February 19, 2010

How Airline Loyalty Can Pay Off

When I buy airline tickets I end up generally getting the cheapest ticket.   So sometimes I'm on Southwest, sometimes United, etc.    The price is a key priority for me as far as airline tickets go.   If the price is fairly close I might chose one airline that I prefer over another airline I dislike.  But if I spread around my flying then I end up spreading around my airline miles rewards.    If I consolidated all my flying on one airline and stuck to the same airline I would get more benefit from my airline miles and it could outweigh the cost savings of just hunting for the cheapest airfare regardless of airline.

I decided to check prices and compare across airlines for a few common air trips that we might take.   The trips are Christmas trip to visit relatives, Vegas vacation in early summer and a July 4th trip to see relatives.    Unfortunately I can't do a total comparison on these trips since Southwest only seems to show prices 6 months out so I can't check the Christmas vacation.     Southwest is often the cheapest alternative but I have to book them in advance to get a preferable and discount rate flight.   Southwest was cheapest for the other two flights.   For the airlines that I could check all three flights there were only two options that were competitive pricewise and offered non-stop flights.  For those two airlines Alaska was the cheapest.   So in my case Alaska and Southwest are my two cheapest options. 

Here is a mostly fictional illustration of different airline fares for discussion sake:


Delta United American Miles
Christmas $159 $159 $149 1000
Vegas $229 $218 $229 2000
July 4th $250 $261 $261 2000

$638 $638 $639

I tried to make those fares somewhat realistic but its contrived to illustrate the point.

If I were to do what I usually do and buy the cheapest ticket for each fare then that would mean flying on American for Christmas, flying United to Vegas and then going on Delta for July 4th.    That would get me the cheapest tickets each time.  I'd pay $149 + $218 + $250 or $617 total.   But if I did that I'd have 1000 airline miles on American, 2000 miles for United and 2000 miles on Delta.   At this rate it would take me about 12 and 1/2 years to get a free flight on United & Delta and 25 years to get a flight on American.   If I didn't use these miles or keep accumulating miles on these three airlines then I would risk losing the miles due to expiration policies.

How does this really pay off?   The benefit of accumulating miles on one airline and not spreading them around is that you don't waste any miles.   Right now I've got about 48k miles on one airline, 8k miles on another airline and 18k miles on a 3rd airline.  I recently lost over 3k miles on another airline.   I can get 1 ticket on the airline with 48k miles.  If I had instead consistently flown the same airline for all my trips then I'd have about 78k miles on that airline and could get 3 tickets and wouldn't have lost those 3k miles due to lack of use.   Given the frequency that I fly on some airlines the miles I accumulate on them generally never get used and are basically wasted.   The flip side to that is that the airlines I fly on most I actually can use the miles from so those miles can translate into a real cash benefit for flying those airlines.

A free ticket would be worth about $250 in this example.   That costs 25,000 miles typically.  One way of looking at that is that is that in this example airline miles are worth about 1¢ each.   You can use that to decide if it makes sense to save more on the ticket versus maximizing your airline mile accumulation.   Say I'm considering flying a 1000 trip on United versus Delta.  I almost always fly Delta and have a big pile of miles on that airline.  I usually don't fly United but the ticket for United is cheaper for me.    If I fly Delta I'd get another 1000 miles on my Delta account.  If I fly on United then those 1000 miles on United might be wasted.   Lets assume that 1000 miles on Delta will be used and 1000 miles on United would end up being wasted.    That means that flying Delta has about a $10 extra benefit in terms of useable miles.   So if the Delta ticket is less than $10 more than the United ticket for a 1000 flight then I may as well fly Delta even though the United flight is marginally cheaper cause the extra value of the Delta miles outweighs a $1-9 savings with the United ticket.

Of course large ticket disparities would heavily outweigh any benefit from airline mile accumulation.   If a flight is $200 on United and $300 on Delta then you'd definitely be best taking that $100 flight.   A general rule of thumb would be that a $30 difference in a domestic flight ticket price would generally outweigh the value of consolidating airline miles.    Most domestic flights are under 3000 miles which would be worth at most $30.

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