I’ve developed a new process for determining the reasonable redemption value of airline miles. Delta was my test subject for this process. The idea is that we’ll expand this process to many other airlines and also repeat the processes regularly so that we can keep track of values over time. For this initial exercise, I found that Delta miles are worth 1.2 cents each, on average, towards domestic U.S. flights. Interestingly, I also found that there’s considerable variation in value depending upon which airports you fly from or to.
Update: Please also see:
At Frequent Miler, we keep a database of point valuations (we call these “Reasonable Redemption Values“). These are point estimates of airline miles, hotel points, transferable points, and more. The idea is that we try to identify the value at which it is “reasonable” to get that much value or more from your points. This information is critical for making informed decisions. In fact, it’s a key component of the First Year Value information shown on our Best Credit Card Offers page, and it’s similarly used to show which cards offer the best value for everyday spend, and which offer the best category bonuses.
Reasonable Redemption Value Process for Airline Miles
I consider the following a work-in-progress. This is what I did so far…
Most airline miles are redeemed in the United States for domestic flights. To identify the value of redeeming miles for domestic flights, I put together a list of 8 of the busiest airports (or airport markets) in the United States which are also spread out geographically across the lower 48 states. The airports and airport markets I selected are:
- New York Metro Area (NYC)
- Washington DC Metro Area (WAS)
- Atlanta (ATL)
- Los Angeles (LAX)
- Chicago Metro Area (CHI)
- Dallas Fort Worth (DFW)
- Denver (DEN)
- Seattle (SEA)
I then setup a list of airport pairs so that one-way flights between every airport (or metro area) listed above was accounted for. This resulted in a list of 28 airport pairs.
For each of the 28 airport pairs, I identified a one-way flight and recorded both the cash price and the mile price (plus fees). Since we’ll be collecting data at different times for different airlines, I made up a process for picking a flight departure date:
Departure date: Look 3 months from today’s date and find the closest Wednesday. For example, if it is currently March 17 2021 when collecting data, then look forward to June 17 and find the Wednesday closest to that date (June 16, 2021).
For any given airport pairing and date, there are usually many flight options. In order to identify a specific flight for each airport pair, I came up with a scenario to try to make a realistic real world choice. The idea is that the person booking the flight doesn’t want to have to get up too early in the morning, prefers nonstop flights, wants an actual seat assignment in advance, and would like to arrive before 5:30pm in order to make it to a late dinner. So, I used these rules as a guideline:
- No flights before 7:30 am (6:30 from west coast flying east)
- Arrive no later than 5:30pm
- No more than 1 stop (prefer nonstop)
- Prefer cheapest flight
- Prefer shortest connection
- Never pick basic economy
- No preference for particular airport in a metro area (this last rule was the least realistic, but useful for collecting the data quickly)
In a few cases, the best option slightly broke the rules, but I picked that option anyway based on the idea that most people would do the same. For example, in one case I chose a flight that arrived at 6:09pm because it was significantly cheaper than the next best option ($176 vs. $268).
For each flight, I recorded the following pieces of information:
- Cash price
- Cash ticket miles earned (Non-elite members earn 5 miles per dollar)
- Award miles required
- Award fees ($5.60 TSA fee)
With the above, I calculated the Cents Per Mile (CPM) value of Delta miles, as follows:
- CPM = 100 x (Cash price – Award fees) / (Award miles required + Cash ticket miles earned)
By including the cash ticket miles earned in the above formula, we calculate a more conservative value for our miles. The idea is to account for the fact that when you book an award ticket you give up earning miles from that flight and so the cost in miles to you is both the award cost plus the miles not earned from a cash flight.
I calculated the CPM, as described above, for all 28 flights via Delta.com. Here are the results:
- Median CPM: 1.2
- Minimum CPM: 1.0
- Maximum CPM: 1.7
Interestingly, the median CPM varied quite a bit by airport. By looking only at flights that started or ended in a given airport or metro area, I found that you’ll either average 1.1 cents per mile or 1.3 cents per mile. None of the individual regions were at the 1.2 value that I calculated overall:
- New York Metro Area (NYC) = 1.3
- Washington DC Metro Area (WAS) = 1.3
- Atlanta (ATL) = 1.1
- Los Angeles (LAX) = 1.1
- Chicago Metro Area (CHI) = 1.3
- Dallas Fort Worth (DFW) = 1.3
- Denver (DEN) = 1.1
- Seattle (SEA) = 1.3
Compared to the old way
Previously, I calculated the Reasonable Redemption Value (RRV) of Delta miles (and many other airline miles) to be worth 1.3 miles per dollar by looking up the average round trip price for flights in the U.S. and assuming that the award ticket price was 25,000 miles round-trip (most airline programs used to charge 25K round-trip standard). I calculated the RRV first without accounting for the loss of earned miles and then subtracted 7% from the final result, like this:
- RRV = ($361 – $11) / 25,000 miles
- RRV = (36,100 cents – 1,100 cents) / 25,000 miles
- RRV = 1.4 cents per mile
- RRV Adusted = 1.4 – (7% of 1.4) = 1.3
What would happen if we used the above formula with new information about flight prices? In my new dataset, the average one-way cash price was $162 and so we can assume that the average round-trip would be 2 x $162 = $324. Then:
- RRV = ($324 – $11) / 25,000 miles
- RRV = (32,400 cents – 1,100 cents) / 25,000 miles
- RRV = 1.25 cents per mile
- RRV Adusted = 1.25 – (7% of 1.25) = 1.16 which rounds up to 1.2
The above calculation doesn’t make much sense anymore because Delta has long since abandoned the standard 25K round trip award price, but it’s funny that the final answer is the same: 1.2.
The exercise described above resulted in a new Reasonable Redemption Value (RRV) for Delta miles. Where we previously pegged Delta miles as being worth 1.3 cents each, we now list miles as being worth 1.2 cents each.
Please keep in mind that this does not mean that you will get 1.2 cents per mile value from your Delta miles. Most likely, you’ll sometimes find better than 1.2 cents per mile value and sometimes you’ll find worse. And that’s specifically with domestic flights when no award flash sales are going on. There are a number of ways to get better value from Delta miles. For details, see: Best uses for Delta miles.
My goal is to calculate RRVs for most popular airline and hotel programs, and to update the values regularly. Eventually I’d like to automate the processes described above, but for now I consider this a work in progress and so a manual process makes sense. I expect that when I tackle other programs I’ll find that I need to alter the process a bit. Once we have a single process that works across multiple programs we can then automate it and update values more often.