For years, selling miles for cash has been a gray area — legal, but a violation of the terms of the frequent flyer programs.

But now Points.com, the company that lets you switch miles from one program to another, for a fee, has partnered with Paypal, which effectively converts miles to cash.

Since airlines have to agree to participate in Points.com, those “legal” hurdles are out of the way. It’s perfectly legit now to make the switch to cash.

Participating airlines at this point are few and far between, but a few biggies are in there: American Airlines AAdvantage, Air Canada Aeroplan, and US Airways Dividend Miles are the only players, so far.

The biggest problem is the actual value proposition: They’re terrible. Don’t expect big cash payouts.

If you want to get $100 cash, you’ll need 17,734 Air Canada Aeroplan miles, 24,118 American Airlines AAdvantage miles, or a mind-boggling 120,589 US Airways Dividend Miles.

120,589???! For $100??? Are you freaking kidding me? That’s a business class flight to South Asia. That’s three coach tickets to Hawaii. That’s … worth well more than $100.

The other airlines’ options are not much better. AC miles come to 0.56 cents per mile. AA miles are worth 0.44 cents per mile. And US miles… 0.083 cents per mile. That’s insane.

While, in theory, it’s nice to see more choices for redeeming miles, there’s no way on earth I’m participating in this.

The folks at Points.com brought an offer to my attention, which allows you to get double miles — free — when you transfer miles from one Delta SkyMiles account to another. But is it a good deal? Let’s do the math…

The maximum you can send from one account to another is 30,000. But there are fees attached: 1 cent per outgoing mile, plus a flat $30 charge per transaction. Those fees can add up.

But what if you send miles from one account in your family and then send the miles right back, effectively doubling the miles both ways? Churn it, baby! Would that take the edge off the fees?
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Several readers have written in, asking about Points.com’s newly-launched “Global Points Exchange,” which bills itself as a person-to-person frequent-flyer mile marketplace, letting you “trade the miles and points you have, for the miles and points you want.”

Questions are on the skeptical side — “Is this legitimate?” “Is this a ripoff?” “Is GPX legal?” — so let’s look under the hood.

For starters, yes, this is a legal service, despite the airlines’ rules against selling or bartering frequent flyer miles. Points.com has struck deals with each of the participating airlines, so this is an authorized setting for point exchange, not a back-alley deal or an eBay auction.

The principle is a good one: You’ve got miles in one airline’s account, and you want miles in another. So why not trade with someone who has what you want, and who wants what you’ve got to trade?

I’ll tell you why not: Fees!

GPX is plagued with outrageously high transaction costs, costing you as much to exchange your miles as you’d pay to buy those miles outright from the airline.

Is this any surprise? After all, it’s coming from Points.com, which has long converted miles between programs — with hefty devaluations along the way. And according to their latest financial guidance, people are falling for it. The company “transacted more than 10 billion miles and points” in 2007 alone.

The GPX program is currently in beta, and there aren’t a lot of offers on the bid or the ask. Only five airlines currently participate: Air Canada, Alaska, American, Frontier, and… (wait for it) Icelandair!

Fees vary tremendously depending on the airline, but none of them are small. The outgoing account determines the fee you pay. So exchanging 15,000 American AAdvantage miles into another airline currency will cost you $180.00, while exchanging 15,000 Air Canada Aeroplan miles will cost $300.00. PLUS the $6.95 processing fee (currently waived.) Extortionary.

No thanks, Points.com. Your GPX is DOA.

Related:
- The value of frequent flyer miles
- Reader mail: Can I transfer points from one airline to another?
- Travelocity soon to let you book travel using points and miles

A common question from readers of this blog is point conversion. How do you convert points from one airline to another? ATA and Southwest just made it a little easier.

In most cases, point conversion is a losing proposition, if it’s possible at all. (Try moving miles out of your Delta account! I dare you!)

As I’ve posted before, you’ll almost always lose points in a transfer, either through a clearinghouse like Points.com, or by moving balances from one account to another to another to another. (See Webflyer’s conversion guide to see what sort of hopscotch your points would need to play.)

So having an option for easy transfer is good news for ATA’s customers. The airline already works closely with Southwest by codesharing. Now, ATA customers can cash in 7,250 Travel Awards Points for 16 Southwest Rapid Rewards credits, which equates to one Southwest Airlines roundtrip. No partial conversions.

But is it a good deal? A roundtrip on ATA costs only 6,000 points.

In contrast, Southwest Rapid Rewards customers have been able to cash in their points on ATA for some time, at the same rate (16 credits) as redeeming points for an all-Southwest trip. (Flights to Hawaii cost double.)

So ATA customers are being charged a 20.83% premium. For that premium, they’re freeing their points from capacity controls — the “limited seats available” jargon which most airlines use for their frequent flyer programs, but which Southwest eschews. For some folks, that premium may still be worth paying.

Related:
- Reader mail: Can I transfer points from one airline to another?

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Gary Leff reads his Points.com junkmail so you and I don’t have to:

Points.com is offering 5000 American, USAirways, or Alaska miles for upgrading to a ‘Gold’ membership for $49.95. The membership isn’t worth much, but buying miles at one cent apiece is generally a good deal.
There’s no clear expiration date on the offer, so verify that your mileage choice is available before offering up payment.

1 cent per mile is a good deal if and only if you’re redeeming your miles for more than 1 cpm. Which I strongly encourage, of course. (See here for the full tutorial on maxing out your miles’ value.) If you need to top up your account to get an award in one of those three airlines, this may not be a bad way to do it.

The “gold membership,” besides having that Austin-Powers-esque ring to it, is truly worthless as a service. As I’ve said before, Points.com is really a bad deal for customers looking to swap points between programs. Having a customer service phone number to help you make those poor-value swaps is hardly an enhancement.

Click here to log in to points.com and see the offer. If you decide to go for it, be sure you select the right reward. The default selection is *not* 5000 miles.

What’s more, you need to make sure you cancel your gold membership before they start automatically renewing it every year. Caveat emptor.

In fall 2006, Travelocity is rolling out a program that will allow you to book travel using points and miles from one or more loyalty programs. Initially limited to hotel bookings, the program has the potential to be a huge deal.

“Book with Points” will allow loyalty program members access to Travelocity’s online booking engine. They will use points or miles to book and purchase the travel reward, exactly as if they were purchasing their travel with cash rather than loyalty points and miles.

My first reaction is positive: Anything that makes it easier to actually use your miles is a step in the right direction. Details of the program haven’t been made public yet, but the Travelocity program will be run by Points.com.

Uh oh.

As I’ve posted before, Points.com is a great way to turn one dollar into 15 cents. The devaluation of points when you transfer between programs is brutal. So I am skeptical of this new joint offering with Travelocity. Hopefully Travelocity will put pressure on Points.com to give better value, but we’ll have to see. After all, the airlines and hotels have your points and won’t just give them away for free. Points.com takes a cut as the broker. And Travelocity’s roaming gnome will inevitably want a piece of the action. What’s going to be left?

(hat tip to Airfare Technology/FareCompare)
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