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Best Value for Frequent Flyer Miles: Premium Flights

Best Value for Frequent Flyer 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?

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?

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  • CatInTheHat

    Having just redeemed a mere 70,000 Mileage Plus miles (many of which were earned flying for work, and thus my company’s dime) and $60 on an ANA F seat for which some are paying five figures, I’d say that this article’s conclusion is accurate.

  • Andrew Dhuey

    A useful exercise for those playing this game is to imagine the highest fare they’d pay out of pocket for a long-haul seat in business or first. Forget the crazy, full-price fares that hardly anyone would think about paying.

    The price you’d pay divided by the miles you burn for the award is the price at which you’re selling your miles. If you really like premium seats and you’re willing to pay substantially more for them than coach, changes are you’re getting a great return on your miles. Assuming we’re not talking about Delta, that is.

  • issam

    I agree with Andrews comment on what one would be willing to pay for a premium fare versus the savings generated from using miles to pay for that same seat.

    To put it differently, if all mileage/frequent programs got scrapped from the world and only cash would secure such a seat, I would not ever be willing to pay more than $2.4k for long-haul J or $3.5k for long-haul F. And that’s for the likes of CX or EK A380 type seats.

  • Artpen100

    I agree. I mostly travel long haul for business and plan travel well in advance, but my employer only pays restricted coach, while I pretty much need to fly business to not be a wreck when I land. My practice has been to watch fares like a hawk, so that I first try to upgrade with miles on airlines where I can do that at booking. But after that, I will buy discounted business paying the difference myself if it is no more than about twice economy or so (I’m usually willing to do this only once or twice a year). Lastly, I will look to get an award ticket if that is the only way I can get into business class without paying 4 or more times economy, even though I am blowing through my own miles. I’ve sometimes wondered if the airlines did not let so many business class seats go to FFs, and just sold them for twice economy, they would sell them all out and be better off. In fact, given all the buy-up offers one gets, they may already think that.