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Redeem Your Frequent Flyer Miles for Money

By | Published February 11, 2011 9:14 am
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Got frequent flyer miles? Rather have cash instead? Now you can redeem the former for the latter.

Beginning this week, miles earned in the programs of American, US Airways, and Aeroplan may  be redeemed through Points.com for cash in a PayPal account. From there, the cash may used to offset purchases paid for using PayPal, sent to anyone with an email address, or transferred to a linked bank account.

While there are already ways to redeem miles for cash-like gift cards, and to purchase tickets and other services using miles as though they had a cash value, this is a more-or-less direct route from miles to hard, spendable cash.

It’s a significant step in the evolution of loyalty points into a full-fledged currency.

Deal or No Deal

The crucial question, of course, is value. What are miles worth when redeemed through Points.com for cash in a PayPal account?

As I discovered in the process of making test redemptions, the miles-to-money exchange rates differ among programs. And they’re wildly divergent.

To get $100, you’d have to redeem 24,118 American miles, 120,589 US Airways miles (not a typo), or 17,734 Aeroplan miles.

There are a number of ways to put those numbers in perspective.

As one point of reference, redeeming 25,000 American miles would get you a round-trip coach domestic award trip. Average market price: around $350. With the PayPal alternative, you receive $100 in cash for slightly fewer American miles.

Another metric is value-per-mile. On average, a frequent flyer mile redeemed for a free flight is worth 1.2 cents.

Redeeming American miles for PayPal cash yields a per-mile value of $0.0042 (just over four-tenths of a cent), about a third the value of miles used for flights. The Aeroplan miles are worth closer to half the value of miles redeemed for flights, at $0.0056 apiece. And the US Airways miles are worth a paltry $0.00083 each, about 6 percent of the value of miles used to fly.

Bottom line: American and Aeroplan miles redeemed for cash provide between a third and half the value of miles redeemed for flights in those programs.

(The US Airways exchange rate is such a value outlier as to be borderline insulting to members of that carrier’s loyalty program. If only for P.R. purposes, they might be better off not participating at all.)

Somewhat offsetting the underwhelming value showing is the flexibility and convenience factor.

To get maximum value from miles, they must be redeemed for flights, and capacity-controlled flights at that. Cash, on the other hand, can be used anywhere, to buy anything—something that can’t be said of frequent flyer miles. So arguably, miles used for cash deliver a value premium that’s not reflected in our straightforward dollars-and-cents calculations.

Is that premium enough to justify the apparent value discrepancy?

In the end, consumers will vote with their pocketbooks—or in this case, with the miles in their frequent flyer accounts.

Reader Reality Check

Will you redeem your miles for cash through Points.com? How many, and under what circumstances?

What would you consider a compelling miles-to-cash exchange rate?

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