Disclaimer: I work at Flightfox
To understand how airlines calculate fees and taxes on an award ticket, first you need to understand what makes the price of a cash ticket.
Let's use a one-way AA ticket from NYC to London an example:
Total price of the ticket is $1,498.90 and it consists of:
- Basefare (Fare 1: AA H1N0O1C5 NY to LON) — $1,212.00
- Fuel surcharge (AA YR Surcharge) — $259
- Local and government taxes (Departure tax, Security Fee, Passenger Facility Charge) — $27.90
A base fare is what the airline actually charges for the ticket. In plain words, it's the money that the airline makes selling you a ticket.
A fuel surcharge was originally introduced for airlines to easily change the airfare prices in face of rapidly changing oil prices. Currently, airlines use fuel surcharges in several different ways. One of them is to charge extra money for award (miles) flights.
Taxes are paid by the airlines directly to the government or airport.
What do airlines charge for award (miles) flights?
When booking an award (miles) flight, you are never charge the base fare. What you can be charge is fuel surcharge and taxes. For example, any domestic award ticket using AA-only flights will cost you $5.60 total (September 11th Security Fee). However, a ticket on British Airways (eg. to London) will cost you several hundred dollars because the fuel surcharge will be added to the total price.
You can check the fare structure of a flight that you want to book with miles by using ITA Matrix
How to lower the amount of fees and taxes on an award (miles) ticket?
- Use your miles for airlines that impose no or low fuel surcharges. For AAdvantage miles, try AA or Cathay Pacific and avoid British Airways.
- Use miles for trips originating from countries with low taxes (eg. USA), avoid tickets from/to Great Britain ($95 in economy and $190 in business class extra tax)
- Don't book last minute as many airlines add late-ticketing fees (AA: $75 if booked within 21 days of departure)
When is it a good deal to book with miles vs. cash?
I recommend to use your miles when 10,000 miles AAdvantage miles save you at least $100 dollars, but preferably $150. The best way to use your miles is for business and first class flights, where 10,000 miles can save you $1,000.