S1 E3: Maximizing your Airline Miles. Knowing when to buy and when to use miles.

Our Podcasts are always about finance and money, but this one has a small twist. As a former very frequent traveler, I learned (sometimes the expensive way) about when it is better to buy a ticket and when it makes sense to cash in airline points. Airline miles and Hotel points are like currency - learn how they work and how to maximize their value. Happy listening!

Episode Transcript

Intro (00:04):
Hello, and welcome to the 15 minutes to financial freedom
educational podcast serieshosted by Arvind Ven.
These 15 minutes or so Podcastsare meant to educate and empower
listeners about key financialtopics towards the road to
financial independence and plainEnglish and without financial
jargon.
Arvind Ven is an independentfinancial advisor, founder and

(00:25):
CEO of Capital V Group inCupertino, California.
He is regularly featured inleading national financial
publications, such as Forbes andmany others.
And now for our host Arvind Ven.

Arvind Ven (00:37):
Welcome back listeners.
This is Arvind Ven, CEO ofcapital V group today's podcast.
This episode is also aboutfinance as always and money, but
with a slight twist.
We will talk about how to valueand maximize your airline miles.
So many of us h ave airlinehotel points that are valued
very much for holidays a t favorite destinations.

(00:59):
However, the value may not be asclear as money in the bank
account.
T here's b een a rush in thepast f ew years to market
airline and hotel, brandedcredit cards that reward c ard h
olders with points or milesbased on every dollar of
spending, but there are ways inwhich you can maximize t heir
value provided you know how.

(01:19):
So today, let us talk more abouthow to maximize the value of
these points and also learn howthese airlines and hotels play t
heir loyalty points g ame sothat you know how the game is
played.
My assistant Lauren took a shortvacation f or a family v isit,
so let's find out how her t ripw ent.
Hey Lauren, welcome back.
So how was your trip and how has the overall travel

(01:42):
experience?

Lauren (01:43):
Thanks, Arvind.
Yeah, it was really great.
It was actually me and myhusband's first time to Newport
Rhode Island.
It's an awesome little town,great food, great attractions,
but the triple overall wasawesome.
The flight was awesome.
We typically fly United, neverreally had any issues with that
airline, but overall the tripwas great.

(02:04):
Would love to go back and Iwould definitely recommend
Newport if you're ever lookingfor a place to travel

Arvind Ven (02:09):
Well, the new England and east coast area,
I've always loved that.
I don't know if I mentioned thatI spent two years up in Boston
for my MBA.
So I have fond memories of thearea, the fall colors and
summer.
It is n ice, the only thing Ididn't care for too much was the
harsh winters.
That w as pretty severe.
Winters w ere pretty brutal, butthere are lovely areas in that
part.
I'm glad y ou w ere able to gothere.

(02:31):
So I'm curious, did you buytickets or did you use frequent
flyer points?

Lauren (02:35):
We actually use frequent flyer points now that my husband
and I are a little bit older,we've finally learn how to use
credit cards more responsibly.
So we try to take advantage ofusing our credit cards to gain
points and typically use themfor flights, especially since
our families are both on theeast coast.
So we're traveling a lot.
We really try to use points whenwe can

Arvind Ven (02:58):
Did you buy tickets or use saved airline miles?

Lauren (03:04):
Yeah, yeah.
We just try to accumulate itthroughout the year.
And then sometimes when wetravel, we don't have enough
points.
So then we just buy sometickets.
But yeah, usually we just try toaccumulate it and save up for
the next trip.

Arvind Ven (03:16):
That's awesome.
So frequent flyer points werecreated as a way to reward
loyalty to a single airlinebecause those programs have been
around for awhile and airlinestry very hard to keep them at
and business travelers happybecause these travelers
generally bring in the bulk ofthe revenue, but with so many
credit cards, offering miles ofpurchases, the rewards are
getting diluted including theelite flyers.

(03:40):
And here's why this massivelyaccumulating miles is also a
liability for the airlines havebalance sheets without getting
you to do much in accounting.
It shows that it still is aliability.
It's not really a profit becauseat some point these miles have
to be used.
So airlines have many tricks uptheir sleeves, including
increasing the number of milesneeded for a trip every so
often.

(04:00):
So actually you're looking atinflation or you can say a
depreciating value of the miles.
And in fact, I have miles fromall of my previous life of
traveling and I get emailstrying to get me to use it
because miles, becausedefinitely they don't want that
many miles every so often in atrip to say from San Francisco
to the east coast may costs interms of points, may cost say

(04:24):
25,000 points.
One way that all of a suddenreach 30,000 it's up to them to
move the goalpost.
So that happens every so often.
So you got to be careful as tohow to maximize those points
cause the, that currency.

Lauren (04:36):
Oh really?
I actually didn't really noticethat.
So you're saying the value of myfrequent flyer points gets
reduced, even though I didn'tuse them.
That definitely sounds likeinflation eating away at my
savings account, sitting in thebank, getting almost zero
interest.

Arvind Ven (04:51):
That's a good comparison actually, because the
points are like money, but atthe same time, the airlines want
to kind of force people toeither use the miles or make the
value lower so that they haveless liability on the books.
So the easiest route for theairline, pun unintended, is in
de-valuing these points so thatthey can.

(05:12):
In The example that I gave justnow for raising it by 5,000
points from say 25,000 to 30,000points for a one-way from San
Francisco, t o Boston they havealready devalued this miles by a
bit.

Lauren (05:26):
So if I understand correctly, there's a partnership
between an airline and a creditcard company.
And so when I use my airlinebranded credit card at a grocery
store, for example, I getairline miles for the amount
that I spend, but how does itwork on the other side?
Meaning how does the credit cardcompany and airlines get value
out of this?

Arvind Ven (05:46):
Ah, ha.
So now we're getting into thenuts and bolts of how the entire
mileage points work is.
Yeah, you're right.
It sounds simple.
Like we go to the grocery store,we buy something, you go and get
points, but how does it all workin, why are they doing this at a
very high level?
The explanation is that airlinessell miles to credit card
companies for millions or evenbillions of dollars.

(06:09):
So this is a great cash infusionfor the airlines and much better
than a bailout from thegovernment or tax payer dollars.
So they are also better thangetting alone because this is a,
without too many caveats, theyare getting cash infusion by
selling miles through thiscredit card companies.
Credit card companies areinterested and they want to do
this because they get to attractmore new customers by offering

(06:31):
these miles when people use acredit card.
So let's say if either you are,I mean, you've got card issuer X
says, I'm going to give you60,000 airline points for
signing up compared to anothercard that says, I'm going to
give you zero.
Then definitely going to bepretty motivated to look at the
card company that's giving mebonus points or bonus airline
miles for signing up.

(06:52):
And that's how the system works.

Lauren (06:54):
Why did you say something about this thing, the
liability for the airlines fortax purposes?

Arvind Ven (06:59):
Right.
And without getting into muchaccounting.
The miles will be used down theroad.
And that means t he free ticketsa nd less revenue for the
airlines.
That's why they call it aliability.
Because even though they got thecash f rom the credit card
company for the miles that theysold them, t he whole idea is
that.
S o we get this point.
So if there are millions or tensa nd millions of unused airline

(07:21):
miles and points with creditcard customers, or even with
regular f lyers, that can, willbe used down the road and that's
considered a liability a t the book.
So it's definitely a drag on thep roduct.
So t he airlines definitely a revery motivated to try and get
people to use them.
I try and do value them so thatthe liability is less.
So that's the mechanics betweenh ow it works.

(07:44):
So the key to maximizing yourmiles is to understand the
concept of cents per mile.
Let me repeat that.
It's cents per mile.
I wish it were dollars per mile,but that's not the case.
Books and blogs have beenwritten on this topic.
Then you can go online and read.
There's so many really popularblogs on quote unquote credit
card hacking and how to maximizeyour airline points.

(08:06):
But I had written the big groupblog.
We have an article on maximizingairline points too.
So Laura, let me ask you aquestion.
What is a favorite of city, acities that you would love to
visit?
If there's international, it'llmake the example that I'm going
to give even way.
Interesting.

Lauren (08:22):
So favorite city that I have been to, I really enjoy
going to the bay area.
Since I'm currently in SouthernCalifornia.
We also really like going topark city, Utah to snowboard or
sometimes just Vegas.

Arvind Ven (08:37):
So what would be, would you, would it be barriers
if we London,

Lauren (08:41):
I would love to go.
I would love to go everywhere.
My family is from thePhilippines, so I would love to
go back to the Philippines, butyeah, I have so many countries
on my bucket list.
Let's just say Paris.

Arvind Ven (08:51):
Okay.
I mean, Hey, that's a great cityto go to.
They've been spent a longtemperance had been there.
We'll have to go there againmyself, sometime one of these
days when things get back tonormal, but let's take an
example like, so let's say youhave a few days off and I'm
going to look around to go fly,to make a quick hop across the
Atlantic.
You look around and find aticket for$600 round trip on

(09:12):
your favorite travel website.
Then he said, let me see, I gotpoints.
Maybe I'll use points instead.
So let me see what the airlineswebsite says.
And then you see that the roundtrip ticket will cost you about
60,000 miles.
So here's the formula forcalculation and it is very
simple.
Maybe I should have a drum rollfor this.

(09:34):
You take$600, the price anddivide that by 60,000 miles or
the points required.
And they get 0.01, which reallyis$0.01, which makes it 1 cent.
So that really is 1 cent permile.
I would say Walla because it'sFrench.
Did they ever tell you that Itook French in high school and
once upon a time I could evenorder it at meal in France when

(09:55):
I was traveling.
No.
All I can remember as well, butI think that's cool.
I didn't know that, but that'sawesome.
That's about all I remember.
So anyway, but the moreimportant point is more than
walleye.
It's really the cents per mile.
So we calculate it.
If the dollar price divided by60,000 miles required, if you

(10:16):
are going to use points.
So you got 1 cent per mile, butjust not do, but I would say
that's the bare minimum, butlet's say that you have a lot
of, we spent a lot and we have alot of points stashed away and
let's say you want, they got tolive life a little bit in 71 to
fly business class.
So let's see what the situationhere is.
So you look at the San Franciscotwo or barriers itinerary, and
you say that, okay, it cost$6,000 round trip from business

(10:38):
class to Paris, ouch.
But if you use your miles, yousee that have cost you 120,000
miles total for the entire tripto Paris and back.
So here's an interestingcalculation.
You saw just 1 cent per milewhen you for the economy, but
here for business class, let'slook at the calculation, the
price for$6,000 round trip andthe miles required was

(11:00):
120,006,000 divided by 120,000thumbs to$0.05.
That is a 5 cents per mile.
I would say that make it adouble voila or a quintuple
voila.
that's five times more than thevalue of what you got for the
economy class.
So you're actually maximizingyour points since you were
getting one cent per mile, nowyou are getting 5 cents a mile,

(11:21):
which is awesome, right?
So obviously the miles were muchlonger way if you fly business
class in this example, however,if you don't have a ton of miles
stats, right, that economy classis the only option, but a
general rule of thumb is alwaysto try and get at least 1 cent
per mile when you use miles,otherwise it may be better to
get a ticket and adding to yourfrequent flyer balance If the

(11:42):
price is right.
So that's it for today'sepisode, read more about us at
www.capitalvgroup.
com or reach out to us by emailor call us.
Let us know if you have topicsof i nterest that we can have
for some of the upcomingpodcasts.
And we'd love to hear from youuntil the next time, travel safe

(12:02):
and stay off.

Disclaimer (12:07):
Arvind Ven is a registered representative with
advisory services and securitiesoffered through LPL financial, a
registered investment advisormember FINRA.
And SIPC the opinions voiced inthis material are for general
information only and are notintended to provide specific
advice or recommendations forany individual.

(12:27):
All performance reference ishistorical and is no guarantee
of future results.
The information is not intendedto be a substitute for specific
individualized tax advice.
We suggest that you discuss yourspecific tax issues with a
qualified tax advisor.
Financial planning offeredthrough capital V group, a
registered investment advisorand a separate entity from LPL

(12:50):
financial.