Don't just burn your miles

After nearly 30 years of observing airline loyalty programs, Randy Petersen has reached a conclusion: You probably aren't managing your frequent-flier miles very well.

"Most people don't understand the personal finance of frequent-flier miles," said Petersen, publisher of Inside Flyer magazine. "They'll use them on a $200 ticket. Some discipline is required."

And there is the first lesson of getting the most from your miles: Don't use them just to use them. Here are a few more tips from the pros:

Do the math. As Petersen said, spending 25,000 miles on a ticket that costs $200 isn't getting much return. A widely accepted tenet says that ideally, a mile should be redeemed at about 2 cents per (that is, use 25,000 miles on a ticket that would cost about $500 otherwise). Using miles on international flights can yield a return of 3 or 4 cents per mile, but a minority of miles are redeemed for such trips.

The 10 percent rule. Say you have a nest of 40,000 miles on American Airlines and find a ticket to Dallas for $340. But you have just a few points on Southwest, and it offers Dallas for $270. Is it worth the extra $70 to add miles to that American account? Petersen says no. His rule is 10 percent variance: He will pay 10 percent more than the cheapest price to acquire miles from a specific airline.

Otherwise, he pays the lower price and spreads his loyalty — and by extension, his loyalty rewards. The exception to the rule comes when approaching elite status. If spending an extra $100 on American will get him a year of free checked bags and the ability to skip security lines, he'll make the investment.

Use the tools. Considering the morass of loyalty programs and our ability to accrue miles more quickly than ever (through credit cards, the option to buy miles and the like), more websites are popping up to help manage those accounts.

For instance, MileWise (milewise.com), which launched in September, allows travelers to consider their miles when shopping for flights. Searches are returned with price, as well as the options to fly on miles, followed by a recommendation on the most cost-effective way to purchase the ticket. Another bonus: It calculates "real cost" of a ticket based on how many miles you'll gain.

"We're showcasing the real value of the rewards," said Sanjay Kothari, co-chief executive officer of MileWise. Similar websites include awardwallet.com and superfly.com.

Decide your strategy. Petersen said most people tend to "earn and burn," redeeming miles as soon as they can. But he's a saver (and so am I, because I'd rather use 50,000 miles to get to the other side of the world rather than to take two domestic trips). "I view frequent-flier miles as my travel IRA," Petersen said.

"People say your miles become devalued over time because price goes up, so use them as quickly as you can. But if you manage them well, it doesn't happen."

How do you do that? "I broaden out so that my loyalty and bank of miles is distributed through a number of airlines and hotel companies," Petersen said. "If one program has a devaluation, generally you don't see all the programs make major changes."

The Travel Mechanic is devoted to better, smarter, more fulfilling travel. Thoughts, comments and suggestions can be sent to jbnoel@tribune.com. Include "Travel Mechanic" in the subject line.

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Stretching your miles isn't easy

Airlines and their partners, especially co-branded credit cards, lavish miles on you these days. The challenge isn't accumulating miles; it's in finding ways to use them. And getting full value can be tough.

This biggest barrier — this shouldn't be a surprise to anyone — is that scoring a frequent-flier seat, at the low or "saver" mileage value, where and when you want it is a challenge. IdeaWorks statistics show overall success ranges from a decent 50 to 60 percent for American, Continental and United to a dismal 25 percent or so for Delta and US Airways.

The situation is even worse in business class, said AlphaFlightGuru's Tim Gibson. He and I agree that the best use of frequent-flier miles is for international trips in business class, and here, he said, a typical traveler's initial success rate is less than 10 percent. His company (alphaflightguru.com) specializes in helping business travelers get the most from their miles, and he said his company ultimately can "help 80 percent of the people." But his agents really have to work at it, sometimes mixing and matching airlines within alliances or even using different alliances.

The strategy with the best odds of success, Gibson noted, is to wait to confirm seats until three to seven days before departure. That's the time when airlines finally decide how many seats they really aren't going to sell and release them for frequent fliers. Even when clients have to set firm travel dates well in advance, AlphaFlightGuru helps them by providing highly discounted consolidator tickets when the mileage awards don't become available.

My own experiences confirm Gibson's view, though I've often found even more trouble. Service at my home airport (Medford, Ore.) is almost entirely on regional airlines, so just about anywhere I want to fly requires at least one connection. Getting seats on a single flight is tough enough; getting seats on a decent connection is almost impossible. Right now, for example, Delta's online booking system shows no one-week trips on any dates through June from Medford to Paris at the lowest award level, in economy or business class.

Why is international business class the best use of miles? Because those awards give you the biggest return. Even at a sale price, a round-trip business-class ticket to Europe or Asia is likely to cost somewhere around $5,000. On most lines, that trip would require around 100,000 miles for a "saver" award, so your frequent-flier credit theoretically is worth about 5 cents a mile. By contrast, using 50,000 miles for an economy international ticket you could buy at a sale fare of $750 makes the miles worth a cent and a half. And at the other end of the scale, these days a long-haul domestic coach ticket generally costs less than $500, so if you can score a seat at the typical 25,000 miles, your credit is worth 2 cents a mile or less.

Of course, when you're trying to value your miles realistically, you have to apply a big discount factor to compensate for the difficulty in finding seats. "Get almost any seat" awards generally require at least twice the "saver" requirement — often more — which automatically devalues your miles by 50 percent.

How about using your miles for nontravel purchases, as some airlines now urge? The reason is simple: You realize even less value than using your miles for travel. In most of the programs I've examined, the purchase value is about a half-cent a mile, and I've never seen a deal valuing credit as high as even 1 cent a mile.

Given the problems of scoring seats, I believe that if you aren't interested in overseas business class, you're better off accumulating miles through one of those "bank buys a ticket" credit cards programs or even a straight cash-back card. These days, quite a few cards average around 2 cents for each dollar you charge, and that's usually enough to buy coach tickets without worrying about seat limitations.

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