Buying Airline Miles or Manufactured Spending? What to do?

Who doesn’t Love Airline miles?

Those magical, mystical airline miles allow us Average Joes to travel for free with airlines, upgrade our seating to the Business Class, or if we are really fortunate, and have lots of miles, even the coveted First Class.

And, we Average Joes are in what is probably the easiest time period ever at earning airline miles. In fact I would argue this is the Golden Era of receiving points. With the ever increasing competition among airlines and credit card companies for your Average Joe dollars, merchants are desperately offering a variety of methodologies for us Average Joe’s to take advantage of as we chase our coveted miles and points.

There are four prime methods for earning rewards points or miles:

  • You can either engage in organic spending– You use your natural spending habits.
  • You can earn credit card bonuses–Chasing credit card and vendor bonuses.
  • You can engage in manufactured spending — Purchasing items just to get miles.
  • You can buy miles – Vendors sell you miles or points directly, exchanging their goods for your monies.

But, which of these is best?

Organic Spending — Organic spending is naturally spending money on goods and services. You go to the grocery store you buy your weeks’ worth of groceries, you earn miles and points. You may bills online. You may pay your mortgage. You go to the movies. You see a doctor. All of these activities allow you to earn points or miles naturally while incurring rewards points.  To the credit card vendors, this is what they want. You being a loyal customer.  This method is the best and by far the easiest way to earn rewards.

Credit Card Bonuses – Credit card vendors want you to open accounts.  To entice you to do such, they will work with specific branded companies like Marriott, Delta, United Airlines and work to develop a credit card that offers that specific vendor an opportunity to offer you rewards and for them to develop and retain a loyal customer. Often to entice you to come to them, they will offer a significant bonus to lure you into their fold.

As of this writing, I just applied for, and was approved for, Barclay’s American Airlines Aviator Card.  The offer came with 60,000 miles, which will go a long way towards my trip to Asia next year. I know people who apply for multiple credit cards monthly, just to chase these bountiful bonuses.

Manufactured Spending — Manufactured spending is a somewhat controversial method of earning miles and points. You purchase an item, often times, money orders, and then exchange the items purchased for cash.  The trouble with this technique, is that credit card companies don’t like you gaming the system and they can and will cancel your account and you will forfeit whatever hard earned points you have managed to squirrel away till that point.Trust me, people do get shut down.

Purchasing Points – The fourth method for earning reward points is by far the most straight forward of the methods. We simply buy the points from the vendors.  This method is advantageous for a multiple number of reasons for both the vendor and for the consumer. And in this case, since both the vendor and the consumer win, it is an encouraged method of earning miles and points without a negative connotation or an inherit risk for the Average Joe.

But is This Method Worth it? Let’s Look at the Numbers—

As of this writing, American Airlines is offering airline miles for sale. Let’s pretend, I am going to make a purchase-

Purchasing 150,000 miles would cost $4,425.00 or a per mile costs of $0.029. Not the best deal, however, American Airlines is sweetening the deal by adding in a bonus of 100,000 miles for the purchase, a total of 250,000 miles for a per mile costs of $0.0177.

If I use my American Airlines Aviator card, I also get a second bonus of 2 miles per $1.00 spend, so I can add on another 8,850 miles ($4,425.00 x 2 miles per dollar spend = 8,850.00).

Now, this transaction is worth, a total of $4,425.00 (purchase price) / 258,850 miles for a per mile costs of $0.017. There is a very minor price difference in this example from the one above, (the difference is now noted in the 4th decimal place) a very insignificant difference, but, there is a price difference.

Manufactured Spending for the Equivalent.

But, what if you were to manufacture Spend for the equivalent number of miles?

258,850 miles / 1,000 mile increments (this is figuring you are using a rewards card that gives you at least 2% back or 2 miles per dollar spend and you are buying $500.00 gift cards) you would purchase 258 gift cards.

258 gift cards x $5.95 activation fee = $1,540.16.

You would also have to purchase a money order in order to redeem those gift cards, 258 x $0.69 = $178.02.

So, your out of pocket costs for this transaction would be, $1,718.18 ($1,540.16 + $178.02).

Which, translates into a per mile costs of 258,850/1,718.18 = $.007. A very good deal!

But, to go out and purchase 258 gift cards, is a substantial amount of work. You would need to find a vendor willing to sell gift cards with credit cards, a vendor willing to sell you money orders using your gift cards and you would have to account for your physical time making these purchases going from merchant to merchant to bank.

And, remember, you run the risk of getting shut down.

This becomes a personal decision on if you are willing to invest this amount of time and energy.

Now consider if you were to engage in manufactured spending within your normal course of business, you are not going out of your way to run down gift cards, and you blend in the manufactured spending within your normal organic spending, then this may be the option for you.

Is Purchasing Miles or Points a Viable Option?

Absolutely. You are going to pay a higher cost per mile, but when compared to manufacture spending, it is a faster, more direct, and less hassle method of achieving greater miles for less dollars. You do not risk the stigma of being a money launderer. And, you do not risk the chance of having your account shut down and your hard earned points being lost or revoked.

Is Purchasing Points a Good Cost Savings Measure?

That is a great question. Right now, I am planning a trip to Beijing. Let’s compare the “points” cost versus the “cash’ costs.

If I book a Minneapolis to Beijing flight, roundtrip in business class, the point’s price is – 140,000 points.

If I book the same flight using cash, the price is – $4,149.00.

If we had purchased our points in advance, taking advantage of the American Airlines special, we would have bought 150,000 points, received 100,000 points as a bonus, and we would have incurred an additional 8,850 points for using the credit card for a total of 258,850 miles for a price of $4,425.00.

We then subtract the 140,000 points for the flight to China and we then have a balance of 118,850 miles left over for some additional flights. This is almost a two for one value!

Average Joe’s Take

If you have the funds laying around and can afford it, I would recommend buying airline miles to boost your overall miles balance!

Have you bought some miles or points? I would love to hear about your experiences!