Monitoring prices and rebooking can be one of the highest-return plays

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For experienced travel hackers, the game can sometimes feel a bit mechanical: you earn the most valuable points you can at the lowest cost you can, and periodically re-evaluate which points are the most valuable, and how to earn them at the lowest cost. This doesn’t necessarily make it easy (electrical engineering is also “mechanical” — but it’s still hard!), since earning and redemption opportunities are constantly changing, but when you have a framework in mind it makes it relatively simple to calculate which miles and points are worth earning and when.

But travel hacking isn’t just about earning miles and points efficiently; it’s about paying as little as possible for the trips you want to take. When business class awards are available, or hotel rooms during peak demand periods like the Kentucky Derby are bookable with points, that can often mean saving hundreds or thousands of dollars booking awards. But the cheapest way to book a room, flight, or rental car may well be with cash, and monitoring those prices can save you with a few clicks hundreds of dollars that would take hours of manufactured spend to earn.

The bad old days: Southwest, hotels, and car rentals

These are the three buckets I put the best-behaved companies from the pre-pandemic days into.

  • Southwest Airlines would allow you to change or refund Rapid Rewards points into your account up until your flight’s departure, so monitoring the price of your flights from the time you book up until your flight time would allow you to shave down the price a few hundred or thousand points at a time. Paid flights were slightly more restrictive, since any price difference would be deposited in an eventually-expiring travel bank account that could only be used by the original ticketed passenger, which created some urgency to plug more money into the Southwest Airlines ecosystem.

  • Hotels have long had flexible rates which require no upfront payment and cancellation policies between 1 and 5 days before arrival. This creates an obvious incentive to immediately book every hotel you’re even considering staying at. If prices fall, rebook at the lower price, and if prices rise, cancel the more expensive reservations and keep the cheapest. If you have high-level status in multiple hotel loyalty programs, this also allows you to monitor for upgrades as you approach your travel date: at the same price point, you might prefer a Globalist suite upgrade at the Park Hyatt Vienna over a standard room at the Hilton Vienna Park, but access to the Hilton executive lounge over a standard room at the Park Hyatt. Booking both in advance lets you pick the one you end up wanting more. And no, I’m not comparing the two hotels in terms of price or quality, but if a family of 4 is deciding whether to book one room at the Park Hyatt (hoping for a suite upgrade that accommodates them all) or two rooms at the Hilton, the prices can sometimes end up fairly close.

  • Rental cars are even better, since they don’t even require billing information to book most rates, and Autoslash exists to both find the cheapest rates and monitor existing reservations to alert you when rates fall and you should rebook. Purely as a courtesy to the overworked rental car company staff I usually cancel my prior reservations when I rebook, but it’s not strictly necessary.

Other than those obvious examples, before the pandemic opportunities to rebook and save money were fairly limited. Mid-level airline elite status usually allowed you to redeposit awards tickets for a full refund, so if flights were expensive enough to meet whatever your threshold is to book using airline miles (and everyone’s threshold is different!), but subsequently dropped below that threshold, you could cancel your award tickets and rebook using cash.

Likewise, schedule changes that move your departure or arrival by more than an hour could be refunded to the original form of payment, so if you booked your flights far enough in advance you had a good chance of having an opportunity to request a penalty-free refund, as I did in May, 2020.

The opportunity set has greatly expanded

All of the tools I described above still exist, but the new “permanent” (where I have I heard that before?) policies adopted by US airlines have increased the number of opportunities to save money by booking early and continuing to monitor prices afterwards. However, while they sound similar and were announced around the same time frame, to take advantage of them you need to understand the key differences between airline policies.

  1. Which fares are eligible? United, American, and Delta exempt Basic Economy fares from their no-change-fee policy, as Alaska does with its Saver fares and JetBlue with its Blue Basic fares. If you’re trying to play fares against each other, be sure not to book a fare that’s non-changeable and non-refundable! Note that these non-changeable fares are still eligible for refund under Department of Transportation rules if there’s a significant schedule change.

  2. What happens when you cancel? For paid fares, unless you’re eligible for a refund due to a schedule change, or booked into a refundable fare class, you’ll usually be given a “flight credit” (United), “travel credit” (American, JetBlue), “eCredit” (Delta) or “Wallet” (Alaska). These funds expire, so it’s important to keep a close eye on them.

  3. Who can use the ticket value? I believe (but correct me in the comments if I’m wrong) Alaska is the only airline that allows you to deposit “Wallet” funds into your own Wallet or, by requesting a voucher be e-mailed to you, any other Mileage Plan account. This is notably a way to share Companion Fares without sharing the cardholder’s credit card information, since Companion Fares can be paid for in full using Wallet funds, even if the person booking the ticket is not an Alaska Airlines credit cardholder (if Wallet funds don’t cover the full cost, any residual must be paid for with an Alaska Airlines credit card).

  4. What are your expected flight needs? This is a highly individualized calculation. For example, my partner and I fly to the Pacific Northwest on Alaska and the Midwest on American and Delta at least once or twice per year, so any travel credit, eCredit, or Wallet funds I receive by cancelling a flight on those airlines is absolutely certain to be used. Conversely, it appears I have not flown on United since October, 2017 (although I may be breaking that streak this summer!), so I would never book a paid United flight as a “backup” since there’s virtually no chance I would ever use the flight credit.

Conclusion: use flexibility to your advantage, but don’t get too clever

Especially with respect to hotels and rental cars, making multiple reservations as far in advance as possible and then monitoring prices for opportunities to rebook has always made sense. But the added flexibility of pandemic airline policies makes this is a meaningful way to save money on all the main components of travel planning.

Still, as the voice of caution, I have to remind my beloved readers not to bite off more than they can chew. While rental cars don’t typically charge no-show fees, airlines and hotels absolutely do, so if you don’t trust yourself to keep a close eye on all your reservations as your travel date approaches, don’t bother, since a single no-show penalty is going to wipe out any savings you may have been counting on in advance.

Deciding where to credit Alaska, American, and JetBlue flights

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A sort of interesting conundrum has arisen recently due to the coincidence of Alaska Airlines becoming a full member of the oneworld alliance, which American Airlines also belongs to, and American entering a codeshare agreement with JetBlue that allows reciprocal earning for paid flights on both airlines (redemptions are not yet available).

That means if you’re flying on any of the three carriers (except JetBlue’s transatlantic fares, which don’t earn American miles), you have between 2 and 3 reasonable programs to credit your flights to. Note that Hawaiian Airlines is another partner of American and JetBlue, but unless you’re a Hawaii resident it doesn’t seem like a particularly generous program so I’ll set it aside for now.

There’s no one right answer for everybody, so I want to lay out the general principles I’d use to decide where to credit my flights.

Value of points

This is the easiest calculation to make: how much do you value the points you’ll earn on a given flight if credited to each? Note the discussion below is based on having no elite status in any of the three programs. You’ll need to calculate your individual breakeven point based on your actual elite status in each program using the linked earning charts.

Flights operated by JetBlue

For flights operated by JetBlue, you’re comparing the value of the TrueBlue points you’d earn to the value of the American AAdvantage points you’d earn. For example, non-elites earn 6 TrueBlue points per dollar when booked through the JetBlue app and website or 5 AAdvantage miles. TrueBlue points are worth 1.4 cents when redeemed for most fares, so if you value AAdvantage miles at more than 1.68 cents, credit your JetBlue flights to American. The only additional consideration is if you typically redeem your JetBlue flights for flights in their Mint cabin, you’ll get less than 1.1 cent per point in value, so you only need to value AAdvantage points at 1.3 cents to break even with the lower earning rate when credited to American. Finally, Blue Basic fares earn just 2 TrueBlue points per dollar but 5 AAdvantage miles per dollar, so in most cases you’ll want to credit them to American.

Here are the relevant earning charts for JetBlue flights:

Flights operated by Alaska

For flights operated by Alaska, we need to look not at the revenue-based earning of JetBlue flights, but the distance-based computations of Alaska Mileage Plan and American AAdvantage. For example, when an Alaska flight booked into a first class “J” fare is credited to Mileage Plan, non-elites earn 100% of the miles flown and a 100% bonus, while the same flight credited to AAdvantage earns just a 75% bonus. If value is your only consideration, you’d need to value AAdvantage miles at more than 14% above Mileage Plan miles to choose to credit that flight to American.

Even the cheapest Alaska flights still earn 100% of the distance flown with a 500-mile minimum, while the cheapest X-class Alaska fares earn just 25% of the distance flown when credit to American, so if you’re booking into cheap fare classes you’d need to consider American miles two to four times more valuable than Mileage Plan miles to choose to credit your flights to AAdvantage based on value alone.

Here are the relevant earning charts for flights operated by Alaska:

Flights operated by American

Finally, American Airlines-operated flights pose the biggest challenge, since they can now be credited to Alaska, American, or JetBlue. When credited to American or JetBlue, they are revenue based, but when credited to Alaska, earning remains distance based. In other words, the optimal airline to credit American flights to depends on the cost, distance, and fare class of the flight. Cheap premium fares might earn many more points in Mileage Plan, while expensive economy fares earn more in AAdvantage.

Take for instance the flight I take a few times a year to visit my partner’s family in Indiana. This Thanksgiving, that 500-mile American flight in their “M” fare class costs $249, and would earn a non-elite 1,245 AAdvantage miles, 500 Alaska miles, or 1,494 TrueBlue points. Since I have MVP status with Alaska, I’d earn a 50% bonus for a total of 750 Mileage Plan miles. Since I don’t fly JetBlue, and pay with cash when I fly American for these short holiday flights, I find the 750 Mileage Plan miles the most appealing and credit my American flights there. An exception would be if the only flights available were very expensive economy fares, since Alaska awards a maximum of 110% for American economy fares, while you can earn up to 75,000 miles per ticket in American’s revenue-based scheme.

Here are the relevant earning charts for flights operated by American:

Elite status

Obviously many travel hackers pursue elite status in one or more program, whether it’s to earn miles at an accelerated rate or to take advantage of other benefits like free upgrades, changes and cancellations, lounge access, etc.

Elite status in one program

I imagine this is the most common case: if you live in a city served by two or more of these airlines but book exclusively based on price, you might fly too few miles to earn status in any of the three programs if you credit each flight to the carrier’s program, but enough miles to earn status if you credit all your flights to one of them.

An obvious example is someone living in Boston, a city that’s served by American, Alaska, and JetBlue, who splits their flights between the three carriers, but doesn’t fly enough on any one of them to earn elite status. In this case, there are three natural possibilities:

  1. Credit all flights to American. For many people this is the obvious solution, especially since someone who books exclusively on price is by definition going to struggle to meet the Elite Qualifying Dollar and Segment requirements for AAdvantage elite status. JetBlue flights (except Blue Basic) earn full EQM, EQD and EQS credit, while Alaska flights earn them based on fare class and distance flown.

  2. Credit Alaska and American to Mileage Plan, JetBlue to TrueBlue. The appeal here is that Alaska Airlines doesn’t have a spending requirement for elite status and has a somewhat lower mileage requirement than other carriers, combining Alaska and American flights might get you to their mid-tier MVP Gold status, which translates to oneworld Sapphire status and free access to those lounges when traveling internationally. There is downside in the possibility of orphaning your TrueBlue points, but since JetBlue allows you to book with both points and cash, they’re actually relatively difficult to orphan compared to most loyalty schemes.

  3. Credit American and JetBlue to TrueBlue, Alaska to Mileage Plan. The TrueBlue program only has a single elite status level, called Mosaic, which you achieve when you earn 15,000 base points, i.e. when you spend $5,000 on JetBlue or their partners. I consider Mosaic the least valuable of the three, especially for casual flyers, but there are those who swear by it. The main quantifiable benefits are free checked bags, changes, and cancellations, and the secondary benefits are free (albeit space-available) upgrades their extended legroom seats and free booze. This strategy has the downside of orphaning your Mileage Plan miles, but for a casual traveler that may not be a big deal, for instance if your Alaska Airlines flights are all paid companion fare tickets (as 90% of mine are), you may not have any plans to redeem Mileage Plan miles and have no particular interest in the program.

Elite status in multiple programs

It’s worth mentioning the opposite situation: someone who flies enough on one or more of the carriers to earn elite status in two or more of these programs. Should they spread their flight credit around, or concentrate their fire on just one (or two) programs as described above?

Let’s take an extreme example: someone who each year flies 75,000 miles on Alaska, spends $15,000 and flies 100,000 miles on American, and spends $5,000 on JetBlue. If each flight was credited to the carrier’s loyalty program, the flyer would earn MVP Gold 75K with Alaska, AAdvantage Executive Platinum, and TrueBlue Mosaic. They’d also earn the following redeemable miles:

  • 218,000 Mileage Plan (125% bonus miles plus 50,000 miles on MVP Gold 75K qualification);

  • 235,000 AAdvantage (11 miles per dollar plus 20,000 miles on Platinum Pro qualification and 50,000 on Executive Platinum qualification);

  • 150,000 TrueBlue (9 points per dollar plus 15,000 points on Mosaic qualification. Add 12,000 points if you also fly 7 round-trip flights).

Here are those same values in each of the three crediting scenarios I described above (assuming an average earning rate of 50% when crediting Alaska flights to AAdvantage and vice versa, and an average earning rate of 7.5 points per dollar when crediting American flights to TrueBlue, since non-codeshare flights can’t be booked through JetBlue):

  1. 372,500 AAdvantage (82,000 from Alaska flights and 55,000 from JetBlue flights);

  2. 330,500 Mileage Plan (112,500 from American flights), 150,000 TrueBlue;

  3. 262,000 TrueBlue (112,500 from American flights), 218,000 Mileage Plan.

An actual flyer’s experience would vary based on the exact Alaska fare classes and exact American flights they took, but this should be the result you expected: since airlines naturally reward their own passengers more generously than those of their partners, concentrating your fire does increase your total earning in your focus program, but not by as much as it reduces your earning in your distributed programs. In a sense this functions the same way as a points transfer from Marriott to United: you’ll never get as many miles into United as you got out of Marriott. It may still be worth it depending on your plans and corresponding needs, but only after careful scrutiny and exploring other alternatives.

Conclusion

If you made it this far, congratulations! If you found this analysis useful, even better. If you found this analysis mindlessly boring, well, send it to someone you want to annoy.

I personally plan to bookmark the post for my own convenience just to have those earning links in one place, since I find it irritating to track down cross-airline earning rates every time I fly and need to decide where to credit flights based on fare class, elite status, and partner programs.

Overdiversifying, underdiversifying, and practicing what I preach

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I recently had the pleasure of redeeming 30,000 American AAdvantage miles for a $290, one-way domestic plane ticket, which gave me an excellent opportunity to reflect on some travel hacking wisdom I never get tired of preaching: the least valuable point is the one you don't redeem.

The real risk of underdiversifying is paying cash

The point of travel hacking should be to pay as little as possible for the trips you want to take. I'm absolutely indifferent to whether you want to travel domestically or internationally, by plane, train, or automobile, with your family or alone, in first class or in steerage. I just want to help you spend as little money as possible to do it.

Diversifying your points balances is a way of achieving that. With no rewards currencies at all, you'd pay the retail cost for all your travel, minus any savings achieved by booking through online portals, paying with discounted gift cards, taking advantage of best rate guarantees, and the other techniques we have available.

With a single rewards currency, you can start to save money when you're able to find award space with that loyalty program. If you only collect Hilton HHonors points, you're in good shape as long as you're visiting a city with a Hilton property, and that property has award space. You'll still pay cash for your airfare, but hotels can often be the biggest expense on a trip, so the savings there can quickly add up.

With multiple rewards currencies, you can start to bring down your costs considerably. If you earn Ultimate Rewards points with an Ink Plus card, then you'll be able to save money by redeeming Hyatt Gold Passport points when you visit a city served by Hyatt, and by redeeming United, British Airways, Flying Blue, and Southwest points when those airlines and their partners make award space available. Even better, when award space isn't available, you can still get a 20% discount on revenue flights by redeeming Ultimate Rewards points at 1.25 cents each.

I won't belabor the point: having more rewards currencies reduces the chance that you'll have to pay retail for your travel. As long as those rewards currencies are acquired cheaply enough, that means each redemption saves you money on your travel, which, again, is the point of the game.

The real risk of overdiversifying is unredeemed balances

Many travel hackers and bloggers believe that "earning and burning," or keeping points balances as low as possible by redeeming award currencies roughly as quickly as they're earned, is the best approach. The reason normally given for this is that regular devaluations decrease the value of earned miles and points, so your balances will never be worth as much in the future as they are in the present.

Meanwhile, I spend no time thinking about devaluations, and don't think you should either. Your travel hacking practice should be giving you big enough savings on each redemption that even substantial devaluations won't affect the calculus of redeeming miles versus spending cash.

But the logic of diversifying your points balances really can be taken too far!

Above I said that when you don't have the right currency to pay for the trip you want to take as cheaply as possible, you run the risk of having to pay cash and not save any money at all. One way to react to that possibility is to accumulate high balances in as many programs as possible, to ensure that you always have enough of the right currency for the job.

The problem with that approach is that it exposes you to the real risk of overdiversifying: unredeemed balances. From hundreds of interactions with readers and friends in the community, I have come to believe that accumulating large, unredeemed balances is the single biggest mistake made by even experienced travel hackers.

There's no mystery to how it happens: a new credit card is launched, or refreshed, or suddenly has a much higher-than-usual signup bonus. Once the credit card affiliate bloggers get their links, you see two or three weeks of blanket coverage online. Sometimes the coverage even runs over into the mainstream media. Even those who are disgusted by the orgy of profiteering start talking about the orgy of profiteering, bringing the offer in front of even more eyeballs.

And then, like clockwork, people start asking: "I have all these Wyndham/Membership Rewards/Amtrak/Choice/Trump Shuttle points. What do I do with them?"

The answer, unfortunately, is usually "nothing."

Pay as little as possible for the trips you want to take

Without travel hacking, most of us couldn't afford to spend a week in the Maldives. But even without travel hacking, many of us could afford to fly home for Thanksgiving.

Paying $150 for a $600 plane ticket you'd otherwise pay cash for is a savings of $450.

Spending $2,500 for a trip someone else paid $15,000 for is an expense of $2,500.

I've heard that the Maldives are lovely, and I'm sure I'd enjoy visiting. But speculatively accumulating huge balances at random as signup bonuses change and cards are launched or discontinued, instead of targeting programs that save you money on the trips you want to take is a way of spending money, not saving it!

Again, this says nothing about the merits, or lack thereof, of the Maldives, of your favorite Park Hyatt, or of Emirates First Class. I'm sure they're lovely. But being talked into taking someone else's idea of the perfect trip is an expensive mistake — travel hacking just makes it less expensive.

Conclusion: my fantastic AAdvantage redemption

All of that brings me to my 30,000-mile, $290 one-way American Airlines ticket. If you believe that the goal of travel hacking is to get the highest dollar value from each redeemed mile, this is a preposterous redemption — less than a penny per point!

But I had a different problem: an unredeemed American Airlines balance. I'd earned the miles cheaply, through Barclaycard US Airways anniversary miles, a negative-interest-rate loan I took out, and some experiments I'd been running through the American Airlines shopping portal, so I was certainly saving money on the ticket compared to paying cash.

But even more importantly, I judged ridiculous the idea of paying $200 (the cash value of the 20,000 US Bank Flexpoints I'd need to redeem) or $232 (the cash value of the 23,200 Ultimate Rewards points I'd need to redeem) when I had more than enough AAdvantage miles sitting in my account unredeemed. I didn't have a plan for the miles because I had earned them more or less accidentally: I had overdiversified into AAdvantage miles, and was sitting on a balance of miles that were, unredeemed, worthless to me.

The point of travel hacking is to pay as little as possible for the trips you want to take. I wanted to take a $290 flight and $5.60 in taxes and fees was as little as I could pay for it. Mission: accomplished.

I don't buy points, but maybe you should!

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Every major loyalty program sells their points for cash, normally at a fixed rate through the industry-sponsored site Points.com.

For example, you can buy up to 60,000 Delta SkyMiles per calendar year for 3.76 cents each, up to 75,000 United MileagePlus miles for 3.76 cents each, up to 150,000 American AAdvantage miles for 3.19 cents each, and up to 60,000 Alaska Mileage Plan miles for 2.96 cents each.

Hotel programs likewise sell their points currencies for cash, with IHG Rewards Club selling up to 60,000 points for 1.15 cents each, Hilton HHonors selling 80,000 points for one cent each, Marriott Rewards selling up to 50,000 points for 1.25 cents each, Starwood Preferred Guest selling up to 30,000 points for 3.5 cents each, and Hyatt Gold Passport selling up to 55,000 points for 2.4 cents each.

Purchased points are too expensive for me

I don't personally buy miles or points because it's a more expensive way of acquiring miles and points than the other methods I have available.

United MileagePlus miles and Hyatt Gold Passport points cost just 1 cent each when purchased with Ultimate Rewards points transferred from a Chase Ink Plus account.

I happen to have a Citi AAdvantage Platinum Select MasterCard, so if I ever needed to stock up on AAdvantage miles, I can do so for 2.105 cents each — the cash back I'd earn manufacturing the same unbonused spend on my Barclaycard Arrival+ MasterCard.

And of course I earn 6 HHonors points per dollar spent with my American Express Hilton HHonors Surpass card at grocery stores, so even compared to an "optimal" redemption rate of 2 cents per US Bank Flexpoint, I'm already buying HHonors points at a mere 0.67 cents each, 33% less than the 1 cent per point Hilton wants to charge.

Purchased points may make sense for you

As the examples above make clear, the decision whether to purchase miles and points or manufacture them rightly depends upon your next best alternative: your opportunity cost.

If you're currently manufacturing the bulk of your otherwise-unbonused spend on a 5% cash back card like the Wells Fargo Rewards Visa during the introductory promotional period, then manufacturing spend on a one-mile-per-dollar card costs not 2.105 cents per mile, but 5 cents per mile, 57% more than, for example, American is willing to sell them!

Likewise, if you have $100,000 on deposit with Bank of America, you might be earning 2.625% cash back with a BankAmericard Travel Rewards card. That may make purchasing Hyatt Gold Passport points at 2.4 cents each worthwhile, compared to manufacturing spend on a Chase Hyatt credit card.

Purchase small numbers of points for high-value, upcoming redemptions

While you usually see affiliate bloggers advocate buying large numbers of points speculatively when loyalty programs offer the highest bonuses on purchased points (bringing down the cost per point), I have exactly the opposite view.

If you find yourself with an upcoming, high-value redemption, and don't have the time to manufacture the required points, then go ahead and buy them. Paying "too much" per point, if it drastically brings down your total out-of-pocket cost, makes perfect sense: the goal isn't to pay as little as possible per point, it's to spend as little money as possible on the trips you actually want to take!

But the money you spend speculatively buying miles for redemptions you don't actually have planned could almost invariably be better spent building a credit card and manufacturing spend strategy that generates the trips you want to take at far lower out-of-pocket expense.

Starting from scratch: airline tickets

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Travel hacking is an iterative game: the options you have available today are restricted by the decisions you made in the past. That's one reason I avoid giving advice whenever possible: your situation is different from mine, not just depending on the merchants you have available geographically, but also depending on which banks you have relationships with, which products you've already had or lost, and the amount of time you have available to dedicate to the game.

Having said that, I do sometimes think about how I would design a travel hacking strategy from scratch: with a blank slate, what approach would I take to the loyalty ecosystem to get the most value for my travel hacking dollar?

Today's post is about how I would approach booking airline tickets if I were starting from scratch. Tomorrow's will be about hotel stays.

Revenue versus award

Starting from scratch, there's a basic decision you have to make about how to pay for the flights you're responsible for securing each year: will you book revenue tickets or award tickets? Once you're deeply involved in the game you may have large balances across a range of programs you can deploy for their optimal uses. But when you're just getting started, it's much easier to focus on this stark choice.

When booking revenue tickets, you'll usually get a fixed return on your travel hacking dollar, or one that falls in a relatively narrow band: US Bank Flexpoints are worth 1.33 to 2 cents each, Chase Ultimate Rewards points in a premium (Ink Plus or Sapphire Preferred) account are worth a fixed 1.25 cents each, and Citi ThankYou points are worth between 1.25 cents and 1.6 cents depending on whether you have a Premier or Prestige card, and the airline marketing the flight.

When booking award tickets, there's no such band of values: points can range in value from a fraction of a penny up to 10 cents or so depending both on the cash price of the flight and the number of miles required to book it.

Note that neither of these options is any more or less "free" than the other. Since you should be manufacturing spend furiously, you're paying acquisition and liquidation fees for whichever currency you happen to choose. The only question is which strategy will bring the cost of your travel down the most.

Revenue tickets are cheap

On the revenue side, there are lots of good options depending on your situation:

  • Citi ThankYou Premier. A fixed 3.75 cents in airfare per dollar spent at gas stations. At $5.75 in "all-in" cost for $505 in spend, a 69.6% discount off retail.
  • US Bank Flexperks Travel Rewards. Up to 4 cents in airfare per dollar spent at grocery stores or gas stations (wherever you spend more each month). At $6.30 in "all-in" cost for $506 in spend, an "up to" 68.9% discount off retail.
  • BankAmericard Travel Rewards. For those with $100,000 on deposit with Bank of America, Merrill Lynch, and MerrillEdge, a fixed 2.625 cents in airfare per dollar spent everywhere. At $4.30 in "all-in" cost for $504 in spend, a 67.5% discount off retail.
  • Chase Ink Plus. For small business owners, a fixed 6.25 cents in airfare per dollar spent at office supply stores (and 2.5 cents per dollar spent at gas stations). At $9.18 in "all-in" cost for $309 in office supply spend, a 52.5% discount off retail.

When I say "depending on your situation," I mean to draw attention to the fact that you when starting from scratch, you shouldn't pursue all four options! If you don't have access to gas station manufactured spend, the Citi ThankYou Premier won't work for you. If you don't have access to grocery store manufactured spend, the Flexperks Travel Rewards card isn't for you. If you don't have access to $100,000, the BankAmericard Travel Rewards card won't give you the same value it will someone who does. And if you don't own a small business, Chase probably won't give you an Ink Plus.

Award tickets are cheap and (can be) hedged

On the award side, the picture looks radically different. Three of the four major domestic airlines offer some form of "last-seat" availability on their own flights: Delta, American, and Alaska will sell almost any seat on almost any date for some number of miles, while United reserves last-seat "standard" availability to their co-branded Chase credit cardholders. Thus there are three pots airline rewards currencies fall into:

  • Delta. When starting from scratch, there are two main ways into the Delta ecosystem: their own co-branded credit cards, and American Express Membership Rewards co-branded credit cards. Unfortunately, neither of them is cheap. The American Express Delta Platinum and Reserve credit cards offer 1.4 (Platinum) and 1.5 (Reserve) SkyMiles per dollar spent everywhere when you spend exactly $25,000 (Platinum) and $30,000 (Reserve) and $50,000 (Platinum) and $60,000 (Reserve) each calendar year. But the Delta Platinum card costs $195 per year and the Reserve $450 per year! Meanwhile, the American Express Premier Rewards Gold costs $175 per year and earns 2 Membership Rewards points per dollar spent at gas stations and supermarkets. Those points can then be transferred to Delta on a 1-to-1 basis. Moreover, Membership Rewards points let you hedge your downside risk: if a particular Delta award redemption gives you less than 1 cent per Membership Rewards point, you can book it as a revenue ticket. If it gives you more than 1 cent per point, you can book it as an award ticket.
  • Alaska and American. Advanced travel hackers muck about with applying for Alaska and American co-branded credit cards over and over again at various intervals. But when starting from scratch, there's a simple way into both ecosystems at the same time: with the Starwood Preferred Guest American Express. When transferred to either Alaska or American, the card earns 1.25 miles per dollar spent everywhere, which is higher than the amount you can earn directly with either airline's co-branded credit card. Like Membership Rewards points, Starwood Preferred Guest also offers a hedged downside risk, since you can redeem their points for between 1 and 1.43 cents per point for revenue tickets using "SPG Flights."
  • United. If you're able to make United your main airline, then you'll never do better than with a Chase Ink Plus small business credit card, because of its bonused earning rate at office supply stores and 1-to-1 transfer ratio to United MileagePlus. But if you can't get a small business credit card, then you have some hard decisions to make. You could get a Chase Freedom Unlimited, which earns 1.5 Ultimate Rewards points everywhere, and a Chase Sapphire Preferred, which enables the transfer of Ultimate Rewards points to United, but that combination comes with a $95 annual fee. Alternatively, a Chase United MileagePlus Club card earns 1.5 United miles on all purchases but has a $450 annual fee. That's the kind of up-front expense that's not precisely crazy, but needs to be well-justified before taking it on.

Your situation should drive your decision between revenue and award tickets

As I mentioned, I try not to give advice.

Your situation is different from mine: your award availability, typical revenue flight prices, and airline service have nothing to do with mine.

But in my experience, for many people, much of the time, a focus on revenue tickets will generate bigger savings than a focus on award tickets, and if I were starting from scratch, that's where I'd start.

Fortunately, you don't need to take my word for it: all the numbers are above. Look at your own travel needs and it should quickly become obvious whether revenue flights or award flights will generate more value for your travel hacking dollar.

Tomorrow, I'll take the same approach to hotels: starting from scratch, are award nights really cheaper than just paying for your hotel stays?

Who are an airline's best customers?

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Now that the three biggest US carriers (Delta, already followed by United, and soon to be followed by American) have moved to revenue-based mileage earning, at least on flights marketed or operated by them, we've heard a lot of rhetoric about how these programs will reward the airlines' "most valuable customers."

I think this is nonsense.

Delta markets hotel rooms and rental cars

You might think that Delta is a major US airline that operates with unmatched on-time consistency.

I think Delta's a corporate holding company with a subsidiary that happens to have a particular speciality in operating passenger aircraft. But in addition to operating passenger aircraft, which is a preposterously complex operation involving local, state and national contracts, a commodity trading desk, and is constantly prone to interference from the weather and other hazards, Delta also operates a hotel and car rental booking engine:

Delta doesn't have any specialization in operating hotels or car rental agencies. Indeed, Delta doesn't own any hotels or car rental agencies. Delta just collects a commission on hotels and rental cars booked through their website, then credits SkyMiles members with a seemingly random number of miles:

  • One mile per every $2 spent at delta.com for a completed hotel stay.

  • 1,250 miles per car rental for Diamond and Platinum Medallion members.

  • 1,000 miles per car rental for Gold and Silver Medallion members.

  • 500 miles per car rental for general members.

American licenses a shopping portal

You may be familiar with the AAdvantage eShopping Mall. It's one of those Rube Goldberg contraptions whereby Cartera Commerce, the portal's operator, receives a commission from merchants, then splits that commission with American Airlines, which then awards an arbitrary number of AAdvantage miles depending on their share of the commission.

The key point here is that American does not have any stake in Groupon, Bloomingdale's, Tumi or Dell.

American could not care less which online merchants participate in its Cartera-licensed portal, because the portal spins off cash regardless of the participating merchants.

An airline's best customers never set foot on a plane

Owning, operating, and maintaining passenger aircraft is expensive and extremely risky. If you're a corporate holding company, you'd naturally like to do as little of it as possible. Of course, somebody's got to operate passenger aircraft, and airlines are, as a matter of corporate organization, ideally suited to doing so.

But it's crazy to say that any airline passenger is among an airline's best customers. An airline's best customers are the ones who book hotels, rent cars, and do their online shopping through the airline's licensed shopping portal! Those customers generate what is indistinguishable from free cash, while even the customer booking a paid business class seat actually has to be conveyed, safely, from origin to destination!

Ok, large corporate travel coordinators are also great customers

If there's one exception to this rule, it's the travel coordinator for a medium or large corporation who gets to decide which airline should serve the company's business travel needs. If you can fill up two or three wide-body jets per year with your company's employees, you might be almost as profitable as the customer who buys a new laptop through the same airline's shopping portal.

But to be clear, that travel coordinator need never set foot on a plane to be the airline's best customer.

Airline tickets are a cost for you, not for the airlines

By focusing on the revenue the airlines get from their portal operations, you may think I'm missing the point: that the miles earned will eventually be redeemed for flights — and potentially expensive ones! That not right.

The airlines, against their better judgment, continue to operate high-fixed-cost, low-marginal-cost flights throughout the year. Giving away empty seats to their best customers — their shopping portal customers — is a no-brainer if it keeps that free cash coming in.

Shopping portals are profit engines

I always find extreme examples to be most illustrative. So let's say you decide to buy a 20,000-AAdvantage-mile one-way off-peak award (October 15 to May 15) to Europe exclusively by buying Proactiv+ through the AAdvantage eShopping Mall. You'll need to spend $1,000 on Proactiv+ to earn those 20,000 AAdvantge miles, for which we can assume American receives something like $200-$300.

You then get to redeem those 20,000 miles for:

  1. empty seats;
  2. during low season;
  3. on dates of American's choice.

And all American has to do is provide you with a couple cocktails and some flavorless fish.

Airlines shouldn't award miles for revenue flights at all

Since airline miles don't cost the airline companies anything, you might wonder why they're being so stingy in handing them out.

I have the opposite question: since operating passenger aircraft is by far the most expensive source of revenue for the airline holding companies, why do they reward people for buying passenger airline tickets at all?

After all, however small the cost of airline mile redemptions is (and it is very small), it's not zero, which means that rebate value could be used to reduce airfares and move your airlines' flights higher in the now-ubiquitous price-sorted booking engines.

Airline miles would make much more sense as a reward for directing your online purchases towards one airline's booking engine rather than another's, or for putting spend on one airline's co-branded credit cards rather than another's.

Rewarding people for booking flights on your full, gas-guzzling passenger aircraft seems like a serious strategic miscalculation.

You should never buy points for what they're worth

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The frame of reference for my manufactured spend practice is not usually the cost I pay per point that I earn, although I naturally privilege cheaper techniques above more expensive techniques, and there are certain techniques that are too expensive to fit into my practice at all.

Rather, my analytical framework is based on opportunity costs: am I better off manufacturing a hotel or airline loyalty currency, or using the same technique to manufacture cash back instead?

In the hotel sphere, it's easy to calculate "breakeven" points, which I call a property's "imputed redemption value:" the amount of cash you have to save in order to justify earning sufficient points to make a redemption instead of simply paying for a stay with cash.

It's also possible to buy points

There is a clutch of high-profile bloggers who write exhaustively about the constant stream of airline offers to sell miles at a discount compared to their normal prices. For example, American AAdvantage normally sells miles for about 3.19 cents each, but during their current promotion you can buy them as "cheaply" as 1.81 cents each (because of the fixed $30 processing charge, the rate will always be lowest when you buy the maximum allowed number of miles).

So the question is, should you buy American Airlines miles for 1.81 cents each? There are two ways to look at that question.

How much are AAdvantage miles worth?

If you redeem your AAdvantage miles for expensive flights with low or no fuel surcharges, your answer to this question might be "far more than 1.81 cents each." After all, until March 22, 2016, 67,500 AAdvantage miles and some nominal fees will get you from San Francisco to Hong Kong in Cathay Pacific's first class cabin, a $9,367 value next fall — 13.9 cents per point!

If this is your view, then paying anything less than 13.9 cents per point is a straightforward win: you get a $9,367 flight, but pay only a small fraction of that amount. Alternatively, you could pick a "realistic" valuation for the flight and use that instead. For example, if you think Cathay first class is worth just twice the price of economy, you could use that value instead ($1,486 for the same dates), and get a valuation of 2.2 cents each — still more than the 1.81 cents American is selling them for.

How much do AAdvantage miles cost?

If you manufacture AAdvantage miles instead of using a 2% cash back card, your answer to this question should be "2 cents each." In this case you might consider buying AAdvantage miles in bulk for 1.81 cents each, and direct that manufactured spend back towards your 2% cash back cards, ending up with more value overall.

On the other hand, if you earn AAdvantage miles by signing up for their co-branded credit cards and spending $3,000 to earn 53,000 AAdvantage miles, your answer should be "0.11 cents each" — that's your $60 in foregone cash back spread over 53,000 AAdvantage miles. In this case, you'd be crazy to overpay by 15 times for miles you could earn so much more cheaply.

Of course, if you're a rich weirdo, you may be burning AAdvantage miles more quickly than you can earn them exclusively through signup bonuses. In that case, the important thing is your marginal cost: how much are you paying for each additional AAdvantage mile, and is it more or less than American is currently charging for the same mile?

Never buy points for what they're worth

Travel hacking is ultimately about the spread between the price you pay for your trips and the price travel providers would like to charge you. In other words, acquire travel cheaply but redeem it dearly.

That means a basic mistake to avoid is overpaying for your miles and points. If you're currently buying AAdvantage miles for 2 cents each and an opportunity comes along to buy them for less than 2 cents each, that's a no-brainer.

But another way you can overpay is by allowing a high theoretical valuation induce you to narrow the spread between your cost of acquisition and value of redemption. For example, one of my regular readers values Hilton HHonors points at 1 cent each, since that's they value he's able to get from them as a Diamond elite with the program. If you take that valuation seriously, you'd conclude that he would be better off earning 6 HHonors points per dollar at grocery stores than 5% cash back — buying HHonors points for just 0.83 cents each.

But a moment of reflection shows that's crazy: instead, he could earn 5% cash back at grocery stores and use his American Express Hilton HHonors Surpass credit card for non-bonused spend where he'd otherwise earn 2% cash back — buying his HHonors points for just 0.67 cents each instead!

How much would you pay to be able to book any flight on any day?

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Another day, another devaluation.

Yesterday American Airlines announced the changes they'll be making to the AAdvantage program next year. You've likely already read all about them, but in summary, they are:

  • Revenue-based mileage earning (beginning in "the second half of 2016");
  • Award chart devaluation (effective March 22, 2016);
  • Elite status devaluation (effective for qualification after January 1, 2016).

Since I credit my paid American flights to Alaska, I don't care much about the first or third points. But the award chart devaluation is real and, for premium cabin redemptions, significant.

Premium cabin awards are not cheap or easy

With yesterday's announcement, American Airlines joined Delta and United in raising mileage prices for premium cabin awards, in some cases astronomically. For example, a first class award seat on a 3-cabin aircraft to Sydney from the continental United States will cost 110,000 AAdvantage miles starting March 22, 2016, up from the 72,500 miles it currently costs, a 52% increase.

Of course, that's purely academic. There are no first class award seats between the continental United States and Sydney.

Yes, if you're flexible, if you're searching far in advance, close-in, and on every single day in between, you might be able to find one or two seats during the Southern winter. But don't hold your breath.

Premium cabin seats are (not that) expensive

For a lot of people, "travel hacking" is synonymous with "loyalty program hacking." And indeed, historically the loyalty programs operated by hotels and airlines have been a great source of outsized value for people willing to dedicate the time and attention to maximizing the value of their miles and points.

But those airline award seats we hunt down so diligently are also available on the open market! Believe it or not, the airlines just sell them. Of course, in exchange for the flexibility buying revenue tickets grants, you're going to pay a little more.

Or a lot more. That 220,000-mile roundtrip first class award ticket American promised you might cost $10,000 or $15,000 if you choose the flexibility of a revenue ticket.

Well, it might cost someone $15,000. But it doesn't have to cost you $15,000, because you're a travel hacker.

The revenue premium may be smaller than you think

A $15,000 first class flight to Sydney will give about 6.8 cents per AAdvantage mile in value after the March 22 devaluation (if you could find first class award space).

Since the Citi Prestige card allows you to redeem ThankYou points for 1.6 cents each on American-marketed flights, you'd need about 938,000 ThankYou points to purchase your first class revenue ticket. That's a lot of points, but the ThankYou Premier card earns 3 ThankYou points per dollar spent at gas stations, so you'd only need to manufacture $312,666 in gas station spend to make your redemption. That's obviously not something you'll be able to do in a weekend, but it might be a reasonable goal if spread out over a year or two.

Since the Citi and Barclaycard AAdvantage co-branded credit cards earn just one mile per dollar spent everywhere, you'd need to manufacture $220,000 on those cards to make your first class award redemption. In other words, the revenue premium — the additional manufactured spend required to book any seat on any flight — in this case is about 42%.

The $15,000 flight has the additional advantage of earning an Executive Platinum 165,000 AAdvantage miles, enough for another roundtrip to Sydney (albeit in business class instead of first).

Conclusion

Most people aren't going to manufacture enough spend to pay what American is asking for a first class ticket to Australia. Those who do probably don't value a first class ticket to Australia at $15,000, and would rather redeem their fixed-value points for the domestic economy flights they'd book anyway. That's a perfectly reasonable point of view.

The point I want to make is that while I sometimes say that cash is a superior earning choice for manufactured spend unless you have a particular, high-value redemption in mind, it may be a superior earning choice even if you do have a particular, high-value redemption in mind!

In other words, it's not enough to say that an award redemption will get you more value per dollar in manufactured spend than earning a currency like Ultimate Rewards (1.25 cents per point), Flexpoints (up to 2 cents per point, redeemed in tiers), Membership Rewards (1.43 cents per point with the American Express Business Platinum), or ThankYou points. You also have to be willing to redeem your loyalty currencies exclusively on the dates, flights, and times that the airlines choose to make award seats available, and put the time into learning the intricacies of each alliance and each airline.

If you don't find that fun or interesting, you may well be better off saving your time and paying the revenue premium instead.

Price compression and mileage running

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I like to use the term "price compression" to refer to the interaction of two benefits to travel hacking:

  • The out-of-pocket price paid for travel is lower;
  • The difference between the out-of-pocket price paid for more-expensive and less-expensive travel shrinks, even if the ratio between them stays the same.

The ideal cases are more-convenient or more-luxurious award redemptions that cost the same fixed number of miles and points, but you also see price compression when redeeming cheaply-acquired, fixed-value Ultimate Rewards, Membership Rewards, or ThankYou points: more expensive flights will cost more points, but the out-of-pocket expense of acquiring those points will be (in some cases much) closer than the cash prices.

Theory of mileage running

A traditional mileage run is a flight taken exclusively to earn airline miles, and will ideally cost less than 4 cents per mile flown if credited to a distance-based frequent flyer program. Personally, I understand the logic behind the traditional 4-cent-per-mile cap in the following way:

  • a high-level elite will earn at least 2 redeemable miles per mile flown due to elite mileage bonuses;
  • a travel hacker will attempt to redeem miles for at least 2 cents each;
  • so by pre-paying for future, non-elite-qualifying travel through mileage runs, the mileage runner receives elite-qualifying miles in the present, which help them maintain high-level status and the perks that go with it.

Of course it's possible to mileage run speculatively or purposefully: someone can take every sub-4-cent flight available with the goal of earning the highest elite status possible, or they can take one or two mileage runs in order to top off an award or earn the last few elite-qualifying miles needed to reach the next level of elite status.

Price compression and mileage running

Looking at mileage runs through the lens of price compression results in some interesting conclusions.

In programs like Alaska Airlines Mileage Plan and American AAdvantage, which still feature distance-based redeemable-mile earning, price compression has no effect (besides making mileage runs cheaper): since booking more expensive flights (within a cabin of service) doesn't yield any additional redeemable or elite-qualifying miles, the goal of minimizing the cent-per-mile cost of each mileage run is still paramount. Reservations in excess of the 4-cent-per-mile "breakeven" point may still be worth making, but more expensive flights would have to be justified by an unusually high value placed on elite-qualifying miles — perhaps if you're a single flight away from the next elite status level.

In revenue-based programs where mileage earning is based strictly on the amount paid for tickets (although with a multiplier for elites in the case of Delta and United), it's only ever worth mileage running for the benefits of elite status (for example, free award changes and redeposits). In such programs, since more-expensive flights also earn more redeemable miles, part of the increased price is rebated in the form of more redeemable miles earned.

Consider the following stylized case: a United Premier 1K with the American Express EveryDay Preferred and Business Platinum combination wants to maintain her top-tier elite status with United. She manufactures spend at gas stations at roughly 1 cent per dollar in manufactured spend, and is able to redeem her Membership Rewards points for 4.29 cents on United flights after her 30% Pay with Points rebate. In other words, she is able to buy United tickets at a roughly 77% discount. As a MileagePlus Premier 1K, she earns 11 miles per dollar spent on United fares. Valuing each United mile at 2 cents each, as above, she's receiving a 22% discount on (the fare component) of each United revenue ticket she buys, meaning her net cost is just 1% of the fare, plus taxes and fees, which don't earn redeemable miles.

Let me be clear: this result only holds for someone who actually values the benefits of elite status, and is sure they'll redeem each one of their United miles for at least 2 cents (remember, unredeemed miles and points are worth nothing). But for someone positioned in this way, the cent-per-mile calculus is almost irrelevant, given the up-front discount and redeemable-mile rebate they receive on each revenue ticket they buy.

Conclusion

I don't fly United or credit my paid Delta flights to Delta, and I don't hold any super-premium credit cards since I don't find their annual fees worth paying. Still, I wanted to share this analysis to demonstrate the power of price compression when applied to a range of everyday problems in travel hacking.