The basic financial errors beginners in air miles make

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I have been intensely hacking air miles for about 5 years now, though I first started to get to grips with the systems in my childhood.

As my friends and family start to take notice in my hobby, I see many more blogs and travellers sprouting from the unknowns and its authors getting very excited about air miles. While not wishing to suppress their enthusiasm, I do want people to learn from mistakes I see too frequently made.

Let's dive in.

Air miles should never be seen to be equivalent to cash. The terms and conditions of every air miles programme state that the air miles belong to the airline rather than you. Unfair as it seems they can confiscate your miles with no good reason and you will have no recourse to appeal. Therefore you should never save your air miles hoping to get a massive cash discount at a date far into the future.

Air miles should be seen to LEVERAGE your money. Let me provide this example to you. For a particular one-off promotion would you prefer to buy a £250 ticket which you would have normally paid £500, or pay £500 and receive something approximately £1500 in value but you would never normally buy? If you wouldn't have bought it under normal circumstances then air miles must NOT be seen to ‘save' money. If you wish to SAVE money then you should fly budget airlines. Again, air miles are not equivalent to cash.

Following from the above, getting loads of air miles is an expensive game. Take the information provided on mainstream blogs with a pinch of salt, and try to understand the financial relationships the authors have with companies behind the scenes. For instance did you know The Points Guy is owned by Bankrate? There is very little disclosure anywhere in the website, and even the disclosure at the footer of the site (correct as of 14th March 2016) is a little mysterious:

The credit card offers that appear on the website are from credit card companies from which ThePointsGuy.com receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). This site does not include all credit card companies or all available credit card offers.

You should not believe sites that tell you how air miles allow you to travel for free. They really don't. Buy played in the correct manner you can really earn back multiples of what you spend.

So having said that, how much can you expect to spend in a year? Well if all your travel is self-funded then to get any decent returns you will probably need to do 4-5 longhaul flights per year (say at £300-500 each) plus 50 hotel nights per year (say £50-100 each night). That starts to add up quickly and don't be surprised to see the costs range from £3700-£7500 for things to get really interesting. If you travel a lot for work and have someone else paying for you, great! So how much of that £7500 are they offsetting and how much extra will you need to put in to achieve your travel aspirations?

On top of that you need to consider the opportunity cost of spending the money on other things or investing it over many years. Imagine if you had £2000 now and continued to put £2000 a year into an investment fund yielding 7% for 5 years, then your total pot would be £14,307. Are you willing to lose those years of compounded interest, knowing the first penny earns the most?

With the above non-mainstream advice, you can make a decent call as to whether air miles is really for you. There will be other things you can learn along the way, but I wanted to provide the financial information up front before it makes you broke!

Do any of you have advice for other air miles beginners? We'd love to hear them!

Comments

  1. I don’t travel much for work and I don’t get much leisure travel these days. So I collect miles so that when I do travel I can do it in style at a lower cost. I have paid for business class in the past and I hope to avoid doing so in the future! There’s an aspirational aspect to it that is priceless. So as long as you aren’t spending more than the potential value of the points (spending $500 on a hotel room just to get another 2,000 points) then I think it makes sense to earn. And of course avoiding interest payments.

  2. You could invest the money now and grow your wealth for a later day instead of spending money on travel now. That is not my approach to life.

    Many surveys show one of the primary regrets older people have is not having traveled more when they were younger.

    • Besides, travel is getting more and more expensive, probably outpacing inflation or average stock portfolio returns. There are plenty of countries/destinations which are cheap and/or relatively undiscovered, where in 10-20 years the prices will go up.

    • It’s a fair point, and one that I actively support. I just hope everyone can see both sides of the picture and make that informed choice rather than have a barrage of travel blogs telling them to spend every penny they have now with no care for the future.

  3. The most depressing bit is when you get random people turn up on the travel sites, who have been saving and saving (sadly not cast) for a “trip of a lifetime” or, worse still,l very important fixed in time trip such as a honeymoon, but sadly don’t know the first thing about what they have been collecting.

    In the best cases, they are still in Tesco clubcard points, etc, in the worst cases, it is already loads of Avios or Virgin Flying Club miles. They don’t understand the taxes, etc. or how to play the games. (Not that they necessarily should know them, but it is bit dodgy IMO for airlines to push miles on the general public).

    We see them turn up with 10,000 miles, but don’t understand what that means in terms of spending. They relate flexible award tickets to the inflexible discounted tickets, and consider the miles a ripoff/’con’.

    Despite the prevalence of airline miles conversions – for credit cards and supermarkets, etc- it is hotel schemes that behave closer to what the public at large expect. It really is quite a dramatic comparison of how you can redeem hotel points with 0.00 cash for a free night, etc.

    The message must be one of: If you need flexibility, use cash. Save cash. It is accepted everywhere.

    Finally, a quick side story – on the topic of Joe Publics understanding of these things:
    A couple of years ago that wonderfully insane airline BMI was sponsoring a garden at the Chelsea Flower Show. To tie in with this, they ran two competitions: Firstly, a chance to win 1m Diamond Club miles, secondly a chance to win an all expenses paid trip to New York.
    One of these competitions was open to all members of the Diamond Club frequent flyer programme, the other was open to anyone who visited the garden at the flower show.
    In typical BMI fashion, they allocated the prizes the wrong way around. DC members, who would really have valued 1m miles, and often had will booked travel plans, etc, were offered the chance to win a touristy trip to NY. Random punters at the flower show were offered a chance to win 1m miles – a prize many of them would not understand.
    I remember seeing the PR quotes from the winner of the miles, she was talking about all the things she could do. I remember wondering if she appreciated all the taxes she would have to pay to do this, etc. (And that 1m doesn’t go as far as you think it might.)

    True story.

  4. Not really the best advice Tim.

    1. Air miles should never be seen to be equivalent to cash

    With that advice, you’ll have people wasting 25,000 miles + tax on a ticket that would cost £100. People need to understand that miles do indeed have value and to know when to spend cash and when to spend miles. Obviously if you end up with millions of miles then you need to reduce your valuation of a mile and start spending those more often.

    2. Air miles should be seen to LEVERAGE your money

    Hard to understand your point. But if somebody wants to save money, then precisely they should be considering flying on airlines that hand out miles that eventually become a free flight, rather than flying on a low-cost carrier that gives them nothing. And aspiring to spend miles on otherwise unattainable premium cabins is precisely the point of this hobby for many. So what if they would never pay £1500 if they’re thrilled to fly Business Class long haul for £500.

    I’m also with Ric. Of course people should save for the future, but travelling when young is much more rewarding than watching the compound interest roll up to the point where you’re physically unable to do much more than roll onto a cruise ship and float around the Caribbean.

    Your numbers also don’t really make sense. People don’t do 4-5 long hauls a year unless chasing tier points. If you’re referring to the amounts required to hit status levels, it won’t matter a jot if you’ve spent your miles on business class awards (lounge, fast track, etc.) and maybe picked up a credit card that gives status (HHonors, IHG, etc.)

    • On point 1. I never said air miles have no value. But it is not EQUIVALENT to cash. Cash is accepted everywhere at a known value, but not air miles. You cannot go pay off mortgages or do pay for a pint at your local pub groceries with air miles. course pay with miles a few times if you have it in plentiful supply. Your point about people needing to know when to spend cash or miles hits the nail on the head. Perhaps I could have expanded further, but one of the biggest lessons any beginner needs to learn is the value of each mile.

      On point 2. I based 4-5 long hauls partially on the level to hit any sort of elite status which gives multiplication of butt-in-seat mileage, but also because award charts (with exception to BA/IB) only start to have interesting redemptions after 30k+ award miles. But if the aspiration for most is to fly business class, given the current methods of getting miles in the UK or anywhere outside USA you would be lucky to get decent usage of your points for less than a couple of grand of spending. Of course some of that might be offset by your employer, but some spending is required as a minimum.

  5. Work out what you want to do first!

    I know a few people who wanted to redeem for long-haul economy, saved up a bunch of Avios, and were then most miffed. They didn’t understand that Avios is good for short haul economy (with RFS capped taxes or US low taxes), and long haul premium. They’d have been much better saving up into a different scheme given those aspirations. Well, or redeemed them for their short haul EU trips, popped the money they would’ve spent on that in the bank, and spent that cash later for the long haul trip.

    Equally, my parents had been burnt by inappropriate frequent traveller programs before, and took a lot of convincing to sign up for BAEC and save their miles there + transfer some clubcard points. However, when they then wanted to take a nice long haul trip and I helped them get the last few miles plus an Amex 2-for-1, they were suddenly very happy. They spent as much as an economy ticket would’ve been on taxes and fees, but got to sit in business, so considered it a big result.

    I’ve another friend who I’ve got using the HHonors Visa card, who with their limited spend and limited flights, is actually doing very well with it.

    First – think what you want to get out. Next – decide a suitable obtainable goal. Finally – save with the right scheme for that, and spend cash on other things.

  6. Really interesting site Tim. I’ve been collecting Air Miles/Avios for at least twenty years and never spent a single one! I am not aware any have ever expired. I still only have 30,000 of which 9,000 I gained a year or so ago when I took out a credit card. So, I have in the past year explored what I can get for my 30,000 miles and am very disappointed. My aspiration is to travel first class long haul. I realise now that even booking Club World with cash (I’ve never travelled Business) and upgrading with miles – I am likely to need more miles and this would be a one off first class flight and I’d be back to zero with my miles. I collect my miles to open doors to new experiences which I can only dream of at the moment.

    So, I have recently read about the hack of cancelling the credit card after getting the welcome points and making referrals, before taking out another in six months’ time. I am yet to do this as I have two largish payments to pay, so I want to keep the existing card to get air miles from my purchases. I hope to be able to take advantage of this hack to boost my miles further in the future.

    On Sunday I brought a year’s subscription to The Sunday Times Travel Magazine which should net me 4,000 points for £30 (133 miles per pound) which I hope is a respectable purchase, although I don’t actually need the magazine! This is the first time I have purchased something I don’t need for air miles points – bearing in mind I am keen to increase my air miles, do you agree this was a sensible purchase?

    I recently converted Tesco Club Card points at the rate of 600 per £2.50 (240 miles per pound). In the past I would have put the points towards wine purchases when they had deals. I also clicked through Avios to buy several items from Apple for example. So, I like to think I am learning the error of my ways and moving forward, hope to correct my very slow accumulation of miles.

    I debated booking a hotel room in London at the weekend which would cost £165 and award 4,000 air miles (24 miles per pound) by clicking through Avios. I don’t especially need the hotel room as I can travel by train, but I thought it might be nice to stay the night. I haven’t booked it as I decided £165 for approximately 4,000 air miles probably wasn’t good value for money. I think there may also have been a 250 bonus too. A question I hope you can help me with is – how much would you pay out to gain air miles? I found on Avios website I could buy 4,000 air miles for £79 which is 50 miles per pound. So I assume 50 miles per pound would be maximum I should pay if I am making a transaction solely for points?

    I’ve spent a few hours reading about the mileage running, although my understanding of this is still very poor. I absolutely love flying so the thought of spending a day or two taking a few flights is appealing, although I’m 6ft 4” and not built for economy which is where I understand mileage runners usually purchase seats?

    My flights in the past 12 months consisted of LGW-EDI, EDI-LGW. LHR-HAM X3 and HAM-LHR X1 all in BA economy. I have a grand total of 35 tier points in my first year in the Executive Club! I also travelled MIA-LHR economy with Virgin which hasn’t really helped as I don’t think I can do anything with those miles. I have two flights planned in my new BA Executive Club year – LHR-JFK and MIA-LHR both BA Premium Economy which I estimate will start my new flying year off with 90 points each. My unusual flight pattern of mainly one ways is due to my recent found love of cruising.

    In addition to wanting to fly first, another aspiration is airport lounge access. I have looked in to buying a Priority Pass and decided against it as in the past I haven’t flown often. I am also not a fan of queuing and often watch with envy when priority passengers are called to board first. Then I stumbled across BA Tier point running and realised there may be light at the end of the tunnel as far as moving from Blue to Silver in the Executive Club. i.e. JER/LGW/AMS in Club Europe sounds appealing and could move me through the tier points system and earn me some miles too. I guess I would then be paying out at least £1,000 to get to Silver. Is the £1,000 a realistic amount or do you think it could be more or should I be able to do it for less?

    Your advice would be gratefully received.

    • Hi Gary, thanks for this incredibly detailed comment! I’m more than happy to help aspiring addicts like you 🙂

      Mileage running on BA doesn’t really exist, as the cost to acquire Avios through flying is prohibitively high. In the Avios game it is more about Tier Point running. If you are partial to getting over 1000TP in one shot then I have a post here. http://pointstobemade.boardingarea.com/2015/06/13/ba-tier-point-runs/

      In deciding how much to spend to reach elite levels, you will need to calculate what your time is worth. There are Tier Point runs as low as £0.6/TP which means £360 or £900 for Silver or Gold respectively, but these are based around North and Central America. Obviously you will need to position yourself there first.

      If you are based in the UK, a decent balance between time and money will mean you should try to limit it to £1.5/TP, so £900 and £2250. As you rightly pointed out, there is the Amsterdam to Jersey tier point run, which I also ran an article here: http://pointstobemade.boardingarea.com/2013/04/14/ams-jer-tp-run/

      Tesco and Sunday Times travel magazine show behaviour much more conformant to the crazy hobbyists like us, and is a good way to effectively purchase Avios cheaply. 133 miles per pound (or the more normal way of expressing, 0.75p each) is a good purchase and nearly guarantees you will make a profit on the Avios when redeeming it. Any time there is a promotion where I can buy Avios at 0.7p each I am happy to hoard them speculatively, but above 0.7p/Avios I need to know already what I will spend them on.

      I hope that helps! feel free to contact me if you need any more information – always happy to help.

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