You see the email come into your inbox – American Airlines is offering a bonus on AAdvantage miles you can purchase for yourself, share or gift to someone else. It’s a sale - it must be a good deal! Hmmm…or is it?
It only makes good economic sense to purchase miles if you are redeeming miles for an upgrade or award flight where the cash value of each mile required is more than the price you paid to buy the miles. And it never makes sense to share miles with another person. Read on to find out why...
Without a bonus, to buy or gift American AAdvantage miles costs 2.95 cents for each mile, plus a 7.5% tax which increases your cost to 3.17 cents. In addition you will pay a $30 processing fee per transaction. The cost per mile is essentially the same with taxes included when you buy the miles during a flight with the Mileage Multiplier or make a non-flight purchase online. This is an extremely expensive way to acquire miles!
As you know from prior trvlvip Perks and Tips, we value American AAdvantage miles at 2 cents per mile, which is the value we would be willing to pay for the AAdvantage miles if we could buy them for cash. It is also the minimum value we feel you should expect before redeeming your miles.
So now we know you will pay 3.17 cents per mile to buy or gift miles plus a $30 transaction fee per transaction without a discount or bonus.
Here then is a calculation you can use to determine the cost of each mile when a bonus or discount offer is available:
Multiply the total required cash outlay for the mile purchase (make sure you add in the 7.5% excise tax and the $30 processing fee for the transaction).
Divide that amount by the total number of miles offered to determine your cost per mile.
So, does it ever make good financial sense to buy or gift AAdvantage miles? Maybe – but typically only if you purchase miles during a bonus or discount offer to secure a specific award flight or upgrade.
In order for the miles purchase to make good economic sense, you will need to use your miles to book an award ticket or upgrade where the value of each mile is more than what you paid for it.
Let’s walk through a specific example assuming you bought miles at 3.17 cents per mile:
You find a coach class, round-trip, domestic award ticket for 25,000 AAdvantage miles plus taxes and fees of $20, which you are required to pay separately.
You paid $822 to acquire the miles (25,000 x 3.17 cents + a $30 transaction fee).
In order to make good economic sense, you need to redeem those miles for a ticket that costs more than $842 if you were to pay cash ($822 + the $20 in taxes and fees required for the award ticket).
Let’s walk through a specific bonus offer example assuming you bought the maximum 100,000 miles and received a bonus of 50,000 miles:
You find a Business Class, round-trip, international award ticket for 150,000 AAdvantage miles plus taxes and fees of $100, which you are required to pay separately.
With this bonus inclusive of the 7.5% excise tax and the $30 transaction fee you will pay $3,201 or 2.13 cents per mile.
In order to make good economic sense, you need to redeem those miles for a ticket that costs more than $3,301 if you were to pay cash ($3,301 + the $100 in taxes and fees required for the award ticket).
And ALWAYS call American Airlines to make sure at least a few award tickets are available prior to any mile purchase because as we all know, cash tickets are plentiful, but award tickets can be scarce, especially those requiring a lesser number of redeemed miles during an award sale (and it could take up to 48 hours to process your purchase).
And remember, purchased miles will not count in any way toward American Airlines Elite qualification for you or the fortunate member you decide to gift your miles to.
Does it ever make sense to share miles?
No, sharing miles never makes good financial sense even with a sale or bonus! If you transfer miles without a bonus or discount, it will cost you between 1.17 cents (50,000 miles) on the low-end and a whopping 3.25 cents (1,000 miles) on the high-end for each American AAdvantage mile transferred inclusive of the $20 transaction fee. And because you’re simply transferring existing miles instead of buying new miles, you have to factor in the value of the transferred miles (which we value at 2 cents per mile) you lose from your own account. This makes it a very expensive and poor economic decision at any level even with a bonus or discount.
Instead of gifting or sharing miles, it is a better value to use your miles to purchase an award ticket for the intended recipient. And it rarely makes sense to buy or gift AAdvantage miles speculatively as it is a very expensive way to acquire miles especially without a bonus.
Once, you’ve picked a location and your dates and have taken the steps to ensure award availability, make the small effort to crunch the numbers to make sure the miles purchase makes good economic sense - you will be very happy you did!
Click here for the American Airlines award charts, to review award availability and to book award travel.
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