Today we’ll study up on the subject of Fungiblity of Miles. Simply put–something is fungible if you can exchange individual units for back and forth with each other. The classic example is cash–a $10 and 2 $5 bills are interchangeable. At some point this idea of cash being fungible breaks down . Would you accept 100 $1 bills as change for a $100 bill? You might. What about 1,000 Dimes? maybe not, or 10,000 pennies? There is usually a limit on fungibility. Today we’ll see if miles are fungilble, and if so what limits there are on this fungiblity.
Converting Frequent Flyer Miles: A common question
It is very common for me to be asked by someone how their United miles can be converted to American miles, or something similar. This is because we’re used to booking with money–and money is fungible. This is a classic example of why we need to retain our brain for Milenomics. When we’re just starting out with Miles we think they work just like money–and we assume miles are fungible like money is.
What we come to learn is that miles are not very fungible. Alaska Miles stay with Alaska, United with United. We can book flights with alliance members and partners, this allows us to fly on Alaska with British Airways Avios, or Delta Miles. This is not fungiblity but it does help us to extend the use of our miles.
Most of the time if someone asks can you “convert” miles into another program the answer is no. Today we’ll look deeper at our miles and see if there are ways miles can be fungible, and/or if they can be converted without loss of value.
Refer Back to Credit Card Systems
A few months ago I wrote a post titled, “What Happens to My Miles When I Close A Credit Card?” In that post I outline two different types of cards, overpopulation research paper dating violence research paper click here high school homework help websites music press kit cover letter http://go.culinaryinstitute.edu/management-essay-writing-service/ queensland university of technology thesis buy viagra at a discount https://web.ics.purdue.edu/~asub/?doc=the-call-movie-review https://homemods.org/usc/essay-on-favorite-food/46/ write an essay online https://thedsd.com/reconstruction-essay/ https://climbingguidesinstitute.org/15269-computer-engineer-fresher-resume-sample/ what is a critical essay how do i write an essay about my family watch see see thesis statement examples hunger games viagra billboard levitra quanto dura organic farming vs factory farming essay appendix for dissertation follow url article writing services reviews whirlpool deloitte cover letter https://www.cochise.edu/academic/essays-in-education-online-journal/32/ good thesis starters esl article review editor websites au i need someone to write a paper for me good thesis examples for essay what does viagra do for a man Open system and Closed System Cards. The Basics were outlined on our whiteboard in that post:
In today’s discussion we’ll be using both of these systems as well.
Open and Closed Systems: Fungibility
With Open System Credit Cards, the miles earned transfer to your personal mileage account at the close of each statement. This is good with respect to closing your card–as you don’t lose any miles, but bad for fungibility. You’re generally stuck with miles in the program you’ve earned them in with these cards. There are two exceptions to this:
SPG Starpoints: These are usually earned one of two ways; by staying at SPG properties, or by spending on the SPG American Express. Starpoints are not only hotel points, but also “convertible” miles. They’ve been created to do this, and it is an advertised benefit of the program. With 30 airline partners these miles can convert from SPG to any number of airline miles. But is this true fungiblity? No because once the miles are in another program they’re now subject to that program’s inflexibility and cannot transfer back out.
Other Hotel Points: We often forget that SPG is a hotel program, and other hotel programs offer a similar “one time” transfer option to airline miles. The difference between SPG and all other programs are that SPG->Airline miles is usually 1:1 or better (with 20k + 5k bonus). Most other Hotel programs, from Hilton to Club Carlson have terrible exchange rates; 10,000 points might convert to only 1,000 airline miles.
Fixed Value Closed systems offer no way to transfer to miles directly, but with Milenomics tricks we can turn these fixed value points into other airline miles.
Variable Value Closed Systems (MR and UR) shadow the above SPG example. You can turn your MR into DL, BA, or any host of other miles. We discussed this when we declared Membership rewards, “Shadow Currency, Orphan Savior and Risky Business.” Ultimate Rewards are the same–they can convert to any number of programs as well.
Again, this isn’t true fungibility because the miles can only be converted within a small group of options, and just as above hotel examples the move is one way only. Once you’ve converted your miles you cannot convert them back.
Buy and Use, instead of Buy and Hold
The lack of fungibility in miles is also an importance consideration when you go to buy miles. If you buy US miles, say during their current promotion, or the one that just passed, you need to use them as US miles. We talked about trying to time the market and buy these miles now, to use them later. The issue with Market timing is that you never know what is coming. And with Miles not being fungible, these two reasons mean we should be very sure we need these miles before we buy them.
The absolute best way to do this is when we can buy them outright and use them on the spot. We could buy a ticket on a flight–and that same ticket could be booked with miles. I’ll use the recent US Airways Gift promo for this example. When a flight is over $660 with US Airways miles and money would be interchangeable for most of us. A good example is around Christmas, or Thanksgiving. You can often book any flight you want for 55,000 miles round trip (with US Airways CC discount).
Assuming you could buy those miles for $.01135 each and then instantly book that flight (which you could) you’d be able to convert money–>miles–>flight on the spot, and save money.
True Fungiblity Will Exist Next Year: AA and US
For a brief period you’ll see true funbility–at least between two mileage currencies. If historical examples are followed you’ll be able to, on the spot, convert 1 US mile to 1 AA mile. And, you’ll be able to convert back, from 1 AA miles to 1 US mile.
This will, while both programs exist, be an example of truly fungible miles. US miles should transfer to AA, and AA to US. I’m basing this on the similar functionality that was implemented post United/Continental merger and post Southwest/Airtran merger. This will, for a while, be an example of two miles which are interchangeable.
Converting Miles to Money
I would argue that the true “holy grail” for most mile collectors is converting from miles directly to money. If Miles could convert easily to money, and then back to miles (through purchasing miles) we’d have much more flexibility with our miles, especially when our travel patterns change, or a program no longer offers us the flights we need.
Can you convert Frequent Flyer Miles to Money? Yes, and no. I’ll tread lightly on this subject, but I won’t toe the line that most do. You absolutely can convert miles to money. Now after a statement that bold I need to add some standard disclaimers:
Your must accept the risks in converting miles to money, most notably your account being shut down, and forfeiture of all the rest of your miles.
You will be dealing with “less than savoury” characters. Think used car salesmen for miles.
Are there people who only apply for credit cards to get the miles and sell them to brokers? Absolutely.
If my travel patterns changed, lets say my wings were clipped and I had to dial back my travel–I’d take the risk and sell at the very least my Membership Rewards points, Delta miles, and my US/AA miles. Chase has been too aggressive in shutting down entire families for me to think about selling UR–especially when Chase will buy them from me for 1 CPP, and I might only get another .5-.8 by selling them to a broker. Not worth the risk in my mind for the extra .5 CPM.
Being EQM-Zero I have much less to lose if my airline account is shut down than someone who’s been earning EQM all year and holds status with the airline.
Trading Miles–Much Better Than Selling Them
Mile trades are a great way to save miles and money. For example–there are some great programs out there, Jetblue, Virgin America–that offer good service, convenient flights, and in seat television. Do you hear much about flights being booked with either online? No. Why is this? I’m not 100% sure. I assume part of it is because the two carriers don’t have very robust route maps. In addition there’s not many good ways to earn their miles. Each has a fixed value type of point, similar to Southwest’s points. But expand your mileage horizons, and keep an eye out for interesting trades. We covered some of this when we discussed MR as a Shadow Currency last month.
Fungibility is not convertibility, we’ve seen that today. Most of the time something is only fungible if it represents a commodity, like Frozen Concentrated Orange Juice (FCOJ) futures. What we’ve seen today is that Miles are not a commodity. Each program has strengths, and weaknesses, and miles inside the program usually have to stay in that program. Further reinforcing the fact that miles are not commodities is the lack of fungiblity we’ve seen today. I continue to stand by my point that Miles act more like a Non-Durable Good, and today’s post further reinforces that fact.
As for converting miles, we’ve also shown today that the idea is very common, but usually not practical, outside of Variable Value Closed System (MR/UR) and some hotel points. We should also tread lightly when trying to sell miles, and be agressive when trying to trade them. High level stuff, but important to gain all the advantages we can.
Miles are a meant to be used. Hoarding makes Miles sad.
Everything below this line is automatically inserted into this post and is not necessarily endorsed by Milenomics:
– Written by Sam Simon. All ideas are my own, but I encourage you to see my point of view and I promise I’ll try to do the same. Connect with me on Twitter @Milenomics.