Frequent Fliers Can Make Each Mile Stretch Farther

After six years working for one company, I had accumulated quite a nest egg. It was worth as much as $25,000 by one measure, as little as $5,300 by another.

The nest egg was not my retirement savings but the 380,000 United Airlines Mileage Plus frequent-flier miles I had collected from business and personal travel. The difference in value goes directly to the question you need to ask yourself before you spend your precious miles.

Frequent-flier miles have become substantial, tangible assets for millions of Americans in the past two decades. Yet, unlike financial assets, there is little information on how to manage them to maximum benefit.

Trying to figure out the best use of the miles you’ve earned can be trying, at best, because of the complexities and vagaries of airline pricing and frequent-flier rules. At worst, it can cause you to pluck your hair out in handfuls and make decisions that don’t give you the greatest value from your asset.

How you use the miles depends on your opportunities to earn them and on your individual travel needs and desires. When I was flying 100,000 miles a year, my needs were different from those of my mother, who flies once or twice a year. My miles went to upgrades, first-class tickets for vacations and the occasional last-minute trip. My mom, who watches her pennies, accumulates miles by charging everything she can on an airline credit card to supplement the miles she earns on her own trips. Her goal is to earn enough to fly her grandchildren from Virginia to California to see her. “That’s 25 miles closer to seeing the babies,” she often says after using her charge card.

So how do you figure out whether a travel award is worth the use of miles?

A general rule of thumb has been that miles are worth about 2 cents each, but the world of frequent-flier miles is far too complex for such a simple formula.

Here’s a better equation: Let’s call it Value Per Flier Mile, or VPFM, which may be a more precise calculation of the value. To figure it, take the cost of the ticket you would have to buy if you weren’t using miles, and divide it by the number of frequent-flier miles required to get such a ticket.

Nobody’s flying habits are quite as neat as the following examples, but I’m sketching them to give you a sense of the range of possibilities. I use United throughout for consistency and because that’s the carrier on which I accumulated most of my miles, though the basic principles can be applied to almost every airline program.

Here are three examples of how you might use miles:

* Leisure travel. At 25,000 miles a ticket, my 380,000 United Mileage Plus miles could get me 15 round-trip coach flights anywhere in the continental United States (with a few miles left over).

On a Los Angeles-to-New York itinerary, a recent coach fare was $351.70 round trip (with two weeks’ advance purchase, a Saturday night stay and a special 10% discount obtained from United’s Web site). Thus those 15 round-trip coach tickets were worth $5,275.50. The VPFM was 1.4 cents.

If I wanted to go first class to New York, which costs 60,000 miles per ticket, I would get six round-trip tickets. At $4,201.50 per ticket, those tickets would be worth $25,209 (a VPFM of 7 cents), or almost $20,000 more than the coach tickets.

Caveat: By flying first class, you end up with 60% fewer trips to New York. But would you ever be in a position to pay for a first-class ticket? Think about using miles as special treats, and indulge yourself.

* An emergency fund. Do you have family and friends in far-flung locales? It might be worth keeping 25,000 miles in an account for emergency domestic travel. Many leisure travelers are shocked at the difference in price when they have to purchase a ticket on short notice. When I priced it, a Chicago-to-Miami ticket purchased four days in advance, for instance, cost $808 (with a VPFM of 3.2 cents). With the same four-day notice, a trip from New York to Los Angeles was $2,257.50 (VPFM 9 cents).

Caveats: The risk is that there may not be any free seats available on short notice. (I checked to see if, with four days’ notice, I could book award tickets on the flights I am using in these examples. I could, but my experience is no guarantee.)

Also be aware that some airlines charge a service fee of $75 for less than two weeks’ notice.

* The upgrade game. Would you pay for an international business-class or first-class ticket? I’m not in a position to, but through the power of miles, I’m almost never stuck in coach. The price difference between a discounted coach ticket and a business-class ticket is significant. An upgradeable, round-trip coach fare (with two weeks’ advance notice and a Saturday night stay, obtained by phone) from Los Angeles to London was $1,237 (at a cost of 50,000 miles, a VPFM of 2.5 cents). A business-class ticket on the same flight was $7,527 (at a cost of 80,000 miles, a VPFM of 9.4 cents).

The math gets a little trickier here, but try this on: Say you buy just the upgrade from coach to business for 40,000 miles. If you subtract the coach ticket from the cost of the business-class ticket, you can say that your 40,000 miles saved you $6,290.33, for a VPFM of 15.7 cents. That’s the highest VPFM of these examples, which may be why nearly one out of three travel awards last year on United was for a domestic or international upgrade.

Caveat: Not all fares are upgradeable by using miles. Be sure to ask when making your reservation. The difference in price between a coach fare and an upgradeable coach fare can be significant. (The lowest coach price I found on United’s Web site for London was $732.93, but it wasn’t upgradeable using miles.)

The numbers in these examples are fluid and will change based on airline, departure airport, destination, time of year traveled and current fare wars (or lack thereof). But the basic conclusions will be similar.

The poorest use of miles, guided simply by value, is for a two-week-advance, Saturday-night-stay-required, round-trip domestic coach ticket. That’s because it is one of the most widely and commonly discounted tickets in the industry. If this type of fare is within your means and seems like a good value, you should consider purchasing it rather than using miles.

Nobody I know makes travel decisions based solely on numbers. Our motivations are more complex than mere figures can represent. But numbers can be used as a guide to help make better-informed decisions. You worked to accumulate your miles, and you should manage them just as you would manage any other valuable asset.

The miles I have are important assets that give me the freedom to, at the drop of a hat, fly for free almost anywhere in the world. And how do you place a value on that?

Christopher Reynolds is on assignment. James Gilden is a Los Angeles-based freelance writer; he can be reached at jamesgilden@aol.com. Send comments to Travel Insider, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, e-mail travel@latimes.com.