Stretching Your Dollar

If you're an avid fan of traveling like me, and spend using credit cards, make sure you get the right one.

My buddy DY was telling me he's using the DBS Amex Black card and getting 1% back in shopping vouchers. I told him he's on the short end cos it equates to below 1% discount on spending.

I'm no stranger to building models and doing simulation since I was formerly an analyst, so I did a calculation combining use of credit cards and frequent flyer miles. I think I derive more kick from calculations rather than savings.

Assuming travel on economy class, redemption of Krisflyer miles to Auckland / Christchurch gives you the most mileage (pun intended). Basically, the same number of miles is required for each zone (i.e. redeeming return flights to Auckland is the same as redeeming to Perth/Sydney which is a shorter distance)

Miles required for Auckland = 55,000 (46,750 after 15% online redemption discount)
Full fare to Auckland = $1,800
Dollar value per mile = $0.0385

My calculation for other destinations (Taipei $0.0314, Tokyo $0.0288, Paris/London/Barcelona $0.0286, New York $0.0294, San Francisco $0.0303) using fares a few months back when I did my analysis.

For simplification purpose, I will use $0.03 on average to value one mile.

So for most credit cards, typically they give you 1 pt (or exchangeable 2 miles) for every $5 spent. That's a $0.06 return on a $5 spent. 1.2% discount. Still better than DBS Amex's 1%?

For myself, I prefer to use Citibank's Premier Miles, which pays me 1.2 miles for each $1 spent. That's $0.036 for $1, which equates to a 3.6% discount for every dollar. And if I stretch my miles by strictly redeeming Auckland, it's $0.0385 x 1.2 = $0.0462 for each $1 spent. I'm practically getting a 4.6% discount each time I spend!

Now here's the catch... there's AMEX's Krisflyer card as well... the one that pays
1) 1 mile per $1.60 spent.
2) 50% more miles if you spend more than $5,000/year; and
3) another 50% if you spend more than $10,000/year, max of 5,000 miles.

To qualify for tier 3, the optimum spending is $16,000.

So if you spend $16,000/year, you get in miles for each tier
1) 10,000
2) 5,000 (50% of tier 1)
3) 5,000 (50% of tier 1, max of 5,000)

Total miles 20,000 for $16,000. Mileage value = 20,000 x $0.03 = $600. For $16,000 expense, that works out to be 3.75% discount, even more than Citi PremierMiles!

However, if you spend more than $16,000, eg $20,000/year. Your miles are as follow:
1) 12,500
2) 6,250 (50% of tier 1)
3) 5,000 (50% of tier 1, max of 5,000)

Total miles 23,750 for $20,000. Mileage value = 23,750 x $0.03 = $712.50. For $20,000 expense, that works out to be 3.56% discount, slightly below the CitiPremier Miles discount of 3.6%. And the more you spend, the lower the discount because tier 3 is capped at 5,000 miles.

So the optimal solution? Spend $16,000 on KF Amex Gold, and charge the remaining to CitiPremier Miles card.

Have I lost you yet? If you're still reading, what are you waiting for? Get both cards now to make your trip to Auckland a reality! That's why I currently have enough miles for 2 more trips to Auckland.

And another thing, how do you decide if you should go for 2-to-go fares or full fares? Very simple. Just compare the discount with the mileage value of the miles you can earn, use ~$0.025-$0.03 per mile.

This post is actually intended for a friend who I know who is reading.

As for the rest, I hope this post also explains to my travel partners why sometimes I'd rather pay the full-fare to accumulate the miles as compared to budget airlines. And I'm KF Silver status too, 25% bonus miles for each qualifying trip.