miles vs cash awards

Miles vs. cash rewards: When loyalty doesn’t pay

It’s very trendy in the travel industry to earn travel rewards by joining every possible loyalty program and using credit cards with mileage rewards. Websites like the Points Guy base their whole brand around this concept. Airlines and hotels know this and offer their own loyalty programs providing discounts and miles or points that can be redeemed for future travel. But is this always a good deal?

When loyalty pays

Airline loyalty programs including airline-specific mileage award credit cards are a great value for travelers that often go to the same destinations. For example, if you’re a college student traveling home for the holidays or summer breaks. Or if you’re a business traveler and you fly often to the same destinations for work. For business travelers, flying frequently in business class can help you accrue miles and rewards even more quickly.

Hotel loyalty programs are beneficial in the same way. If you are an infrequent traveler, you probably won’t see significant benefits from your Hilton Honors or Marriott Bonvoy membership. However, if you fly constantly to destinations that have your preferred hotel chain, loyalty programs can provide savings through discounts and better perks. Business travelers again get the most value out of these programs as they may travel several weeks out of the year and stay in the same hotels.

When loyalty doesn’t pay

For almost anyone else, collecting miles or points that can only be used for specific chain hotels or airlines ends up being more of a hassle than it is a good value. That’s because most people travel to different places around the world that are serviced by different airlines. So having 100,000 AAdvantage miles is useless when you’re flying out the United States where American Airlines doesn’t fly.

You may be thinking, but can’t I use AAdvantage miles on all Oneworld alliance airlines? While that’s true and may be a selling point of the program, that doesn’t mean it’s a good value. When you book with airline-specific awards on a partner airline, you usually spend more miles and you’re slammed with higher carrier fees.

Most people don’t realize that airline miles only pay for the basic fare; you still have to pay cash for government taxes, carrier fees, and other surcharges. If you’ve ever seen the cost breakdown of a flight, you know that these can be as much as double or more the actual cost of the fare. So when you compare apples to apples, you might find yourself balking at paying $250 plus 60,000 miles for a flight that only costs $400.

Why cash rewards give you more freedom

When you opt for cash rewards, like the cash back programs offered on Chase or Capital One cards, you can use your rewards to travel on any airline or stay at any hotel. You don’t even have to use them for travel at all! Best of all, cash never expires. So you don’t have to worry about taking an unnecessary trip just so that you don’t lose award miles that are expiring.

Considering how many options are available for travelers, being loyal to one airline or one hotel chain makes no sense for most people. Because even if a mileage award flight seems like a good deal relative to the cost of that particular airline’s fare, there are dozens of airlines that may be flying the same route and at least some of them are bound to be cheaper.

These mileage programs also tend to find ways to make it difficult to redeem miles for good flights. For instance, they’ll make only incredibly inconvenient flights available for the lowest award tier. So in theory, you can go from Miami to LA for 15,000 miles, but only if you’re willing to connect three times on the way there. If you want a direct flight, then you have to shell out 32,000 miles.

Another way loyalty mileage programs screw you is through the use of peak season rates. This means that if you want to go anywhere when that destination is most popular (like when the weather is actually good), you need exponentially more miles to book an award flight. You might be disappointed to find that the lowest tier award fares to the Mediterranean are only available when it’s freezing there and everything is closed.

A miles vs. cash example

Allow me to illustrate the above issues using a detailed personal example. A year ago, I had a flight cancelled on TAP Air, for which I was offered compensation of $450 or 70,000 miles. At face value, 70,000 miles seems like better compensation. But how far can each of these awards take you?

Let’s say I want to travel to Porto from Prague. Since TAP is Portugal’s national airline, this should be the best value.

A round-trip flight on TAP during late peak/shoulder season using miles would cost 67,500 miles plus $111 in fees. If I wanted to pay for the same flight on TAP using cash, it would be $450. This sounds like a great deal. The problem is that there are other airlines that travel from Prague to Porto. So it’s possible to travel the exact same dates on Ryanair or easyJet for $165 or $203 respectively. In addition to being cheaper, the other available flights may be more convenient. While TAP has no direct connection from Prague to Porto, easyJet can get me there on a 3-hour nonstop flight for $260.

So for the same compensation, I could fly myself to Porto using almost all of my 70,000 miles (and $111) or buy two flights to Porto using my $450 award and still have cash left over to buy a whole lot of port wine.

What if I want to fly somewhere that is not serviced by TAP Air at all? That’s no problem. TAP miles can be used on all Star Alliance airlines.

An off-season flight from Prague to London on Lufthansa is worth 60,000 miles and $339 – with one stop in Frankfurt. On the other hand… I can pay $84 dollars to fly from Prague to London on easyJet or $92 to fly on Wizz Air. And both of those flights are direct.

In this example, the compensation I was offered will actually cost me three times as much as non-award flights cost. And unlike the cash option, I have a year to figure out how to use these 70,000 miles before they expire.

How to maximize award miles

Award miles will always be the best value when you’re extremely flexible, both on time and destination. You have to know the airline and its routes. The best award value will be to or from cities that are a hub for the airline – where flights are frequent and direct. Keeping with the above example, if I were to use those miles to fly to a Portuguese island that is serviced more frequently by TAP than other airlines, I would get a great deal. I could go to the Azores from Prague for 25,000 miles and $100 though a typical flight ranges from $250-400.

Being flexible on the time of year also helps. Your airline miles will be worth a lot less when you’re using them to travel anywhere during peak season. The good thing is that traveling off-season can be a great way to avoid crowds and heat.

Finding a mileage award flight that saves you a ton of money is not impossible, but it feels a lot like coupon clipping. Some people live for it, and some people don’t want to put that much effort into planning a vacation.

If like me, you’re the latter, then take the money and run!

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