Posted by: pizzainmotion | April 2, 2012

A Recent Sale of AA Miles Helps Reinforce Their Value

AA is having a sale on miles right now that helps illustrate what a mile is worth.

AA normally sells miles for a price I’m not willing to pay.  With fees, it can equate to roughly 3 cents a mile.  It’s not that I can’t find greater value than 3 cents a mile.  It’s actually pretty easy to redeem for premium cabin international awards in the 6 to 7 cents per mile range.  But, it’s pretty easy to acquire AA miles.

In the past, I’ve written about how some miles are more valuable than others.  But, I still think there’s a widespread perception that miles are not as valuable as some people make them out to be.  Plenty of people believe it’s impossible to redeem miles, so why bother collecting them?

Anyway, this sale effectively drops the price of an AA point to about 2 cents once you figure in the bonus miles and the discount.  You have to purchase at least 20,000 points to get that price, but that’s a pretty hefty discount from the normal rate of $29.50 PLUS FEES for 1,000 miles.  Plus, the 20,000 mile purchase nets you 26,000 miles.

The fact that AA sells miles in and of itself doesn’t really say they have value.  Plenty of people sell things that have no value in the marketplace.  And, AA sometimes puts miles on sale when there’s a special event going on.  But, strictly as a business strategy, it wouldn’t make sense for AA to discount the sale of miles unless it were trying to encourage purchases at a point where they made money.  Basic law of supply and demand, drop the price to encourage a greater amount of sales, thus generating revenue.  There’s no actual supply issue here, as AA could print as many miles as they want.  But, the price a customer is attracted to can vary widely for a transaction such as this.

For example, let’s say someone has accrued 24,000 miles in their AA account and needs to buy an airline ticket to somewhere in the continental US.  A saver award costs them 25,000 miles.  Typically, a 25,000 mile saver award is going to buy you an airline ticket worth a couple hundred bucks.  But, in some odd situations, you can find availability for some tickets that are as expensive as $500 or $600.  Regardless, if you were short on cash and needed to buy a ticket anywhere in the range of $200 to $600, paying $60 for 1000 miles (all fees considered) is cheaper than any of those tickets.  In that case, the demand (need) from that particular customer is quite high at this moment in time.

And, at 2 cents a mile, I still think AA makes a ton of cash here.  For starters, they charge a $30 processing fee on top of whatever you buy.  This covers their credit card processing charges, any internal costs, and taxes if applicable.  I don’t pretend to know the usage habits of the people who are interested in buying miles, but it stands to reason that most are probably using them towards an award they are planning, since AA sets a limit of 40,000 purchased miles a year.

The moral of the story here is that miles really DO have value and some currencies are worth much more than others.  It sounds like a simple moral, since you get most miles without having to buy them so they’re essentially “free” to most people.  Redeem something you got for free to earn you ANY airline ticket and you’re way ahead, right?

But, I think the overlooked point by people who acquire miles without “buying” them is finding ways to redeem them where they are most valuable.  Everyone would agree that you’d be better off using 25,000 miles to purchase a $500 ticket than a $200 ticket, and yet plenty of people feel they need to “use up” their miles on something so they feel like they got some value out of them.

The solution here is to employ more ways to earn miles so you have enough at any given time to keep them from expiring.  That way you can make the right decision.  Miles are a currency, just like the good old US dollar.  The difference is that the value of the currency can vary greatly at any given time based on the yield and inventory strategies of airlines and hotels.

Miles and points have a tremendous amount of value if used wisely as a currency.  Start collecting wisely now, you can always figure out how to spend them later.


Responses

  1. […] Pizza in Motion has details of a short-term promotion on buying miles from American AAdvantage. […]

  2. […] They’ve offered miles for less earlier this year, so I don’t consider this a great deal, but it is a shade better right at 36,000 miles than it has been in the past. Share this:LinkedInFacebookTwitterPinterestLike this:LikeBe the first to like this. […]

  3. […] exactly 40,000 miles purchased, where with the bonus  you’ll be paying 2.2 cents per mile.  AA sold miles for cheaper earlier last year, at roughly two cents, so this isn’t the best deal they’ve had out there.  It is lower […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: