So what are airline miles anyway?

I spent some time the other day reading through some old posts…

Jeez, miles this, miles that.  I talk about points and miles an awful lot, and never really get into what a “mile” is.  Sure we all know a mile is 5,280 feet.  But what about AAdvantage miles?  Or Rapid Rewards points miles?  Which one’s worth more?

Then there’s SkyMiles, and MileagePlus miles, and Avios, and Guest Miles.  The list goes on and on.

So what is a mile exactly?

Basically, a mile is a form of currency.  The Oxford Dictionary defines currency as a system of money in general use or in a particular country.  I think we can agree that miles are currency.  I mean, AAdvantage miles, for example, are certainly a system of money.  You can use them to pay for American Airlines flights, rental cars, and all sorts of random items through their AAdvantage portals.  System of money?  Check.

Next up, “in general use or in a particular country.”  While AAdvantage miles may not be strictly tied to a country, I think “general use” leaves it pretty open.  I mean, generally, anyone with an AAdvantage account can use them.  So yeah, I guess miles are a form of currency.

This is an important fact to wrap your head around in the travel hacking world.  Miles or points are currency.  For the most part, anything you can do with a currency, you can do with some miles.  You can even play the forex market if you want.  Buy low, sell high.  Or as I like to do, earn miles from portals and credit cards (low), and then redeem for worthwhile travel (high).

As you begin to look at miles as currency, everything  starts to make sense.  If you could go to the grocery store, and sign up for a number that saves you a portion of your money every time you shop, you’d be crazy not to sign up!  Oh wait, I did that already…

In much the same way, there are frequent flyer programs. Sign up, and every time you spend money, buy flights, purchase merchandise from partners, etc., you get to earn miles.  Miles can be redeemed for future flights, saving money on more trips!

BOS-LIM

Financial Hippie Airlines’ only flight:  nonstop BOS-LIM.

Let’s look at Financial Hippie Airlines.  Not only do they offer fantastic customer service, but their miles are worth a whopping 2 cents each!  And, there aren’t any silly earning rules for different classes of service.  FH Airlines runs a spend-based mileage accrual system, just like the other major carriers.  For each dollar spent, you earn 1 mile.  On a $500 roundtrip flight from Boston to Lima, your earning would look something like this:

FH mile earned for every $1 spent

$500 spent = 500 FH miles earned

FH mile = $0.02

true cost of flight after miles earned = $500 – 500 FH miles

We then replace the 500 FH miles earned with the dollar value of those miles…

cost of flight after miles earned = $500 – (500 FH miles * $0.02/FH mile)

cost of flight after miles earned = $500 – ($10 toward future flights) = $490

Keep in mind that the miles typically can’t be used on the flight that you’re currently earning on, and that the miles only have value if/when you use them.  So, we’re not hitting the lottery on miles or points, but there are so many ways to earn miles, that your balance can really add up.  You can earn miles from credit cards, portal shopping, and promotions, not to mention actual flights, like the miles earned in the example above.

To further illustrate our scenario, I’ll be putting my flights on the Financial Hippie Airlines Signature credit card, issued by none other than FH and Sons Bank.  On this credit card, I happen to earn 2 extra FH miles for every $1 spent with Financial Hippie Airlines, and 1 FH mile for every $1 spent on everything else.  This is a common example of the earning potential of cobranded airline credit cards.  On a $500 flight bill…

$500 spent with FH Airlines on the FHA Signature credit card = 1,000 additional miles earned

(1,000 FH miles * $0.02/FH mile) = $20 toward future flights

To find the true cost of the flights, we can take off the miles earned from the actual flight, and the miles from the credit card bonus…

true cost of flights = $500 – [(flight miles earned) + (credit card spend miles bonus)]

true cost of flights = $500 – [(500 FH miles) + (1,000 FH miles)]

Multiply the miles by their value…

true cost of flights = $500 – [($10) + ($20)]

true cost of flights = $500 – [$30 towards future flights]

true cost of flights = $470

And just like that, you saved 6% off the sticker price of those flights!  The thing is, anyone can do this!  It really is that simple.  Just apply for a credit card or two, sign up for your airline’s frequent flyer program, and you’re good to go!

As always, use credit cards appropriately, and don’t get stuck in their traps.  If you pay interest on the balances, none of your miles are worth it.  Trust me, your interest rate is going to be a lot higher than the 6% you saved on those flights.  But for those of you out there that are looking to save a bit on travel, look into the frequent flyer programs.

Add a travel rewards card or two, and you’ll be on your way to a fatter wallet and a fuller passport in no time!

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