Personal Finance

Does it make sense to collect airline miles from credit card spend ?

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  • Nov 18th, 2016 1:17 pm
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Does it make sense to collect airline miles from credit card spend ?

Here is an example that shows it's not really worth it to accumulate airline miles from (organic/manufactured) credit card spending and it might make more sense to earn from cashback credit cards if it gives 2% cashback or more:

Objective: "free" award flight in business class
Example: Roundtrip award flight to Japan in business class

Using the miles path
Flexibility: poor, especially for travel with a partner
Learning curve: steep (time spent learning the programs, searching for availabily, etc..)
Typical Cost in miles: 130K to 150K miles (depending on award program) + $100 to $500 in taxes
Credit card spend required to earn the miles: $130 to $150K

Using a straight 2% cashback credit card like the MBNA Rewards World Elite card
Flexibility: good
Learning curve: easy, just a little bit of effort to watch for fare sales and promos
Typical cost in cash: $3500 aprox.
Credit card spend required to earn the cost of trip from 2% cashback credit card: $175K


So the difference in required spend is not that good for earning miles through credit card spend, considering the trade-offs in terms of flexibility and hassle.

For Economy seats, it even makes more sense to earn 2% cash-back than miles from cards that give 1 mile per dollar spent: You'd need to spend $50K to earn $1K in cashback, where as you'd need to spend $70K to earn 70K miles for a roundtrip award flight to Japan.

So a good strategy is: earn miles from credit card welcome bonuses, flight/hotel/rental/shopping and their promotions, but put credit card spend through a card that earns 2% cashback or more.
Last edited by SnoopDop on Nov 14th, 2016 3:27 pm, edited 2 times in total.
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Isn't the answer pretty much, if you get more than 2% value yes, if not no?


But I do agree, too many people discount cash.
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For the most part, there are better sign up bonuses when it comes to points/miles/loyalty credit cards, when compared to cashback.
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I would re-adjust your 2% spending to target the same redemption level by backing out spending based on tax costs.

e.g. if you estimate $100 to $500 in taxes, then your equivalent redemption is $3000 to $3400 in cashback earned.

That's $150k to $170k. That's still more spending than $130k to $150k.

But anyways, I agree with foreigncontent ... just calculate the air line miles as a percentage value and if it's better than 2% you can consider it. If it's worse than 2% than don't even consider it.

BTW, there are cards that earn 1.25 per $ instead of 1... so that would be down to $104k to $120k spending to earn 130-150k miles.
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Does it make sense to just use one cashback credit card when the credit card companies are tripping over themselves to dish out bonus points with first year's annual fee waived ?
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crouchingbunny wrote: Does it make sense to just use one cashback credit card when the credit card companies are tripping over themselves to dish out bonus points with first year's annual fee waived ?
I think so. Even though the required level of spend required on a 2% cashback credit card is a little bit higher than that of an airline miles card for the purpose of redeeming for a business class flight, the flexibility of cashback makes up for it.

Simultaneously, I would churn miles and points cards and use some manufactured spending to reach their welcome bonus spending requirements.
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Op's post is a poor example, assuming the worst case scenario for earning and redeeming airline miles.

The best cards that earn airline miles typically earn between 200-250% more than a 2% cashback card on the categories people spend the most of their money on. Redemption value varies like crazy, but its easy to get 2%+ value per point on redemptions after tax. 20%+ is even possible on some business or 1st class flights. No cashback card comes close to this level of value.
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Here's a real example of the benefits of a card that pays the user airline miles:

"John" spends $12,500 in 1 year on his Amex Gold card in 2x multiplier categories
"John" converts those 25,000 MR points to 25,000 Aeroplan miles
"John" redeems those 25,000 Aeroplan miles for an economy return flight from Vancouver to Halifax during peak season, and pays $160 in tax (this is an $800+ flight; net benefit = $640)

Ok, now lets see how "John" does with a 2% cashback card:

"John" spends $12,500 in 1 year on his 2% cashback card, earning $250 in cashback
"John" leaves $390 on the table vs the airline miles card

You can play around with the results all you want, but the airline card usually comes out far ahead of a cashback card from a value perspective.
Last edited by BrianWS6 on Nov 15th, 2016 4:28 pm, edited 1 time in total.
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BrianWS6 wrote: Here's a real example of the benefits of a card that pays the user airline miles:

"John" spends $12,500 in 1 year on his Amex Gold card in 2x multiplier categories
"John" converts those 25,000 MR points to 25,000 Aeroplan miles
"John" redeems those 25,000 Aeroplan miles for an economy return flight from Vancouver to Halifax during peak season, and pays $160 in tax (this is an $800+ flight; net benefit = $640)

Ok, now lets see how "John" does with a $200 cashback card:

"John" spends $12,500 in 1 year on his 2% cashback card, earning $250 in cashback
"John" leaves $390 on the table vs the airline miles card

You can play around with the results all you want, but the airline card usually comes out far ahead of a cashback card from a value perspective.
Does Air Canada release award seats during "peak-season" ? How far in advance do you have to look ?
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Flitox wrote: Does Air Canada release award seats during "peak-season" ? How far in advance do you have to look ?
They do sometimes release extra reward seats shortly beforehand. If you want to guarantee availability though, then you should book as early as you can.
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Where the value comes in handy for airline points is for extra perks like 1 free stopover, and open-jaw flights. Those CAN end up being expensive revenue flights.

I agree that if you're flying YVR-NRT YVR-KIX ( using Japan in your example ) that using 75k points on that is a complete waste. Flights often go on sale on that route. You also earn miles when paying for a revenue flight. Overseas to Japan will net you 9000 AP to NRT ( 4,900 to KIX or NGO because they ROUGE'd those new routes ).

However, say you want to go to Okinawa... with a stopover in Tokyo:

Code: Select all

YVR-HND ( stopover for 3 days ) jan 10
HND-OKA ( stay for a week ) jan 13
OKA-HND-YVR ( return ) jan 25
( All flights with ANA ^_^ )

I just checked that itinerary and surprisingly for days that ANA has opened up ( looks like tickets released until January 14th ) you can get that itinerary for $75 in Taxes.

That exact same itinerary is $1397 on Expedia.ca so 75,000 pts in this case case are worth $1322 ( 1.75¢ / pt )

If you're earning points 1:1, that will cost $75,000 ( worth $1500 cash @ 2% )

However, if you're trying to use, say an Amex Gold Card, in 2% categories only, it's only going to cost you $38,000 ( worth $760 in cash ).

If you're using it 50:50 ( averaging 1.5 pt / $ ), you'll have to spend $50,000 ( Worth $1000 in cash ).

And this is a regular ol' economy trip. Business class flights are obviously different.

SAYING ALL THAT... paying for the flight has one other advantage... you collect mileage points. In this case, it would be worth 11,000 Aeroplan points... which is not a small chunk of points worth about $190 in this scenario...

So, given a $43,000 SPEND

Buy outright
+ $1397 ticket
- $860 cashback @ 2%
- $192 ( value of 11k points earned )
--------------------------------
COST: $345 / ticket

Purchase points @ 1.75 pts/$ average
+ $0 ticket
+ $75 taxes
--------------------------------
COST: $75 / ticket

In the end, you save $270 using points (with this scenario) which I agree isn't a whole lot, unless you're buying 3 or 4 tickets, in which case it adds up.

But that's with an itinerary that is worth less than 2¢/point. I booked an economy flight to Venice with a stopover in New York in the spring and booked the exact same itinerary as a revenue flight for $1400. Since European flights are only 60k, ended up being worth 2.2¢.

You do make a good point though. Airline point systems can be quite the hassle and tricky to squeeze the value out of if you're purely using spend to do it.
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atomiton wrote: Where the value comes in handy for airline points is for extra perks like 1 free stopover, and open-jaw flights. Those CAN end up being expensive revenue flights.

I agree that if you're flying YVR-NRT YVR-KIX ( using Japan in your example ) that using 75k points on that is a complete waste. Flights often go on sale on that route. You also earn miles when paying for a revenue flight. Overseas to Japan will net you 9000 AP to NRT ( 4,900 to KIX or NGO because they ROUGE'd those new routes ).

However, say you want to go to Okinawa... with a stopover in Tokyo:

Code: Select all

YVR-HND ( stopover for 3 days ) jan 10
HND-OKA ( stay for a week ) jan 13
OKA-HND-YVR ( return ) jan 25
( All flights with ANA ^_^ )

I just checked that itinerary and surprisingly for days that ANA has opened up ( looks like tickets released until January 14th ) you can get that itinerary for $75 in Taxes.

That exact same itinerary is $1397 on Expedia.ca so 75,000 pts in this case case are worth $1322 ( 1.75¢ / pt )

If you're earning points 1:1, that will cost $75,000 ( worth $1500 cash @ 2% )

However, if you're trying to use, say an Amex Gold Card, in 2% categories only, it's only going to cost you $38,000 ( worth $760 in cash ).

If you're using it 50:50 ( averaging 1.5 pt / $ ), you'll have to spend $50,000 ( Worth $1000 in cash ).

And this is a regular ol' economy trip. Business class flights are obviously different.

SAYING ALL THAT... paying for the flight has one other advantage... you collect mileage points. In this case, it would be worth 11,000 Aeroplan points... which is not a small chunk of points worth about $190 in this scenario...

So, given a $43,000 SPEND

Buy outright
+ $1397 ticket
- $860 cashback @ 2%
- $192 ( value of 11k points earned )
--------------------------------
COST: $345 / ticket

Purchase points @ 1.75 pts/$ average
+ $0 ticket
+ $75 taxes
--------------------------------
COST: $75 / ticket

In the end, you save $270 using points (with this scenario) which I agree isn't a whole lot, unless you're buying 3 or 4 tickets, in which case it adds up.

But that's with an itinerary that is worth less than 2¢/point. I booked an economy flight to Venice with a stopover in New York in the spring and booked the exact same itinerary as a revenue flight for $1400. Since European flights are only 60k, ended up being worth 2.2¢.

You do make a good point though. Airline point systems can be quite the hassle and tricky to squeeze the value out of if you're purely using spend to do it.
$75 vs $345 ticket cost is a HUGE difference, and illustrates the point very well that airline point programs provide much better value. I don't think that an extra 15 or 20 minutes and a little bit of effort here and there is too much hassle to save hundreds or even thousands of dollars annually over paying for travel with a cashback card. I doubt there is anyone on this forum that makes enough money that they can honestly say that sacrificing 20 minutes of their time isn't worth saving $200 (or more).
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BrianWS6 wrote: $75 vs $345 ticket cost is a HUGE difference, and illustrates the point very well that airline point programs provide much better value. I don't think that an extra 15 or 20 minutes and a little bit of effort here and there is too much hassle to save hundreds or even thousands of dollars annually over paying for travel with a cashback card. I doubt there is anyone on this forum that makes enough money that they can honestly say that sacrificing 20 minutes of their time isn't worth saving $200 (or more).
but this requires specific needs. Travel return, with a stop-over to get a HUGE difference.
Not sure that many people travel to places to maximise their return on benefits. How many people planning to go to Japan have you heard wanting to go to Okinawa (other than me).
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foreigncontent wrote: but this requires specific needs. Travel return, with a stop-over to get a HUGE difference.
Not sure that many people travel to places to maximise their return on benefits. How many people planning to go to Japan have you heard wanting to go to Okinawa (other than me).
But as you've shown, even when you take the worst possible redemption scenario into account (getting 1.75 cents value per point), the airline miles come out miles ahead. And it takes no effort whatsoever to book an economy class return flight during the slow season (without stopovers and when cash fares are cheap) and achieve 2+ cents value from those points. Aeroplan is offering 1 way flights now for half the price (and Avios and Air Miles always allowed this), so the argument is now moot that a return booking is required too.
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BrianWS6 wrote: Aeroplan is offering 1 way flights now for half the price (and Avios and Air Miles always allowed this), so the argument is now moot that a return booking is required too.
This is not correct. You could not do the above example on a one way ticket (no stop-over allowed).

I get value from Aeroplan points, because i have the flexibility, and can use random dates, and decide to go to Okinawa just because it's additional place and it adds no points. but i doubt people want that as a Vacation. So the Above example to Tokyo, which most people would be looking at cost $1092, so no savings.
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foreigncontent wrote: This is not correct. You could not do the above example on a one way ticket (no stop-over allowed).

I get value from Aeroplan points, because i have the flexibility, and can use random dates, and decide to go to Okinawa just because it's additional place and it adds no points. but i doubt people want that as a Vacation. So the Above example to Tokyo, which most people would be looking at cost $1092, so no savings.
The stopovers are a moot point, because the value derived without a stopover is still higher than what you could do with a cashback card.
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I collect Airmiles when I use my MC at Costco and when I happen to buy something at Safeway that has bonus AM's....everything else gets put on a Visa. There's no point going out of my way to collect since they've downgraded the program so much (points expiring, merchandise not available, takes many more miles to fly anywhere, etc).
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foreigncontent wrote: This is not correct. You could not do the above example on a one way ticket (no stop-over allowed).

I get value from Aeroplan points, because i have the flexibility, and can use random dates, and decide to go to Okinawa just because it's additional place and it adds no points. but i doubt people want that as a Vacation. So the Above example to Tokyo, which most people would be looking at cost $1092, so no savings.
In my experience, I have found that Aeroplan are a bit tricky to use, but honestly I wouldn't use them to go to Japan from YVR. Flights are plenty cheap already. There is value in AP in economy ( I only like to compare economy(Y) because I don't typically purchase tickets in J )

Also remember that unless you're grandfathered, the only 2% Cashback card is the Capital One that has a $120 annual fee. On $60,000 spend / year, that's a 1.8% return ( $1080 ).

Unless there's a 2% cashback card with no tiers that I'm unaware of.

$60000 = ~90,000 AP @ ~1.5 pts/$ ( let's face it, it's hard for MOST people to spend $5000/month on gas/groceries per year unless they're running expenses through a business)

90,000 will get you 1.5 flights to Europe in Y, almost a flight in J. 1 flight to East Asia with 15k to spare.

Personally, I don't think it's either/or. I tend to collect AP / Amex MR when it makes sense, and use my 1.75% Cashback card (Rogers MC) for regular purhases ( and Costco ). The Cash Spend often helps you get to the next level and gives you more flexibility to book multiple tickets. IT sucks having enough points to get 3 tickets when you need 4 tickets, for example.
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BrianWS6 wrote: Op's post is a poor example, assuming the worst case scenario for earning and redeeming airline miles.

The best cards that earn airline miles typically earn between 200-250% more than a 2% cashback card on the categories people spend the most of their money on. Redemption value varies like crazy, but its easy to get 2%+ value per point on redemptions after tax. 20%+ is even possible on some business or 1st class flights. No cashback card comes close to this level of value.
Actually no. Few people can spend enough on the categories where you get accelerated points to make the average worth 2%. Of course if you are one of those unicorns that can keep getting business class tickets on airlines then it might be worth it but I have yet to meet one of those. I am extremely flexible in my travel plans but the airlines' move to dynamic allocation of biz klass (and economy for that matter) seats has basically turned getting those seats into a lottery where few are winners. A biz klass seat available one day may not be the next. No seats could be available 364 days before the flight then all of a sudden a few might open up on random days during the year. As a result I ditched my CIBC Aeroplan card 3 years ago and now only accumulate the miles by flying or at Esso/Home Hardware and churning cards to get the miles. Otherwise I use my grandfathered Capital One Travel 2% cashback across the board card which is free for 12-1/2 years at the time I got it.

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