AS THE end of the year draws near we must make many financial decisions: how much we can donate to charity, what benefits to sign up for at work, and (if you’re into policy) pondering what’s your ideal resolution to the fiscal cliff. But the most vexing and complex problem I’ll solve concerns my airline mileage club status.
I’m embarrassed to admit the amount of time I’ve spent thinking about airline loyalty programs. My economist brain spends hours assigning a value to each tier of status. The more you fly, the higher your status and more benefits from the airline. The value of each tier is not universal. It depends on your tastes and travel needs. I put a marginal value on domestic upgrades, so long as I can take the best seat in coach (I like the bulk-head row) when I book my ticket. I never check my luggage so free checked bags is worth nothing to me.
But your status determines when you board the plane. On certain flights even gold members must put their bag in an overhead rows behind their seat—or even face the unthinkable gate check. I put a high value on the fact that I had a special hotline, with no hold time, to call when I had to rebook my Sandy-cancelled flight.
I am not alone in my obsession. Much like the network of economics bloggers, there is an elite, self-referential community of point-bloggers. They devote hours of their lives optimising among various airline/hotel/credit card programs and sharing their knowledge; rumour has it they also meet up regularly at airport hotels.
I am on track to end the year a few thousand points shy of my airline’s highest status tier (the highest if you don’t include the super-secret top-revenue club. That’s out of my league because most of my travel is domestic). So my options are: lower status next year, buying the miles for a king’s ransom, or take a trip just for the miles. Depending on the week and destination, travelling is cheaper than buying miles, but there’s a significant opportunity cost involved (I have to get on a plane and go to Seattle for no reason).
It gets more complicated. It used to be that the cost of buying miles increased exponentially later in the year (just when you know exactly how many miles you need). It’s the classic finance problem: the cost of minimising risk and the reward to tolerating uncertainty. I once priced the option value of buying miles in March (I suspect the airline had too).
What’s at stake for those remaining miles I need? The next tier of status offers 6 international upgrades. That alone is worth thousands of dollars. Though that assumes I’d otherwise pay for a business class international ticket—which I wouldn’t.
But I do place a large premium on upgraded international travel. As you might guess, I have hundreds of thousands of miles, so why not just use those instead for free flights? If you use miles for a reward ticket you don’t get new miles when you fly. And in my book, a flight where you don’t get miles is not a trip worth taking.
Flying can be awful, but many small, and not small, things go a little smoother when you have high status with the airline. Security lines are shorter, you get on the plane sooner, you’re offered seats in the front of the plane and, if there’s a problem, you’re first in line to get it fixed. That can make all the difference when you fly a lot.
Those extra minutes saved add up, which means more time at your elusive home with cherished friends and family. I like having a goal and derive utility from reaching it. There is intense competition within the elite flying community. Your status brands you. How would the other travellers look at me if I were to board in group 3…or lower?
Also the higher your status, the quicker you accumulate points the next year. So many non-linearities here, I doubt a unique, optimal solution even exists.
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