if you know how points and miles work this will bore you or open me for a lot of judgment.
i had to book a nonstop flight from PWM (portland maine) recently on united. united offered me two options:
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economy award: 15k miles + $5 (taxes)
after booking, united immediately upsells me a first class upgrade for $250 cash. with the valuation, that puts this first class fare at about $435 in cash, less than the economy fare.
its like using a coupon for a large pizza and then paying for extra toppings.
why the prices don't line up
airlines price seats based on expected demand and the inventory they have left to sell. accepting a fare now means giving up the possibility of selling that seat for more later. waiting carries the risk of leaving it empty.
revenue management is largely about managing that tradeoff.
airlines want to collect from people willing to pay full price without losing everyone who won't. someone who needs this nonstop will pay $504 for it. the first class offer is the same thing- someone paying in miles may be more willing to spend cash on a comfort upgrade. now the airline can keep that economy seat it was about to sell me without lowering the advertised first-class fare for everyone.
most of the value is from the award
the economy redemption replaced $499 worth of cash wth 15,000 miles ($5 for taxes):
($504 − $5) ÷ 15,000 = 3.33 cents per mile
that's the redemption value relative to the quoted cash fare. the 1.2-cent reference estimate is there to help me determine what value i should assign to the miles i'm giving up.
the cash comparison needs to reflect a realistic alternative. i wanted the nonstop, so the $504 is relevant. if i took a cheaper connecting flight, that price would be a better measure of the cash the miles saved me.
with the 1.2 cent estimate, the available options are:
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economy award: $185 in cash and mileage value
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award + first class upgrade: $435 before upgrade tax
ok so which option is actually better
the economy award ends up being the strongest financial choice: 15k miles saved me $499. paying cash means i spend $499 to preserve 15k miles, effectively buying them back at 3.33 cents each.
first class also compares favorably with cash economy. at that same benchmark, the break-even valuation is about 1.66 cents per mile. so using the miles here delivered the lowest cost for me, and adding the first class seat still keeps the total cash value under the economy fare. even if it is a domestic flight.