium tickets generally cost five to 10 times more than coach tickets. A high school student can do the math in her head, no spreadsheet required.

If such studies have any value, it is in stimulating a deeper consideration of the relationship between ticket pricing and travel value. Basic economic theory assures us that the enormous disparity between restricted coach fares—what most flyers purchase—and business- or first-class fares reflects underlying supply and demand. But does the fact that there are a few travelers—mostly business travelers flying on the company dime—willing and able to pay the jaw-dropping price premium really mean that there’s a comparable value premium? In other words, is first class really worth 10 times more than coach?

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The study also computed the value of miles redeemed for merchandise and free hotel room nights. As we’ve pointed out ad nauseum, the return on such awards is paltry: In IdeaWorks’ analysis, hotel awards yielded just 0.8 cents-per-mile, and merchandise awards just 0.7 cents.

Finally, the study points up the depth of the relationship between United and its credit card partner, Chase, as follows:

The cards offered by Chase Card Services, such as the United MileagePlus Explorer card, are a vital component of the carrier’s strategy to engage consumers. They too generate a healthy sum of money on their own merit. Very likely, $2.5 billion of the $2.8 billion generated by the sale of miles to program partners during 2012 can be attributed to credit cards. In almost every regard, the success of MileagePlus is now linked to its credit card offer … and the success of the Chase card portfolio is tied to the attractiveness of the frequent flier program.

What that means, among other things, is that United has a massive financial investment in keeping MileagePlus a vibrant and value-packed program. That’s hardly a guarantee of success, but it’s at least a hopeful sign for program members.

Reader Reality Check

Is a first-class award trip worth five times more than the same trip in coach?

This article originally appeared on FrequentFlier.com.