The Best Airline Credit Card — Isn’t From an Airline

You ready for my confession?

I don’t subscribe to the whole system of attempting to accumulate miles via an airline credit card.

Don’t get me wrong, I keep all three of the major airline cards because they end up being worth it for free checked bags (as I’m often traveling with family and lots of outdoor gear).

But, these mean an airline card is not my primary spending tool, in that I place the majority of my purchases on a credit card that’s not from an airline. 

Are airline miles worth it?

Once, years ago, I realized that I had been carrying the same 100k mile balance on United for five years. Every January I would dream of taking a big trip, but when I would attempt to use my miles, either the mileage rate was too high (the award chart said I could get to Europe for 60k, but available tickets were 100k), or I’d find a great deal on another carrier.

Then I thought about it, and I realized that I had extended United a five-year loan of $1,000, the value of my travel miles.

Based on that, I’ve come up with a wholly new approach. Let’s walk through it.

How much are airline miles worth?

The easiest calculation is to value your miles at a penny a mile. This means 100k miles should buy a $1,000 ticket; 30,000 miles should buy a $300 ticket — you get the idea.

Evidence that this estimate is reasonable is that some credit cards (such as the Delta Skymiles card) allow you to pay for a portion of your ticket with miles. When they do this for every 10k miles you use, you can reduce the price of the ticket by $100. This is different from buying an award ticket, in that you are purchasing the ticket for a mix of cash and miles.

The point is, a mile is basically worth a penny each.

In fact, to dig deeper to try to figure it out, many airlines no longer even publish an awards chart — where you used to be able to clearly see that 60k miles to France is worth a $600 ticket, for example. As a result, there is no way to even know what your airline miles are worth apart from my one penny per mile calculation…  

Until you try to use them.

Where do airline miles fail?

I’m certain we’ve all experienced this: you get all excited about a trip, check your miles balance and find you’re sitting on what looks like a lot, but when you actually try to book your ticket, forget about it. It’s never enough.

This is the first thing that gets in the way when I try to redeem miles — every time I go to book and the price is too high, I say, “It’s not worth it,” and I decide to save my miles for a better deal.

The second thing is the taxes.

Every year I look at tickets to Europe for the summer. Flying into Paris from New York, the taxes are around $8; flying out they’re more like $278. This doesn’t make sense when a one-way ticket can be had for $350 (and the taxes are included).

Left: NYC to Paris fare without the low taxes. Middle: Paris to NYC with high taxes (it says depart because they're both one-way). Right: A $ fare, taken from any airline site like Delta. 

So maybe I don’t use my miles to go to Europe, but then what’s the point? You want to use them for a big trip.

When you really think to yourself, “how do airline miles work?”, it feels like being overly invested in the miles system is a recipe for disappointment.

Airline miles don't have a fixed value

One other thing to know: our one penny per mile equation isn’t even guaranteed. The airlines can devalue our miles at anytime. A hundred thousand miles might find me a $1,000 flight today, but it could be dramatically different tomorrow. The market doesn’t set the value; the company does. Which means they’re going to do what’s in their best interest, not ours.

You earn them anyway

We all earn miles anyway. If you wait long enough, you’re going to earn miles just by flying — whether you have an airline’s credit card or not. The result is, over time, you will accumulate a stash of miles anyway. So why invest even more?

For example, right now, I am sitting on 130k miles with Delta, 75k with United, and 12k on American Airlines. This doesn’t include what my family has and can contribute by buying their own tickets for our trip.

But as you’re going to see, I don’t put all my eggs in this basket because I have a better way.

Here's my solution in a nutshell:

1. I put all my major spending on the Fidelity rewards card. As it offers 2% cash back on all purchases, I already start ahead, because it is double the typical 1% airline reward in the form of one mile per dollar.
2. The rewards go straight into an investment account, that I happen to put in a low-cost mutual fund. I tell myself that I can use this money for travel any time, but in reality, I just leave it invested for the long term.
3. When I fly, I buy the cheapest ticket to my destination — and don’t worry about miles.
4. I still have miles sitting around anyway. Sometimes they can be handy to get me out of a jam in that moment when the stars align and you need them.

The only place I don’t use my Fidelity card is on Amazon, where their own card offers 5% cash back, which I also turn into cash and roll into the same investment account.

When they work, they work

Lastly, we all dream of big vacations and they can be very expensive. I do have one trick, which is to use my rewards to get to Europe, as you can see from the example earlier. And then I buy a one-way ticket home.

Do you guys think I’m crazy? Do you love or hate this approach? If you’ve got a better way, I’d like to know.