Monday, June 23, 2008

An Upside to Higher Airfares?

We’ve recently suggested that if you’re earning miles/points with a credit card, it might be better to go for cash back rather than dump credit-card miles into a frequent flyer program. Especially with airlines teetering on the edge, reducing capacity, and merging.
But now with higher airfares, unless the airlines raise the number of miles required for an award ticket (always a distinct possibility), your miles may become “worth” more as airfares rise. If you previously used 25,000 miles to acquire a $350 ticket, you may now be using 25,000 miles for a $600 ticket.

We still prefer cash-back if we can get 3 percent on our credit-card purchases. But getting a little better than 2 percent (as in the above example), we’d be getting close to sitting on the fence as to which is the better value.

And of course, this all assumes you’re using your miles to get a basic economy ticket – if you’re using your miles for upgrades, that also changes the equation. It also assumes that the availability of frequent-flyer seats remains relatively the same (not necessarily a safe assumption in the current airline environment).