As many followers of Miles Per Day will know, Virgin America is offering a promotion where transferring 80,000 Membership Rewards points to the Virgin America (VX) Elevate program will grant you VX Gold status until February of 2017. For frequent VX flyers, this could be a great deal because it offers free Main Cabin Select upgrades (typically $50 a pop) and increased earnings on cash fares.
Source: virginamerica.com
Although the status is not particularly valuable to me outside the ability to cancel award tickets free of charge (the benefit is technically called an ‘Elevate redeposit fee waiver’), I decided to bite. Why? So I could take advantage of Alaska Airline’s fairly generous status match program. I submitted my request for a match to elite.flyer@alaskaair.com. I haven’t heard back from them yet, but I should at least receive Alaska MVP Gold and perhaps even MVP Gold 75k if I’m lucky. I’ll keep you guys updated as I hear more.
Bring Your Own Elite
Ironically, this marks the first time I’ve ever held elite status. Well, that’s not quite true, as I’m a two-year gold member of Milenomics’s BYOE program. But nonetheless, I’ve never been on an upgrade list, never flown a premium cabin, and never had the opportunity to pull a ‘DYKWIA’ (google it if you’re curious) upon being slighted before, during, or after a flight.
A fundamental tenet of Milenomics is that elite status is a trap. Status, while offering the illusion of value through the promise of complimentary seat upgrades, lounge access, free checked bags, and priority boarding, typically leads people to paying more than they otherwise would have. Moreover, many of these benefits (checked bags, lounge access) can be had for free or at a significant discount by strategically holding certain credit cards (e.g. United MileagePlus Explorer, American Express Platinum). I obviously acknowledge that this is not an absolute rule, especially given that I decided it was worth it to take advantage of the VX status offer, but there are a number of psychological principles that prime our decision-making in a way that makes us rationalize differences in cost (I’ll explore these some time in the next couple of months).
Given that I take such a mathematical approach to travel (hacking), I would have expected that I would be largely immune to the allures of status. Six inches of extra legroom? Heck, I’m willing to sleep in an airport instead of paying for a night at a hotel. But status got the better of me — well, nearly — precisely because it changes the math.
Lost earnings
I keep a spreadsheet of all my potential and actual miles and points redemptions to get a sense of the value I’m getting from them. Part of my computation includes subtracting out the value of the miles (both credit card and loyalty program) I would have earned had I paid cash. My formula therefore looks something like this*:
Value = $ cost of flight / (miles cost of flight + credit card miles lost + airline miles lost)
So where did status trip me up? Looking at the formula, the more miles that I miss out on by not paying cash, the less value I get out of my points. Therefore, since one of the benefits of status is increased miles earning (and for VX Gold, the bonus earnings are 100%), my redemption values have decreased relative to when I didn’t have status. To make it more concrete, consider the fact that you earn 5 VX points per dollar spent normally, whereas with status you earn 10/dollar. On a $200 flight (ignoring taxes and fees) which cost me 8960 VX miles, I would have earned 1000 VX points by paying cash if I didn’t have status, and 2000 if I did. My ‘value’ then, would have been 200 / (8960 + 1000) = 2.00 cents/mile before I was granted status, and 200 / (8960 + 2000) = 1.82 now that I have it. If I redeemed enough points, that would end up being a big difference — $180 over the 100,000 points I currently have in my account!
Because of this, and the fact that I won’t re-qualify for status after this promotion is over, I almost opted to pay cash, saving my points for later when they’re theoretically more valuable. But I don’t live in a theoretical world, so thankfully, I thought twice about it, which saved me both the out-of-pocket cost and gave me an idea for a blog post ;).
*People will give you a million different responses for how to compute the value of your points. This is nothing more than the million-and-first.
Another brilliant post. Status IS a trap as its never easy to downgrade. Part of the reason why I never “upgrade” in the first place.
[…] a bonus on transfers from MR to VX, and VX Gold status until Feb 2017 for transferring 80k MR (and Daniel was able to take advantage of it). 🙁 That could’ve been me! But alas, such are the consequences of a series of costly […]
Your math is accurate. Glad to see the formula incorporating the opportunity cost correctly.
While I understand determining value based on opportunity cost of miles forgone when doing an award ticket,
In a non theoretical, real world sense, we can only choose one or the other. If we choose to do an award ticket, in both scenarios (with or without status) we don’t really need to consider the miles forgone, since we would have not chosen the cash alternative.
The model breaks down because individuals won’t change their frequency of cash versus award redemptions because of the miles being forgone. For these individuals such a model won’t matter. Think of folks who only collected the miles for an award ticket and wouldn’t have paid cash otherwise.
However, the calculation is necessary and instructive. Especially, if you get more into the math. If you’re award is a high mileage award or if it has a expensive fuel surcharge, the model will force you to choose the cash booking instead. The model also is more representative for ppl who are frequent VX flyers, which is ironic!
Also, just wondering…for fuel surcharge on an award flight…would that be subtracted from the numerator?
Yep, that’s the intent. I simplified it for the sake of discussion but I typically subtract out any taxes and fees I pay out of pocket.
Really good points, by the way. In particular I like that you challenged my assumption of price sensitivity with regards to award redemptions. I think the 95% case is as you suggest, price insensitivity, though in my case and a few others I know, price/value sensitivity comes into play.
Thx! There’s not many things that get me thinking when it comes to the miles n points game. Keep up the good work!! It’s refreshing to have different viewpoints, and I like that you guys don’t shy away from going into the math/economics.