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How to Avoid Getting a Raw Deal on Airline Miles Purchases

Dec. 30, 2015
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You want to redeem your airline miles for an award ticket, but you don’t have enough to cover the full cost. The airline asks you if you’d like to buy more miles to cover the difference, even offering you a 20% discount. Should you take the deal?

Probably not, if you’re trying to save money.

Airline points and miles often sell for two to three times their actual value, based on NerdWallet’s average redemption valuations. So even when there’s a sale, buying these rewards is a little like purchasing overpriced gift certificates. Unless you can get more value out of these rewards than what they cost — about 3.5 cents each, on average — buying rewards usually isn’t worth the splurge.

The value of points and miles, earned and purchased

To understand just how pricey these deals are, you first have to know what you can typically get with points and miles, the rewards currencies offered by airline loyalty programs and co-branded credit cards. To do this, NerdWallet compared average redemption values from award seats on the most popular flight paths with the costs of purchasing points and miles.

The results were striking: Seven of the eight major airline loyalty programs surveyed sold rewards for twice their average redemption value, or more. One charged twice the average redemption value or more for smaller transactions, but offered slightly lower rates for larger purchases. Often, the discounts airlines are offering for the holidays don’t come close to making these deals worthwhile.

Here’s a look at the findings.

AirlineAverage redemption value per rewards (in cents, according to NerdWallet’s valuation)Cost of purchasing one reward (in cents)Discount needed to purchase rewards at average redemption value (rounded to the nearest 5%)
Alaska Airlines Mileage Plan1.32.7550% off
American Airlines AAdvantage1.22.9560% off
British Airways Executive Club1.62.82 - 2.5340% - 70% off
Delta SkyMiles1.83.550% off
JetBlue TrueBlue1.42.96 - 3.7650% - 60% off
Southwest Rapid Rewards1.02.7565% off
United MileagePlus1.73.550% off
Virgin America Elevate2.25.260% off

“When you buy them, [the airlines] know you’re going to use them,” he says.One reason the price is so high is because purchased rewards are redeemed more frequently than earned rewards, says Jeff Berry, research director of loyalty research firm Colloquy.

You don’t have to overpay for rewards, though. Here’s how you can avoid getting a raw deal on points and miles purchases.

Run the numbers. If you’re a few thousand miles short of an award ticket, and wondering whether purchasing miles makes sense, start by calculating the potential redemption rate of miles you’ve already earned in such a transaction. This could help you figure out whether it’s worth it to top off the miles you already have with a miles purchase, or if doing so would just dilute the value of your rewards.

To do this, divide the dollar value of your airfare, minus the money you spent on purchased rewards, by the number of non-purchased rewards you’re redeeming.

Say you had already saved up 17,500 miles and wanted to buy an airline ticket that costs 25,000 miles but has a dollar price of $300. If you spent $177 on the other 7,500 miles at the American Airlines AAdvantage winter sale, you’d effectively be getting only 0.7 cent for each mile that you had originally earned, a poor value (($300 – $177) / (17,500) = 0.7 cent)). If the ticket’s dollar price were $2,000, though, you’d be getting 10.4 cents per mile, and buying miles could make sense (($2,000 – $177)/ (17,500) = 10.4 cent)).

“Whenever you can get 10 cents a mile, that’s a good deal,” says travel expert George Hobica, who created airline ticket price comparison site “If you’re getting 2 or 3 cents per mile, it’s not a good idea.”

Look for alternatives. Buying rewards isn’t the only way to get an award ticket when you’re low on points or miles. Before purchasing rewards, consider these options:

  • Transfer points or miles. Certain credit cards offer several 1:1 transfer partners. If you’ve accrued points on such a card, consider transferring them to top off another rewards balance.
  • Miles and money options. Some airlines, such as Delta and British Airways, give you the option of paying with both rewards and dollars. Sometimes, these deals offer better value than purchased rewards.
  • Saver awards. American and United offer Saver awards, or discounted award seats, on off-peak travel days. If you’re a few thousands points or miles short, look for these deals before buying more rewards.

Sit back and wait. In the U.S., it’s becoming more popular to eliminate the expiration date on points and miles altogether, Berry says. So in most cases, if you don’t have enough rewards for a ticket, the most economical move is to wait until you’ve earned more before redeeming.

Among the eight major airline loyalty programs NerdWallet surveyed, none of them listed hard expiration dates on points or miles. Instead, rewards expired only after periods of inactivity. Some major airlines, including Delta, United and JetBlue, offer rewards that never expire.

The takeaway

Loyalty programs should help you save money; they shouldn’t compel you to spend more. If you’re having trouble earning points or miles or finding worthwhile redemptions, it could be a sign that your rewards program isn’t offering you enough value. Instead of trying to make it work, consider switching to a more flexible program.

“Pay attention to what you have, and what value you can get out of it, so that you’re not leaving points on the table,” Berry says.

Claire Tsosie is a staff writer at NerdWallet, a personal finance website. Email: [email protected] Twitter: @ideclaire7.

This article also appears on U.S. News.

Image via iStock.