What's an Air Mile really worth?

Used properly, customer loyalty reward points can add up
Plane

Almost all retailers try to buy our loyalty, and you can't blame them, since they have to make a living.

The problem is that many of us allow ourselves to be bought too cheaply.

Have you ever wondered how much an Air Mile is really worth?

I have frequently. Now I know. It's about 10 cents.

Air Miles is the name of the hugely successful retail loyalty program in which millions of Canadians collect points to eventually earn a reward, such as a free flight, cruise or merchandise.

"Eventually" is the key word here. Typically, a $20 retail purchase earns one Air Mile.

The value of an Air Mile used to be a bit of a guessing game, depending on when and on what the collector spent the reward miles.

Now the program has introduced the option of permitting collectors to redeem their Air Miles for cash towards the purchase of goods at participating retailers.

It works like this: each time a collector accumulates 95 reward miles, he or she can exchange them for $10 off the bill at a participating retailer. The $10 is deducted after the payment of tax on the total bill.

Thus, 95 reward miles equals $10 - or about 10 cents per Air Mile.

Would you go out of your way to shop at a retailer that offered a reward of 10 cents for $20 in purchases?

Put that way, many people would probably say no. But I did frequently to buy gasoline from stations offering Air Miles, until a nearby Costco started selling gas and sharply undercut competitors.

Let's be absolutely clear here. Air Miles is a tremendously successful business that offers canny consumers the opportunity to get something for nothing. In most cases, it costs nothing to collect Air Miles, and most collectors will eventually earn enough for a prize, even if it's no more than a ticket to the movies.

But don't shop anywhere just for the Air Miles you'll earn. Shop where prices are lowest and quality is highest.

And don't just collect Air Miles. Join the loyalty program of any airline you fly. And use credit cards that offer the best value in loyalty rewards, preferably cards with no annual fees.

The Air Miles program does not decide the degree of generosity - or meanness - of participating retailers. That's up to the businesses themselves.

Once you've collected enough Air Miles to earn a reward, does it make sense to take the cash? Not to me, it doesn't.

Why? Because you should be able to get a reward that is more valuable than 10 cents per Air Mile.

I never cash in loyalty rewards for air travel without carefully checking how much it would cost to pay to take the same flight on the same day. I only use the reward points if I feel I'm getting fair value for them.

Here's an example:

A round-trip Ottawa-Vancouver air ticket requires 4,225 Air Miles for travel this July. On the dates I checked, Air Canada offered a return fare of $628, before taxes and surcharges.

You have to pay the taxes and surcharges, whether you use your Air Miles or buy your ticket. So, the value of 4,225 Air Miles is $628 on the dates I looked at flying. That makes the Air Miles worth about 15 cents each. Fifteen cents is not great, but it's a lot better than 10 cents.

Of course, you will almost certainly never earn a free flight to Vancouver just by the free Air Miles you earn from participating retailers.

The big rewards are earned by those who spend thousands of dollars annually on a credit card. Typically, these cards offer rewards of about one per cent of the sum spent on the card. So, $10,000 in annual spending earns about $100 towards a reward. It's not much, but it's worth doing a lot of shopping around to find the credit card that works best for you.

And the best deals of all on credit cards are often the introductory offers, to entice you to switch from one card to another. The offers can be worth hundreds of dollars, enough for a short-haul flight. But hefty annual fees are invariably attached to these cards, so revert to a no-fee card as soon as possible after taking advantage of the introductory offer.