*This post was actually written and rewritten months ago and exile is giving me an excuse to finally publish it. Hope it doesn’t offend anyone, but I know many will disagree, because I’m pretty sure half the people in this hobby use the phrase. But here we go…*
UPDATE July 24, ’15: It would be nice if you comment after reading the post. Because I say the following three things explicitly, but apparently no one bothered to read these things, so I’ll put them at the top…
1) There are many examples of the phrase “opportunity cost” being used that don’t fit the description of limited resources. Choosing between two cards now, doesn’t mean I can’t also get it later.
2) There are many examples of valid opportunity cost, but many of them don’t have “economic costs”, aka monetary value, aka it doesn’t cost you money. So neither of these examples prove travel isn’t free.
3) There are some examples of valid opportunity costs that require passing up money. But just because these examples apply to you, doesn’t mean they apply to everyone else. You took off work to go on vacation? Great example for you, but it doesn’t mean that everyone else will have to. Passed up spending on your 2% card for a 1% card? Good, but that may not apply to everyone else just because it applies to you. Coming up with another example that applies to you doesn’t disprove the article…
Take it easy folks… Back to the actual article…
The point of this article is that not all examples are actual opportunity costs, not all of them are economic costs, and not all of them apply to
It doesn’t matter how free something is, there’s always a genius in this hobby who remembers the phrase “opportunity cost” from a barely passed economics 101 course. But… they don’t quite remember what the phrase applied to.
Yes, this is somehow the commonly used trump card to anything free. Most likely motivated out of a feeling of, “I can’t stand people calling travel free when I paid lots of money for my miles”. And that’s probably true, maybe you did spend a lot of money on your miles.
But in order to maintain the position that free travel is not possible, you have to do a lot of ignoring. Luckily, ignoring is a lot easier when you have a misused economics phrase.
This is the proof that no travel is free. Apparently not for anyone else.
My school teacher friend got paid $3,000+ cash money to change his summer flight home from Madrid to a later one. This is a flight he paid for with miles earned from a credit card that had zero costs.
Therefore… “opportunity cost?”
I have a friend that applied for 9 cards earning 100,000 AA miles each, and $200 credit. He paid zero dollars in annual fees.
In one year he earned 900,000 AA miles and $1,800 cash money. But, but, but… that can’t be free because… “opportunity costs?”.
It doesn’t matter if you hitch hike, walk, ride a bike, or get paid to fly, someone will hold their position with opportunity cost. The reason is again, because they paid lots of money buying miles, or paid for flights… therefore other people couldn’t have gotten it for free.
*Before I begin: I have good friends who are in this hobby that try to spend $0 on travel and over all have probably come out gaining money (like the examples above). And I have many friends who pay lots and lots of money on buying miles, or pay lots of money on flights to earn miles. Let me be clear that I am passing no judgement on paying money. The entire point of this site is that a person could get a free trip, and many do (and I have). But it is not that everyone must travel like I do, or travel on the deals. If anything, I want to communicate the opposite. Just because you paid money, doesn’t mean people can’t find actually free way to travel. Any one of the ways to travel for free can be used to get a free trip if that is one’s intention.*
This isn’t the proper use of the phrase
At this point, I’m going to have to burst the bubble and say that just because you’ve laid the phrase down like a trump card that explains how earning miles isn’t free, it doesn’t actually mean it’s true.
I feel silly having to explain what opportunity cost is, since seemingly everyone on flyertalk has taken an Economics 101 course, but…
An example of opportunity cost could be if I took time away from one business to start another, will the second company make more money than the first company’s loss by my not being there? So the first company could actually make less profits because I’m not there. Or better example is that the first company could be doing even better and grow more with my attention and creating more value, but instead of creating that value with the first company I now spend it on the second company.
The question is: what opportunities am I forgoing in order to pursue this other project or investment?
At the end of the day is the loss of diverting away from one opportunity going to cost me less than the gains from the new project. In this case you don’t just look at the profits from the new company but the “net” profits after calculating some of your losses.
The two biggest mistakes of things that are actual trade offs are:
1) The resource isn’t limited. Just because you chose between the AA and Hilton card this time, doesn’t mean the AA card cost you the Hilton card… because you can go get the Hilton card next time. Limited resources.
2) People then take a real trade off (like time) and apply a blanket monetary value to it. Reality is most people don’t have a monetary trade off on their miles & points time as they do it after work. But we’ll address both of these more!
In the frequent flyer hobby, it’s all net profit! Few real opportunity cost.
Let me try to emphasize how absurd this is with giving other parallels.
What if I entered some raffle and won the grand price and I had the option to choose between a brand new car and a brand new motorcycle. If I chose the car and it was completely free of cost to me, you wouldn’t say, “well, technically that car wasn’t free… it cost you a motorcycle.” That would be idiotic. The car was completely free, and if the raffle didn’t give the option to choose a motorcycle, then would you have said the car was free?
Same same. 50,000 miles could be completely free and just because you could have gotten some other free thing… doesn’t change the fact it’s free. Period.
Getting a free car is free, even if you could have gotten a free motorcycle instead. See, because having “options” isn’t the only requirement for you to use the phrase “opportunity costs”. While it is true that you would be forgoing the opportunity of the motorcycle, it doesn’t actually cost you the value of the motorcycle. It terms of money, it’s free. But in this hobby people [sometimes] find a valid trade off that isn’t financial, and then try to insist that there’s a monetary cost.
And this isn’t the best example because the car and motorcycle are limited resources, and the parallel isn’t. However, the point here is that just because it has a cost doesn’t mean it has a monetary cost… which is what anyone means when they say “travel isn’t free”. They don’t say “it can be free of money but cost you time” because they mean it isn’t free of money… because they paid money.
As stupid as this all sounds, this is an actual thing. In the attempts I’ve heard to explain how earning 50,000 miles isn’t free, you actually hear “well, you could have applied for this other card”.
And these are otherwise intelligent people who understand the hobby. They know I’ll just get the other card as well (therefore it’s not opportunity forgone). They know, that I don’t have to pay 40,00 Hilton points to get 50,000 AA miles. And they know me and that I’m only getting cards with zero annual fees. I pay $0.
Again, the next thing is usually, “but did you know I paid $___ in annual fees last year”, or “I just took a trip and I paid $___ in fuel surcharges”. My instinct is that it has nothing to do with opportunity costs and more to do with personal experience. But this is the argument they put up. My AA miles “cost” me… because I could have gotten a Hilton card. Takes some mind olympics.
The “cost” part of “opportunity cost” should be an actual cost. (Duh, right?)
When I buy stocks, I could have put that money in savings that would at least give a few percent. That is actual money, and the net profits aren’t free money. I mentioned some of my stock buys in the past and buying AA stock actually cost me money. So when stock went from 40 cents to 40 dollars, that was not free money.
In the same way, if I spend time working at a job, my paycheck isn’t free money… it cost me time.
The qualifications for “free” vs “opportunity cost” is whether or not it actually cost you something. Period. It implies that you have a resource that is limited and will therefore be tied up and taken away from another opportunity.
(I feel like I should make that quote a pretty pintrest picture and put it in the post somwehere).
I’m sorry, but if you say that getting the AA card instead of the Hilton card cost you 80,000 Hilton points… you’re sounding absurd. Those are free miles.
However, if you tied up $100,000 in manufactured spend… that is totally an opportunity cost.
See the difference? One cost you investing something (that’s when you get to use the beloved “opportunity cost”phrase), and the other didn’t cost you anything, despite forgoing opportunities.
Why are people obsessed with mis-using this phrase?
In no other part of life do you have to add “opportunity costs” when telling someone how much you spent. Yet, in this community, some people constantly explain travel isn’t free because of opportunity costs.
But if you told one of the many people who constantly abuse the phrase, “hey, I bought this t-shirt for $20”, they wouldn’t say “no, no! You’re not calculating opportunity costs! How much time did you spend to pick out the shirt? How long was the drive to the mall?”.
The fact of the matter is, most people work 9 to 5 jobs. If they work past 5, they don’t get paid more money. Heck, in many cases they can’t work past 5!
Their time from 5pm to 9 am has a monetary value (remember that’s what we’re actually discussing here) of $0.00 (zero dollars and zero cents). Nada.
If they spend an hour online applying for cards or booking a ticket, it isn’t not a monetary opportunity they missed out on. Period.
Of course, that’s not true for everybody. There are a lot of people in this world with different jobs and financial situations. It would be silly of me to assume everyone is just like me (<– good advice btw). But it’s true for a heck of a lot of people. And it’s true for some people even if it’s not true for you.
Can you “value” your time even if you wouldn’t be making money? Sure (but don’t get me started on “value”). Although my point is that anyone could have a free flight, hotel, or both. And the “free” part is totally about monetary costs.
But again, no one acts as goofy as this in other parts of life. On Ben & Jerry’s free cone day, people don’t rise up and try to convince you it’s not free. They know you have to wait an hour in line, but the “free” part is referring to the price at the cash register. In that part of life, it’s a “duh”.
“But, but… Opportunity costs, opportunity costs, opportunity costs! That ice cream is worth $3 max, and what’s your time valued at?”
Well, when I did “free cone day” in Charlottesville at a local ice cream shop, I was off work and I was with my friends. If I went back to work my boss would have reminded me that we’re closed and I should go home. I couldn’t have made any money. I lost zero dollars.
We can all agree that the above argument over free cone day would be ridiculous. You wouldn’t want to have friends where you’d have to explain the costs of free cone day too.
But when you scale the time and reward to something as valuable as travel… then it’s normal for people to question how free $0 is. Then it’s normal for people who wouldn’t be making a dime during those hours to worry about the value of the time spent. Then it’s normal for people to use the phrase “opportunity costs”, because… I heard that in economics class.
I just want to be clear that I’m not saying all travel has to be free, or that you’re paying too much more for your travel. I’m just denying the idea that “opportunity cost” is a trump card blanket statement that applies to everyone.
Understand that I’m totally fine with misusing the phrase in regards to hierarchy of decision making. Opportunities forgone is still a key part to opportunity costs. Even if the limitation of investment isn’t quite the same, I understand it’s still just a phrase to help one decide on the best opportunity. Totally fine.
I hear this in regard to MS. By taking one bonus you’re passing up another. And for the most part that makes sense, except sometimes people still call it a cost. Remember, not using a citi card is not a cost.
But what is completely unhelpful is the consistent use of the phrase in contrast to miles being free or not free.
Now I understand the frustration. This is is a hobby full of terrible terrible math.
Getting bumped from a flight or signing up for a credit card; just because that time is worth actual money to you, doesn’t mean it also therefore is to everyone else. Not everyone is you.
There are people who actually travel for free. People who have earned 900,000 AA miles and $1,800 from a card. A friend who earned $3,000 from a bump on an actually free flight.
People have hitch-hiked, camped, couchsurfed, gotten free nights via best rate guarantees, and many many many more things.
Just because you chose to spend money for a different quality of travel doesn’t mean that these trips “cost” anything to these other people. And on the other side of the coin, paying for a nice flight isn’t wrong. I’m not attacking anyone for having nicer things than me or more money than me. Just for not knowing what the meaning behind the words opportunity “cost” actually mean. 😀
Free travel is possible and I’ve found numerous ways to do it. But I recognize that most of the community is about getting really good deals on luxury travel. My life is somewhere in the middle.
Part of my obsession with finding actually free ways to travel is sport, and a large part is motivated by continuing my lifestyle. A mix of luxury hotels and club lounges (the one tonight had great calamari with dinner actually), and not owning more than you can fit in a carry on.
Remember, as I learned when trying to carry-on my bag onto an AirBaltic flight: there’s no such thing as “one size fits all”.