Avios and cash followup: booking that Air Berlin flight

Last month I wrote about an Air Berlin flight from Berlin to New York City, for which I was planning to redeem British Airways Avios. I had 24,000 Avios in my account, but since British Airways allows cash to be substituted for Avios at relatively favorable rates, I had to decide how many Avios to redeem (including transfers in from Chase Ultimate Rewards) and how much cash to pay for the two tickets I wanted to buy.

Here were my Avios and cash options for purchasing the tickets:

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As I wrote then,

"ultimately, I fall on the side of redeeming my Ultimate Rewards points for 1.5 cents each. That's because I'm points-rich and cash-poor: if I "saved" my points by redeeming 20,000 or 14,000 of them against the Air Berlin itinerary, instead of transferring in 16,000 Ultimate Rewards points, I would then redeem the corresponding Ultimate Rewards points for cash at just one cent each."

Not so fast!

My decision was based on the best alternate redemption of the Ultimate Rewards points I already had, which was just 1 cent each for cash redemptions. However, I still wasn't sure how I was going to fly outbound from the United States to Budapest.

So before transferring 16,000 Ultimate Rewards points to British Airways, I first checked for award space between Chicago and Budapest, and sure enough the calendar was wide open for economy award travel on Turkish Airlines, United's Star Alliance partner. Suddenly, my alternate Ultimate Rewards redemption wasn't 1 cent each for a cash redemption, but a little over 3 cents each when transferred to United for a transatlantic flight redemption.

British Airways charges variable amounts of cash per substituted Avios

A close look at the Avios and cash chart above reveals something odd: the intervals between the Avios redemption levels are irregular. Here's the same chart, rearranged to illustrate the point:

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Now, if I already had enough Avios in my account, I would certainly have redeemed the maximum 40,000 Avios and paid just $178.18 in cash.

But I didn't have enough Avios, which is why I had to ask the question of how many Ultimate Rewards points I was willing to transfer in.

• Since I had 24,000 Avios in my account, the first 2,000 were a no brainer: I would get the full $60 in cash savings value but pay just $20 in Ultimate Rewards points.
• The next 6,000 would give me just 1.17 cents per Ultimate Rewards point, less than the points' value when redeemed for paid travel and barely more than their cash value.
• Finally, an additional 8,000 transferred points would yield 1.38 cents per point, which would be worth considering, except that in my case it would first require the above 6,000-point transfer, averaging out to just 1.29 cents per Ultimate Rewards point.

Since I already have a planned redemption that offers more than twice as much value per Ultimate Rewards point — my Turkish Airlines flight to Budapest — I ended up transferring just 2,000 Ultimate Rewards points and saving the remaining 14,000 points for my transfer to United Mileage Plus.

Conclusion

The lesson here is that the value of points and miles varies, not just between people but for the same person over time, depending on their points balances and plans for redemptions.

In my earlier post, I was fully ready to redeem 16,000 Ultimate Rewards in order to save $240 (1.5 cents each). When my plans developed further and I settled on a 3-cent-per-mile Turkish Airlines award, my calculus likewise changed and I became unwilling to transfer more than a nominal number of Ultimate Rewards points.

I was right both times, but the more information I had about my future plans, the better my decision became.

The single best award redemption, by transfer partner: Chase Ultimate Rewards

As my regular readers know, I don't chase "aspirational" redemptions; I earn the miles and points I need to pay for the trips I want to take as cheaply as possible.

But many of you do chase aspirational redemptions! That gets me into hot water whenever I point out that a Chase Ultimate Rewards point is worth 1 penny (its cash redemption value), or that American Express Membership Rewards points are hard to redeem for cash.

So in the spirit of reconciliation, I though it would be fun to put together a list of the absolute best redemption values for the transfer partners of each flexible rewards currency. Since I'm most familiar with Ultimate Rewards points, let's start there.

Airline Partners

As a reminder, here are the Chase Ultimate Rewards airline transfer partners:

• United MileagePlus
• British Airways Executive Club
• Korean Airlines SKYPASS
• Singapore Airlines KrisFlyer
• Southwest Airlines Rapid Rewards
• Virgin Atlantic Flying Club

United MileagePlus

Two of the best international first class products, Lufthansa and Singapore, belong to the Star Alliance, and United MileagePlus miles can be redeemed for first class on either airline at their partner award prices. But which is the better redemption?

One-way award seats in Lufthansa first class between New York and Frankfurt cost 110,000 MileagePlus miles, plus $5.60 in taxes and fees. Unless you're a MileagePlus elite, you'll also pay a $75 close-in ticketing fee, since Lufthansa first class seats are generally made available to United only a few days or weeks before departure.

At the time of writing, Lufthansa first class seats between New York and Frankfurt cost $11,049 on October 10, a date Lufthansa first class award seats are also available. Less the $80.60 in taxes and fees, that gives a redemption value of just about 10 cents per Ultimate Rewards point.

We can actually do a hair better than this by flying not to Frankfurt, but to Tokyo's Haneda airport via Frankfurt. This itinerary also costs 110,000 MileagePlus miles, but retails for $952 more, at $12,001, giving us 10.8 cents per MileagePlus mile:

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By comparison, Singapore's JFK-Frankfurt flight costs a mere $7,108. In any case, since Singapore Air is also a Chase Ultimate Rewards transfer partner, Lufthansa walks away with an easy victory here.

British Airways Executive Club

A safe choice for best British Airways redemption is a 4,500-Avios American Airlines short-haul flight like Norfolk, VA, to Charlotte, NC, which can get you about 9.9 cents per Ultimate Rewards points.

Knowing that Brazil forbids airlines from adding fuel and passenger surcharges to tickets, I was hopeful that a route like Sao Paulo — London would generate an astronomical value per Avios. But it turns out those flights don't get more expensive by distance in the way that Avios redemptions do! A first class seat from Sao Paulo to London costs just $5,783, which at 120,000 Avios gives a piddling 4.8 cents per point.

You're better off moving to Norfolk.

Korean Airlines SKYPASS

A popular use of SKYPASS is to book cheaper award tickets from the US mainland to Hawaii than those available on domestic US carriers. So, for example, while a Delta Skymiles award ticket to Hawaii from the continental 48 costs a minimum of 45,000 miles roundtrip, a SKYPASS award ticket costs just 35,000 miles.

Delta flies nonstop from Atlanta to Honolulu, so let's use that as our basis for comparison. A roundtrip departing March 8 and returning March 16, on which there's low-level award availability, costs $1,134. Less $11.20 in taxes and fees, that returns a SKYPASS redemption value of 3.24 cents each. That's not bad for SKYPASS miles, but it's not the best.

That's because Korean Airlines SKYPASS miles can also be redeemed for first class on Korean. On April 4, 2016, a first class flight from New York JFK to Seoul Incheon costs $10,032, but just 80,000 SKYPASS miles plus $104.20 in taxes and fees, giving 12.4 cents per SKYPASS mile, the highest transfer value for Ultimate Rewards we've seen yet!

It should be possible to kick that up another few cents per point by booking a single first class award from New York to Sydney for 120,000 SKYPASS miles, but I cannot for the life of me get the Korean Airlines website to price out such an award.

Singapore Airlines KrisFlyer

Remember the disappointing, $7,108 New York - Frankfurt flight operated by Singapore that I mentioned above? The good news is that it costs just 57,375 KrisFlyer miles (after their 15% online booking discount) and $203.30 in taxes and fees, or just over 12 cents per KrisFlyer mile.

There are more expensive Singapore Airlines routes, but they cost many more KrisFlyer miles such that you're unlikely to do better than the above. For example, it costs $984 to continue in first class to Singapore from Frankfurt, but 36,125 more KrisFlyer miles. At 2.7 cents per mile, that's a pretty good redemption in its own right, but it drags down the overall redemption value significantly.

Southwest Airlines Rapid Rewards

Since Southwest is a revenue-based program, you're not doing to do better than 1.6-1.7 cents per Rapid Rewards point unless you have the Companion Pass. If you do, congratulations, you can get up to 3.2-3.4 cents per Rapid Rewards point when booking Wanna Get Away fares.

For example, with the Companion Pass you could fly two passengers from Baltimore, Maryland to Aruba for 11,620 Rapid Rewards points and $31.20 in taxes and fees, a $407.60 value, giving you 3.24 cents per Rapid Rewards point.

Virgin Atlantic Flying Club

Virgin Atlantic has a number of partner airlines that could potentially offer some value, like South African Airways. Their website even contains this mysterious language:

"Economy Class Mileage* 40,000
Business Class Mileage* 50,000
Between Dakar and New York***"

Mysterious because South African Airways does not fly from Dakar to New York, although it's possible to book itineraries connecting in Washington Dulles. Maybe that's what they mean?

Virgin Atlantic does partner with Delta, which basically makes it a poor man's Skyteam partner. You can fly from the US to Europe for 100,000 Flying Club miles roundtrip, as long as you can find Delta low-level availability, compared to 125,000 Skymiles for the same awards. You can fly anywhere in Africa for 120,000 Flying Club miles roundtrip in business class, compared to 140,000 Skymiles to northern Africa and 160,000 Skymiles to South Africa (I think — no award charts, remember?).

I couldn't find any low-level availability on Delta metal to Johannesburg, but a roundtrip business class flight with award availability between New York and Dakar priced out at $3,375. Assuming Virgin Atlantic charges the same taxes and fees as Delta, $127.60, you could get about 2.7 cents per Flying Club mile on such an award.

Hotel Partners

Here are the Chase Ultimate Rewards hotel transfer partners:

• Hyatt Gold Passport
• Marriott Rewards/Ritz Carlton Rewards
• IHG Rewards Club

Hyatt Gold Passport

There are two places you can look for the highest redemption values in a program like Hyatt Gold Passport. You can look at properties in the highest categories during the property's high season (after all, they're there because they're expensive!), or you can look at properties in the lowest categories during major events. So, which approach yields the highest redemption value?

I looked at a range of top-tier properties, and the best I could do was at everyone's favorite aspirational beach resort, the Category 6 Park Hyatt Maldives Hadahaa, where rates go up to $2027 in early January, or 8.1 cents per point. Then Grant pointed to a May 29, 2016, stay at the Park Hyatt Milan, when the Hyatt Daily Rate is $4577 — and rooms are still available for 30,000 Gold Passport points, or 15.26 cents per point.

Other top-tier properties offer fine redemptions, but nothing like that: the Category 7 Park Hyatt Sydney charges about $814 on January 25 (the day before Australia Day), or 30,000 Gold Passport points, for about 2.7 cents per point.

What about on the low end? During CES in Las Vegas, you can book the Hyatt Place Las Vegas for 8,000 Gold Passport points or $338, about 4.2 cents per point. My main problem searching for these low-end redemptions is that enough people have obviously had the same idea that room rates are extremely difficult to find during the Super Bowl, Kentucky Derby, Indianapolis 500, and other high-profile events! So if you want to secure an outsized value during those events, book as early as possible!

Marriott Rewards

Obviously the best Marriott Rewards redemption will involve a Hotel + Air Package, which allows you to buy much more valuable airline miles at a deep discount. Since we've already established that 110,000 MileagePlus miles are worth 10.8 cents each ($11,880), let's use that as our baseline and figure out where to redeem our 7, Category 5 nights.

The most expensive Category 5 Marriott Rewards property I found is the Courtyard Paris Saint Denis, where you can redeem your 7 nights for a stay that costs $3,027, bringing your total return on 250,000 Marriott Rewards points to $14,907, or 5.96 cents per point. That's true, however, If and only if you begin your 7-night stay on July 4, 2016.

Award rooms are not available for those dates. Marriott Rewards is a terrible program.

IHG Rewards Club

IHG Rewards properties get so exorbitantly expensive in points, so fast, that the best awards will invariably be on their PointsBreaks list. I've spent a couple lovely summers in Brno, Czech Republic, so I was pleased to see that I could get 3.6 cents per IHG Rewards point at the Holiday Inn Brno on October 13, which would otherwise go for $180.12.

The best rates found on Hotel Hustle's Hot Rates page top out at 1.94 cents per point (exclusive of taxes), so if you're looking for outsized value from your Ultimate Rewards points, stick to the PointsBreaks list (or look elsewhere).

Conclusion

When I started writing this post I thought this would be an easy and fun exercise. It turned out to be difficult, time-consuming, and boring, which I hope speaks to my basic point: seeking the "best" value from your miles and points is a thankless chore.

You'll always be better off redeeming your miles and points for the trips you actually want to take, rather than the ones some blogger tells you are the best.

I still don't understand the appeal of revenue-based rewards programs

Invariably when I write about Ultimate Rewards transfer partners, commenters chime in that I've left out Southwest. And this is invariably true: Southwest doesn't serve my local airport, I don't fly Southwest, and I don't like Southwest, so I don't write about Southwest.

But it's worse than that: I don't care about any revenue-based rewards programs.

Hotel revenue-based rewards programs are great — if you're a business traveler

If you're a business traveler who is reimbursed for their paid hotel stays, then it's essential to understand the concept of point "density:" how much you need to spend at each chain in order to earn enough points for award redemptions at that chain's properties.

If you pay for your own stays, on the other hand, then it's vanishingly unlikely that you're going to get a big enough rebate from a hotel's loyalty program to justify paying retail for hotel rooms booked through that chain, as is typically required in order to earn hotel points: after all, you can get a 17% rebate by simply booking paid stays through Hotels.com, after clicking through a cash back portal like TopCashBack.

Of course there are corner cases, like someone who otherwise pays for their stays through manufactured spend, but who is gunning for Hyatt Diamond elite status in anticipation of an upcoming trip where that status is going to pay for itself with suite upgrades, breakfast, or lounge access. But an extraordinary amount of digital ink is dedicated to those corner cases, which are simply not encountered by the typical traveler in any given year.

Airfare is too cheap to think about revenue-base airline rewards

Southwest has a "pure" revenue-based rewards program: you earn points based on the amount you spend on airfare, and then you redeem points based on the paid price of a ticket, after the appropriate conversion rate is applied.

So the ideal use case for Southwest points looks something like this: earn Ultimate Rewards points at 0.5 cents (gas stations) or 0.67 cents each (office supply stores), transfer them to Southwest, where you have a Companion Pass, and redeem them for between 2.5 cents and 3.4 cents each when booking award tickets for yourself and your designated companion, giving you a discount of 73% to 85% over retail.

And if you live in a city served by Southwest, and which serves many destinations with nonstop flights, that really might work out to a pretty good value. Baltimore and Dallas, I'm looking at you.

In exchange, of course, you have to fly Southwest. On the one hand, that means free checked bags. On the other hand, it means furiously checking in exactly 24 hours before departure, lining up for the alphabetical cattle call, and then crossing your fingers that you and your companion will actually get to sit together while the flight attendant raps his safety briefing at you.

Meanwhile, if you have access to grocery store or gas station manufactured spend, you can use a US Bank Flexperks Travel Rewards card to get up to 75% off paid airfare on a distance-based carrier like American, Alaska, or Delta (if credited to Alaska). And in addition to your air travel, you also earn miles that can be redeemed for additional airline award tickets.

That's the calculation that prevents me from having any interest in flying on Southwest, or crediting my paid flights to revenue-based carriers.

Crediting paid flights to revenue-based airlines is the least efficient method of earning miles

A general member crediting a paid United flight to United will earn 5 Mileage Plus miles per dollar spent on airfare. Pay $400 for a domestic roundtrip ticket, with $5.60 in taxes and fees, and you'll earn 2,000 Mileage Plus miles.

Pay the same $406 for gas station manufactured spend, and you can buy 82 OneVanilla prepaid debit cards, earning 82,811 Ultimate Rewards points. That's 3 domestic economy roundtrips at the "saver" level or 1.5 roundtrips at the "standard" level. It's $1035 in paid, mileage-earning airfare — on any airline, not just United.

The difference in scale here is geometric. Go ahead and bump your United earning up to 7, 8, 9 or 11 Mileage Plus miles per dollar spent, and you'll run into the exact same situation: the more you spend out-of-pocket on paid airfare, the more miles you're leaving on the table.

The same is true of Delta: as long as SkyMiles are a transfer partner of American Express Membership Rewards, you'll never get better value buying paid Delta-operated flights and crediting them to Delta than you will spending the same money manufacturing spend in bonus categories on your American Express cards.

Go ahead and credit to Delta and United — just don't do it for the miles

Of course I'm begging the question here: once you've manufactured the spend you need to redeem your miles for paid domestic travel, you still have to credit the flights somewhere.

Personally, I privilege flying American, Delta, and Alaska in order to credit flights from all three to Alaska'a Mileage Plan, but you may well find that United best serves your needs, and decide to credit your paid United flights to Mileage Plus.

Likewise, you might find that Delta Medallion elite benefits make it worth crediting your paid Delta flights there, whether for complimentary upgrades, preferred seating, or refundable and changeable award tickets.

But if you do, don't use the rebate value of your redeemable miles as justification. It's not there.

The 20-cents-per-mile breakeven point for Delta and United mileage earning is still wrong

Regular readers know the sacred cows that get repeated daily by affiliate bloggers, which drive me bonkers whenever I accidentally glance at one:

• "The Chase Sapphire Preferred is the best travel credit card."
• "Statement credits reduce your annual fee."

But there's one seemingly minor one which makes my skin crawl in a way the outright lies don't: the claim that Delta and United travelers need to pay 20 cents per mile to break even under the new, revenue-based SkyMiles and Mileage Plus programs. It's not just incorrect, it's so blatantly innumerate it makes my head spin. Here's a thought leader in travel last week:

"Both United and Delta require spending at least 12.5 cents per mile flown to earn elite status as part of their revenue-based elite rules. But they both require an average of 20 cents per mile flown just to break even with the miles that had been earned under the old distance-based system."

That's still wrong, as I helpfully pointed out in September of last year. Since it apparently still hasn't sunk in, let's go over it again.

Elite mileage earning changed out of proportion to non-elite mileage earning

Since January 1, 2015, Delta and United have had the same mileage earning structure for passengers crediting flights to their frequent flyer programs:

• General members: 5 miles per dollar
• 25,000-mile elites: 7 miles per dollar (40% bonus)
• 50,000-mile elites: 8 miles per dollar (60% bonus)
• 75,000-mile elites: 9 miles per dollar (80% bonus)
• 100,000-mile (United) and 125,000-mile (Delta) elites: 11 miles per dollar (120% bonus)

Before January 1, 2015, redeemable miles were earned at the following rates:

• General members: distance flown
• 25,000-mile elites: 25% bonus
• 50,000-mile elites: 50% bonus (United) and 100% bonus (Delta)
• 75,000-mile elites: 75% bonus (United) and 100% bonus (Delta)
• 100,000-mile (United) and 125,000-mile elites (Delta): 100% bonus (United) and 125% bonus (Delta)

The mistake innumerate bloggers make is looking only at the first bullet points: if general members now earn 5 miles per dollar, then to earn as many miles as under the distance-based regime they'd need to spend 20 cents per mile flown. If they spend more than that, they'll earn more miles under the new regime; if they spend less, fewer.

Your actual breakeven point depends on your elite status

Since elite status with both airlines is still based on distance flown with them, the typical traveler's elite status will depend on their actual travel needs. With that in mind, here are the breakeven points for average cost per mile flown, depending on your elite status:

• General members: 20 cents per mile flown
• 25,000-mile elites: 17.9 cents per mile flown
• 50,000-mile elites: 18.8 cents per mile flown (United) and 25 cents per mile flown (Delta)
• 75,000-mile elites: 19.4 cents per mile flown (United) and 22.2 cents per mile flown (Delta)
• 100,000-mile and 125,000 mile elites: 18.2 cents per mile flown (United) and 20.5 cents per mile flown

To calculate these values on your own, take a sample trip of exactly 1000 miles. A Diamond Medallion would have previously earned 2,250 SkyMiles. To earn 2,250 SkyMiles at 11 SkyMiles per dollar, the same Diamond Medallion would now have to spend $204.55, or 20.5 cents per mile.

Conclusion

For mid-tier Delta elites, the situation is even worse than the 20-cent-per-mile conventional wisdom would have it, since their flights need to be, on average, 11-25% more expensive than that to earn the same number of miles as they did last year. Only Delta Diamond Medallions approach the same bonused earning rates under the new regime as they did under the old, distance-based system.

United elites, meanwhile, have it relatively easy since their redeemable-mile earning was never as heavily bonused as that of Delta Medallions.

Price compression and mileage running

I like to use the term "price compression" to refer to the interaction of two benefits to travel hacking:

• The out-of-pocket price paid for travel is lower;
• The difference between the out-of-pocket price paid for more-expensive and less-expensive travel shrinks, even if the ratio between them stays the same.

The ideal cases are more-convenient or more-luxurious award redemptions that cost the same fixed number of miles and points, but you also see price compression when redeeming cheaply-acquired, fixed-value Ultimate Rewards, Membership Rewards, or ThankYou points: more expensive flights will cost more points, but the out-of-pocket expense of acquiring those points will be (in some cases much) closer than the cash prices.

Theory of mileage running

A traditional mileage run is a flight taken exclusively to earn airline miles, and will ideally cost less than 4 cents per mile flown if credited to a distance-based frequent flyer program. Personally, I understand the logic behind the traditional 4-cent-per-mile cap in the following way:

• a high-level elite will earn at least 2 redeemable miles per mile flown due to elite mileage bonuses;
• a travel hacker will attempt to redeem miles for at least 2 cents each;
• so by pre-paying for future, non-elite-qualifying travel through mileage runs, the mileage runner receives elite-qualifying miles in the present, which help them maintain high-level status and the perks that go with it.

Of course it's possible to mileage run speculatively or purposefully: someone can take every sub-4-cent flight available with the goal of earning the highest elite status possible, or they can take one or two mileage runs in order to top off an award or earn the last few elite-qualifying miles needed to reach the next level of elite status.

Price compression and mileage running

Looking at mileage runs through the lens of price compression results in some interesting conclusions.

In programs like Alaska Airlines Mileage Plan and American AAdvantage, which still feature distance-based redeemable-mile earning, price compression has no effect (besides making mileage runs cheaper): since booking more expensive flights (within a cabin of service) doesn't yield any additional redeemable or elite-qualifying miles, the goal of minimizing the cent-per-mile cost of each mileage run is still paramount. Reservations in excess of the 4-cent-per-mile "breakeven" point may still be worth making, but more expensive flights would have to be justified by an unusually high value placed on elite-qualifying miles — perhaps if you're a single flight away from the next elite status level.

In revenue-based programs where mileage earning is based strictly on the amount paid for tickets (although with a multiplier for elites in the case of Delta and United), it's only ever worth mileage running for the benefits of elite status (for example, free award changes and redeposits). In such programs, since more-expensive flights also earn more redeemable miles, part of the increased price is rebated in the form of more redeemable miles earned.

Consider the following stylized case: a United Premier 1K with the American Express EveryDay Preferred and Business Platinum combination wants to maintain her top-tier elite status with United. She manufactures spend at gas stations at roughly 1 cent per dollar in manufactured spend, and is able to redeem her Membership Rewards points for 4.29 cents on United flights after her 30% Pay with Points rebate. In other words, she is able to buy United tickets at a roughly 77% discount. As a MileagePlus Premier 1K, she earns 11 miles per dollar spent on United fares. Valuing each United mile at 2 cents each, as above, she's receiving a 22% discount on (the fare component) of each United revenue ticket she buys, meaning her net cost is just 1% of the fare, plus taxes and fees, which don't earn redeemable miles.

Let me be clear: this result only holds for someone who actually values the benefits of elite status, and is sure they'll redeem each one of their United miles for at least 2 cents (remember, unredeemed miles and points are worth nothing). But for someone positioned in this way, the cent-per-mile calculus is almost irrelevant, given the up-front discount and redeemable-mile rebate they receive on each revenue ticket they buy.

Conclusion

I don't fly United or credit my paid Delta flights to Delta, and I don't hold any super-premium credit cards since I don't find their annual fees worth paying. Still, I wanted to share this analysis to demonstrate the power of price compression when applied to a range of everyday problems in travel hacking.

Documents responsive to United Danish Kroner mistake fare FOIA request

A reader passed along and asked that I share some documents provided by the Department of Transportation in response to his FOIA request regarding the Danish Kroner mistake in February, 2015. For those who weren't following the play-by-play, this was the second time I'm aware of the DoT allowing United to revoke tickets that had been issued at an incorrect price, the first being Hong Kong 4-mile mistake awards in July, 2012.

These documents appear to me to be a generic batch of e-mails and files that the Department has decided to send to anyone submitting FOIA requests regarding the Danish Kroner mistake, and they've been heavily redacted. My reader believes, and I'm inclined to agree, that the redactions are not appropriate and obscure several key parts of the decision-making process that would be in the public interest, especially since the department sided with a for-profit corporation against that company's customers.

I'll post an update if there's any movement on that front.

The documents

With all that said, here are the documents themselves. The first 2 pages are the Department's explanation of the contents, pages 3-23 are the internal DoT communications, and the remainder are social media and news reports on the mistake fare.

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Riveting stuff.

What's the point of class-of-service bonuses?

With the 2015 division of US airline loyalty programs into revenue-based (Southwest, Delta, United) and distance-based (American, Alaska) models, deciding on a primary carrier and loyalty program has become a game with multiple moving parts. While loyalty programs have always been confusing, evaluating a loyalty program now requires prospectively considering:

• your average cost per mile flown each year. If it's over the break-even point with Delta and United, you may be better offer continuing to credit your flights to them. If it's less than the break-even point, you'll be better off crediting your flights to a distance-based award program;
• how much of a premium you're willing to pay. How much more expensive are the typical American or Alaska flights out of your home airport? Are you willing to drive to a more distant airport in order to credit miles to a distance-based carrier?
• how much you value elite benefits. Crediting paid American and Delta flights to Alaska, as I do, means foregoing upgrades and same-day travel benefits on those flights. Likewise high-level elite status with either airline – but not Alaska – comes with regional and global upgrade certificates that can move you from economy to business class (or first class in American's case) on paid international flights.

In my case, taking all those factors into consideration, I decided to go with Alaska Airlines Mileage Plan as my primary airline loyalty program. That's principally because my flexible schedule means I'm always paying as little as possible for airline tickets, and redeeming miles for award flights whenever possible. My cost per mile flown would generate a trivial number of redeemable miles each year, while crediting flights to Alaska will continue to produce a noticeable number of miles.

All this was on my mind this week when I called into Delta to add our Alaska Airlines frequent flyer numbers to our first class tickets returning from New Orleans. In Delta's revenue-based model, those tickets would earn 1,715 SkyMiles for a general member or 2,401 SkyMiles for a Silver Medallion.

In Alaska's distance-based Mileage Plan, they'll earn 2,495 miles: 1,426 base miles and a 1,069-mile class-of-service bonus (we'll earn additional bonus miles as Mileage Plan elites, as well).

Thinking about this raised a seemingly-obvious question: what's the point of class-of-service bonuses, anyway?

Premium fares are more expensive because they're premium

In principle, passengers might be willing to pay more for premium fares for a number of reasons: full-fare economy tickets are freely changeable or refundable; business and first class fares include free checked bags, meals, drinks, and more comfortable seats or beds.

Of course at the other end of the spectrum Delta's cheapest "E" fares don't even include the ability to choose your seat.

The point is, why would airlines feel the need to bundle bonus frequent flyer miles into premium fares, when the fares are already higher because of manifest differences in the product being sold?

The way I see it, there were two possible reasons.

People are suckers

No one's ever gone broke underestimating the intelligence of American consumers. Every day I'm sure consumers buy more expensive tickets than they actually want or need in order to earn bonus frequent flyer miles, the value of which doesn't come close to making up for the difference in prices.

I bought our first class tickets using US Bank Flexpoints, so I was going to be paying the same 20,000 Flexpoints per ticket as long as the total price didn't exceed $400. Delta was selling a "G" class fare for around $300 and an "A" class fare for $392. Using Flexpoints, it was a no-brainer to choose the "A" fare, since it will earn 40% more Mileage Plan miles. I wouldn't have done the same if I were paying with cash, but are there consumers who would? Without a doubt.

People take advantage of corporate travel policies

The other explanation is that the individuals who accrue frequent flyer miles for trips paid for by their companies lobby for corporate travel policies that allow them to book premium fare classes. In other words, class-of-service bonuses pit the individuals doing the traveling against the companies that pay for it.

I'm not questioning that there are individuals who really do need fully flexible tickets. A consultant who truly has no idea how long an assignment will last springs to mind as the classic example.

But when refundable flights cost 3 or more times as much as non-refundable flights, simply not knowing if you'll have to return Friday or Monday isn't an excuse; the company would be better off booking two (or three!) non-refundable flights, while the employee doing the flying would much prefer the class-of-service bonus earned on a single changeable/refundable fare.

Enjoy class-of-service bonuses while they last!

While class-of-service bonuses are a scam, that doesn't quite do justice to the situation. Class-of-service bonuses are a scam because frequent flyer programs (and loyalty programs in general) are a scam. They exist in order to cloud consumers' judgment and earn excess profits on top of what airlines or hotels would earn providing commodity travel services.

Travel hacking has been the recognition of exploitable elements of systems designed in their turn to exploit travelers. Revenue-based programs are targeted at one of those exploitable elements (mistake fares and mileage runners), but commodifying frequent flyer programs into a simple rebate scheme will also be clarifying for passengers who mistakenly thought they were the beneficiaries of the airlines' largesse.

In the medium-term, it'll of course be interesting to see if and when American Airlines and Alaska Airlines follow suit. Until then, I'll be happily earning miles based on distance flown and enjoying class-of-service bonuses when – and only when – it makes sense to.

Fun with post-devaluation Avios for premium cabin redemptions

In the last few years we've been flooded with airline rewards program devaluations. A few examples:

• On the earning side, we've seen revenue-based earning on Delta and United. Alaska also reduced earning on Delta-operated flights, leaving American (and for the next few weeks US Airways) and the Alaska-American partnership the last major domestic distance-based loyalty programs.
• On the redemption side we've seen increased United partner award costs, Delta's multiplication of award levels and close-in booking penalties, and British Airways' April 28, 2015, move to increase business and first class partner award redemptions from 2 and 3 times the cost of economy awards, respectively, to 3 and 4 times.

That last devaluation — increasing by 50% and 33% the cost of British Airways Avios redemptions in business and first class, respectively, got me thinking: when are Avios redemptions still cheaper than other alternatives?

The question is interesting because British Airways is by far the oneworld member it's easiest to earn miles with, as a transfer partner of both Chase Ultimate Rewards and American Express Membership Rewards, both of which offer bonus spending categories that make it easy to get big point balances with relatively little manufactured spend.

American Airlines, the other main oneworld member airline for US residents, is a transfer partner of Starwood Preferred Guest, but earning Starpoints is laborious at just one Starpoint per dollar spent with their co-branded American Express card and a transfer ratio of 1 Starpoint to 1.25 AAdvantage miles (if transferred in blocks of 20,000 Starpoints).

The big three transatlantic Avios routes

There are three transatlantic routes which, due to the distances and airlines involved, are often cited as key Avios sweet-spot redemptions:

• airberlin flights between New York City and Dusseldorf or Berlin, Germany;
• Iberia flights between Boston or New York City and Madrid (after transferring Avios to the Iberia Plus program);

• Aer Lingus (not a oneworld member, but a British Airways partner) flights between Boston and Dublin, Ireland.

All three partners charge low or no fuel and carrier surcharges, and are on the higher end of their respective Avios distance bands such that your Avios take you farther than on comparable transatlantic routes that happen to be slightly longer.

Since these three redemptions are among the most popular routes for Avios redemptions, I thought it'd be interesting to compare similar redemptions using other points currencies (and, of course, cash).

Iberia: Boston and New York to Madrid

At 3,410 (Boston) and 3,589 (New York) miles in length, economy tickets on these routes cost 20,000 Iberia Avios each direction on flights operated by Iberia. Business class tickets currently cost 40,000 Iberia Avios, but on April 1, 2015, "Off Peak Season" redemptions will go down to 34,000 Iberia Avios each way in business class, and "Peak Season" redemptions will go up to 50,000 Iberia Avios each way in business. Learn more about peak season pricing here.

Outbound award flights incur about €76.20 ($80.83) in fees and charges, and the return costs about €110.53 ($117.25) in fees and charges. A brief scan of roundtrip business class fares shows nonstop business class flights from New York costing from $2649 and from Boston costing from $4672 (one-way fares are the same or higher), so in cash terms a roundtrip Iberia Avios redemption would yield:

• BOS-MAD: 6.58 cents per Avios (Off Peak Season), 4.47 cents per Avios (Peak Season);
• JFK-MAD: 3.6 cents per Avios (Off Peak Season), 2.45 cents per Avios (Peak Season).

Those are pretty good redemptions!

Of course, it's cheating to compare these redemptions to cash fares. We're travel hackers; we don't pay retail.

From the New York area, here are the additional non-stop, roundtrip business class award redemption options:

• Delta. From 125,000 SkyMiles plus $52 in fees;
• United. From 115,000 Mileage Plus miles plus $52 in fees;
• American. From 100,000 AAdvantage miles plus $52 in fees.

From Boston, Iberia operates the only nonstop flight, so American (or, for the next few weeks, US Airways) miles are the only domestic airline miles you can redeem for that route.

airberlin: New York to Dusseldorf and Berlin

At 3,749 (Dusseldorf) and 3,968 (Berlin), these flights are knocking on the very top of the same band as the Iberia flights discussed above. They cost 20,000 British Airways Avios each way in economy, and 40,000 Avios each way in business. On April 28, 2015, business class redemptions will go up to 60,000 Avios each way.

Outbound flights incur $5.60 in fees and charges, and return flights incur $88.17 in fees and charges. Nonstop, roundtrip business class flights from New York City to Dusseldorf start at $3,067, while flights to Berlin start at $3,065. If we split the difference we get an Avios redemption rate of 2.48 cents per Avios for roundtrip itineraries in business class.

Besides Avios redemptions on airberlin, here are the other options on these routes:

• United operates a flight between Newark and Berlin. 115,000 Mileage Plus miles and $89.80 in taxes and fees.
• Lufthansa operates a flight between Newark and Dusseldorf. As a partner award, business class flights cost 140,000 United Mileage Plus miles and $91.90 in taxes and fees.
• American (on airberlin). 100,000 AAdvantage miles and $91.90 in taxes and fees.

Aer Lingus: Boston to Dublin

Sneaking in at 2,993 miles, this route is pretty much what Avios were designed for. Economy flights cost just 12,500 Avios each way, and business class flights currently cost 25,000 Avios, going up to 37,500 Avios on April 28, 2015.

Outbound flights incur $34.17 in taxes and fees, while the return flight costs $74.08 in taxes and fees. Nonstop, one-way business class fares cost from $3,709 (this is the only route of the three discussed here with one-ways for half the cost of roundtrips). That gives you an Avios redemption value of between 9.7 and 9.8 cents per Avios. That preposterously high Avios valuation is actually borne out on this route, since I could identify no other airlines operating flights on this route.

However, Aer Lingus is a partner of United, as well as British Airways, which means it's technically possible to redeem Mileage Plus miles for the same route for 70,000 miles each direction in business class. In reality, since United and British Airways are both transfer partners of Chase Ultimate Rewards, it's literally never worth transferring points to United instead of British Airways in order to book the same Aer Lingus award reservation.

Analysis

As a transfer partner of all three major flexible points currencies, we're always going to be eager to redeem British Airways (or Iberia) Avios when possible, since they're so easy to acquire. With that in mind, here's the breakdown of these three key routes to Europe (all figures are roundtrip):

• Aer Lingus between Boston and Dublin. Avios are a no-brainer, since this is British Airways' lowest transatlantic distance band, and any region-based airline partner is going to charge far more for the same flights. Even if you're flying on to mainland Europe, Dublin's a great place to start your itinerary, since you can get there for just 75,000 Avios roundtrip in business class.
• airberlin between New York City and Berlin or Dusseldorf. Unless you're flush with American Airlines AAdvantage miles from credit card applications, you'll want to take advantage of the luxury of choosing between United, Lufthansa, and airberlin availability. At 115,000, 140,000, and 120,000 Ultimate Rewards points, respectively, all are great choices on this route.
• Iberia between Boston or New York and Madrid. From Boston, this route is a no-brainer, since it's the only non-stop route to Madrid. From New York, again unless you're flush with AAdvantage miles, you'll want to look at your mileage balances and enjoy the luxury of choosing between Delta-, United-, and Iberia- operated flights between New York and Madrid, which clock in at 125,000 SkyMiles, 115,000 Mileage Plus miles, and 68,000-100,000 Iberia Avios, respectively.

Conclusion

I don't pretend that this analysis is definitive. I'm omitting important issues like transfer bonuses between Membership Rewards and British Airways that could substantially drive down the cost of even longer-haul flights on these carriers.

However, I've never seen a comprehensive analysis of the miles and cash cost of these routes before, let alone one taking into account the April, 2015, devaluations of both Iberia (April 1) and British Airways (April 28), so I'm happy to provide a first step in that direction.

Thoughts and criticism are, as always, welcome in the comments.

How do transfer bonuses and Travel Together Tickets affect the value of Avios for long-haul British Airways flights?

Everyone knows that Avios, the awards currency used by British Airways Executive Club, can be redeemed for short-haul domestic flights at sometimes astronomical values. 4,500 or 7,500 Avios for expensive, short-haul flights is one of the great bargains in domestic travel, and makes British Airways one of the most valuable transfer partners for Chase Ultimate Rewards points, which you can quickly and easily transfer over in increments of 1,000 Avios.

The flip side of that are the huge taxes and fees levied on long-haul Avios redemptions on British Airways flights through London, which mean those redemptions, particularly in premium cabins, are almost never worth making compared to Delta or United redemptions connecting in Continental Europe.

I recently mentioned on Twitter my intention to cancel my Chase British Airways Visa, which I received last January under the fantastic signup bonus of 100,000 Avios after spending $20,000 on the card, and someone mentioned that Membership Rewards transfer bonuses (currently 40%) and British Airways Visa Travel Together Tickets might make the card worth keeping. I don’t pay extortionate taxes, fees, and fuel surcharges, and I don’t recommend my readers do either. But I was sufficiently intrigued: how do transfer bonuses, and the British Airways Visa Travel Together ticket, affect the value of Avios for flights on British Airways metal?

Membership Rewards transfer bonuses

Membership Rewards, one of the proprietary points currencies of American Express, can ordinarily be transferred to Executive Club Avios at a 1:1 ratio. Periodically, however, the program offers bonuses on such transfers so that, for example, 1,000 Membership Rewards points can currently be transferred to 1,400 Avios.

Note what this does and doesn’t mean: while the Avios cost (in Membership Rewards points) of such tickets is reduced by 28.6%, the taxes, fees, and surcharges remain the same.

The cost of every ticket can be broken down into two components: the miles and points cost and the dollar cost. Even a paid revenue ticket has a (negative) miles component (the miles you earn from flying), while a domestic award ticket will still have a low dollar cost ($11.20, for example, in taxes and fees).

There should always be some point at which you’ll prefer to book a revenue ticket over an award ticket; if a domestic revenue ticket on United costs $250, you can redeem 20,000 flexible Ultimate Rewards points for the paid ticket rather than transfer 25,000 Ultimate Rewards points to United to book an award ticket: the negative mileage cost of the revenue ticket makes it "cheaper" overall (even with gutted earning on paid United flights).

In the same way, a sufficiently high transfer bonus should make even award tickets with high taxes and fees cheaper than an award ticket booked on a more consumer-friendly airline.

British Airways Visa Travel Together Tickets

Each calendar year you spend $30,000 on a Chase British Airways Visa, you’ll earn a "Travel Together Ticket.” Travel Together Tickets expire two years after they’re issued. These companion tickets:

• Can only be redeemed on British Airways-operated flights;
• Must originate and terminate in the United States (no originating in Brazil to dodge fuel surcharges);
• Can be used for any class of service, or mixed-cabin itineraries;
• Require the cardholder to travel on the entire itinerary (no selling Travel Together Tickets online!).

Importantly, when booking a companion ticket you’re still required to pay the taxes, fees, and surcharges for each passenger; the companion ticket only discounts the Avios component of your reservation, not the dollar component.

Is it worth it?

Combining the two promotions results in a discount of 64% to the miles component of a two-person reservation (1,000 Membership Rewards points for 2,800 Avios in value), with no discount to the dollar component. Are there itineraries that make such reservations competitive with other points currencies? I compiled the following chart using the actual mileage and dollar award costs for several cities served by British Airways, American Airlines, Delta, United, and their partners.

For each award, I calculated an "imputed redemption value," which is the rate at which a British Airways Visa Travel Together Ticket redemption is buying American AAdvantage miles, Delta Skymiles (or Membership Rewards points), or United Mileage Plus miles (or Chase Ultimate Rewards points). For example, on a roundtrip economy award for two passengers between New York City and Heathrow, passengers redeeming a Travel Together Ticket would pay $999 in order to spend 28,571 Avios instead of 120,000 Skymiles. You could think of this as buying Skymiles at 1.09 cents each, or paying $999 in order to convert 28,571 Avios into 120,000 Skymiles. If you typically redeem your Skymiles for more than 1.09 cents each, you might consider redeeming a Travel Together Ticket instead.

The lower the  IRV, the better value a Travel Together Ticket redemption theoretically is. I've highlighted IRV's below 1 cent per mile in green, between 1 and 2 cents per mile in yellow, and above 2 cents per mile in red.

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A few notes on this chart:

• This chart only shows award tickets I could actually search for and find online. I've indicated where an airline offers a theoretically lower redemption cost, but where I was unable to find a single award seat at that level. We're interested in the actual cost of award tickets, not their theoretical cost;
• This chart shows the mileage and cash cost of 2 award tickets, since Travel Together Tickets naturally only apply to 2-person reservations;
• The mileage cost of British Airways awards is given in Membership Rewards points, since this chart shows the combined effects of Membership Rewards transfer bonuses and a Travel Together Ticket. Multiply by 2 to find the cost in Membership Rewards points without a companion ticket, or by 1.4 to find the cost in Avios without a Membership Rewards transfer bonus (or by 2.8 without either);
• British Airways will charge more Avios, but not (much) more cash, for departures from their other US destinations. To find the cost from those destinations, add the Avios shown at the bottom of the table;
• Finally, this is a non-representative sample of British Airways destinations. It was chosen only to illustrate the principle; calculate your own imputed redemption values using the actual cities you're interested in traveling between.

Conclusion

I find charts like this useful not because I have any burning desire to visit Johannesburg, Bangalore, or Beijing, but because using concrete figures can help evaluate generalized claims. My key takeaway from this chart is that the headline combined discount of 64% may sound impressive, but how much value you actually receive from a Membership Rewards transfer bonus and Travel Together Ticket will depend entirely on the itinerary you ultimately redeem them for.

On itineraries between the United States and London, where you'll be forced to pay the United Kingdom's Air Passenger Duty regardless of your airline, the mileage savings with Avios can substantially outweigh the increased cash outlay.

Additionally, if your alternative to using British Airways Avios is the AAdvantage program, you'll likely be booking your transatlantic travel through London anyways, and using a Travel Together Ticket and Membership Rewards transfer bonus instead was a better value on almost all the transatlantic routes I examined.

On the other hand, itineraries between the United States and China are so astronomically expensive in both Avios and fuel surcharges on British Airways-operated flights that even the Travel Together Ticket doesn't make an Avios redemption competitive with redemptions through the other three mileage programs.

Looking at this chart, I've even more persuaded to cancel my British Airways Visa. What do my readers think?

Comparing distance- and revenue-based airline loyalty programs

In 2015, there will be two major distance-based airline loyalty programs based in the United States – American's AAdvantage and Alaska Airlines' Mileage Plan – and two major revenue-based loyalty programs – Delta Skymiles and United Mileage Plus. US Airways Dividend Miles will presumably disappear sometime in 2015, so I won't treat that program here.

A lot of digital ink has been spilled about whether individuals will earn more miles before or after the changes, but I think that's a relatively unimportant question – not just because I earn the overwhelming majority of my airline miles through manufactured spend, rather than flying, but also because it's irrelevant: the changes are coming, on January 1 in Delta's case and March 1 for United.

In other words, what's needed is a forward-looking analysis of earning under the revenue- and distance-based programs under a variety of circumstances.

Example: my 2014 travel projected into 2015

I noticed recently that Delta makes it easy to compute exactly how much better off you'd be crediting your paid miles flown on Delta tickets to Alaska, rather than Delta. I currently have 28,000 Medallion Qualifying Miles, which consist of a 10,000 Delta Platinum American Express bonus, 1,142 Rollover MQM, and 16,858 miles flown this year on paid tickets. Meanwhile, my Medallion Qualifying Dollar balance for the year is $1,150, which gives me a cost per flown mile of 6.8 cents.

Next year, as a Silver Medallion, I would earn 8,050 Skymiles over the course of the year if I credited the same amount of paid travel to Delta. Since I'll be requesting a status match to Alaska's MVP Gold status on October 1, I'd earn 33,716 Mileage Plan miles for the same amount of paid travel on Delta.

Of course, a more fair comparison is to my current Delta Platinum Medallion status, which would earn me 10,350 Skymiles – still roughly a third of the Mileage Plan miles I would earn.

Analysis: comparing apples to apples

You may have seen travel bloggers suggest a "breakeven" point of 20 cents per mile flown: those who spend more than 20 cents per mile will earn more miles under the new system, while everyone else will earn fewer.

This ignores the fact that there will still be distance-based loyalty programs that offer elite bonuses on miles flown. To give a more comprehensive view, I decided to compare the 2015 revenue- and distance-based loyalty programs taking into account both the cost per mile flown and elite status.

Here's the result:

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As you can see, the actual breakeven cost per mile flown varies tremendously – in both directions. If you're a 25,000-mile-flyer deciding between a United ticket and one operated by American, Delta, or Alaska, know that you need to be spending not 20 cents per mile, but 21.4 cents per mile, to earn as many miles as you would crediting a flight the same distance to Alaska.

A Delta flyer deciding between maintaining Delta Platinum Medallion or Alaska MVP Gold status would need to spend on average 22.22 cents per mile flown to earn as many Skymiles over the course of the year as she would Mileage Plan miles – that's over 3 times more than I actually spend per mile flown on revenue tickets.

Conclusion

This analysis isn't meant to be dispositive: you may value the perks of elite status with Delta or United, like waived award change and cancellation fees, more than the miles you're foregoing by not crediting your flights to Alaska (in the case of Delta) or another Star Alliance partner in the case of United.

But it is an easy way to determine just how many miles you're leaving on the table by doing so.