Use Miles to Purchase Opaque Hotels: Deal or No Deal?

“I’m looking for something that can be made for a dime, sold for a dollar, and is habit-forming.” That line from an otherwise forgotten play was designed to get a laugh, and it probably did. But these days, the laugh is on you: The big airlines have come very close to that ideal in their frequent-flyer programs.

This recollection was brought on by a press release from United touting “an exciting new product: Unpublished Hotel Awards powered by Hotwire. By waiting to see your hotel name until after booking, you’ll enjoy brand-name hotels for fewer miles.” But just how “exciting” and how “new” is it?

Certainly, Hotwire’s “opaque” rate system does offer substantial discounts on hotel accommodations. So does Priceline, another opaque system with a somewhat different approach, as well as the opaque options some big online agencies have introduced. “Opaque” means you can select the location and star class, then see the price (Hotwire) or bid a price (Priceline), but you don’t find out the name of the specific hotel until you make a nonrefundable purchase. The discounts you can get that way are, in fact, often “exciting.” But they are hardly new. Opaque hotel buying has been around since 1998. I’ve used both Hotwire and Priceline many times and can attest that they can provide some great hotel deals.

So if the idea isn’t new, are United’s prices at least “exciting”? Here, I’d have to say “no.” I checked a few hotels against Hotwire’s own listing—and I’m pretty sure I identified the same hotels. And when you use United miles to buy them, those miles are worth about $0.006 each. A four-and-a-half-star hotel in Chicago’s Near North area required 23,850 miles through United or $139 directly from Hotwire for a value of $0.0058 per mile. Other comparables: 20,525 miles or $122; 46,675 miles or $274, both coming out to about the standard $0.006.

And that calculation, in a nutshell, shows the way the big airlines operate. When you use the miles, you get very low value; when you buy miles, you pay top dollar. I’m not dumping on United here; all the big guys do the same thing. Here are a few examples of the way airlines value miles when you use them for something other than flight awards:

• Restaurants on United: 6,800 miles for a $50 certificate; $0.007 per mile.
• Barnes and Noble Nook Reader: 26,400 miles or $139 new/$65 refurbished; $0.0052 or $0.0025 per mile.
• Dyson Air Multiplier: 68,100 miles or $360; $0.0053 per mile.
• Apple iPad: 75,000 miles or $419; $0.0056 per mile.
• Amazon Kindle Fire on Delta: 41,400 miles or $200; $0.0048 per mile.
• Four-pack of 10-ounce Omaha Steaks: 17,200 miles or $60; $0.0035 per mile.

That’s more than enough to make my case: When you use miles for anything beyond award trips, they’re generally worth no more than $0.006 each and often much less.

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That’s the math when airlines have to buy something for you from some supplier; the picture is quite different when you want to buy miles rather than spend them:

• Buying miles for your own account, or as a gift for someone else: typical price about $0.0275 mile.
• Transferring miles you already have to someone else’s account: typical charge $0.0175 a mile.
• Paying to reinstate miles you previously earned but allowed to expire: $299 to $600.

Not quite a dollar for a dime, but the idea is the same. To get the miles, you pay a lot; to get something for them, you don’t get very much.

When frequent-flyer programs were new, they worked pretty well for both airlines and travelers. Average load factors were in the 60 percent range, so the airlines knew they’d be able to accommodate award travel fairly easily. But decades later, we find full planes and airlines in a tight money squeeze, with a result that they just hate to give away a “free” seat. So to ease the pushback from frustrated flyers, they’ve tried to open up more options for using miles.

Unfortunately, however, the airlines aren’t willing to value the miles highly enough to make the nonflying uses attractive to many of you.

The worst part of this story is that I don’t see any improvements coming. For now, even when you have to use the double-or-more mileage table to assure yourself of a seat, you’re probably better off using miles for travel than to buy other stuff at what amounts to a lousy exchange rate.

Ed Perkins on Travel is copyright (c) 2012 Tribune Media Services, Inc.