Using Air Miles for overseas flights? It may not be a great deal

You've saved your Air Miles for a well-deserved overseas adventure — but don't pack your bags just yet, as you may be in for a surprise.

Seventeen million Canadians collect Air Miles reward points on everything from groceries to gas.

But is using your Air Miles to score that dream flight always a good deal?

According to research by CBC's Marketplace, you may not save that much on some long-haul routes. That's because not only do you have to pay all of the taxes and fees levied by governments and airports, you also end up paying a large portion of the airfare, too.

Over the past few months, many unhappy collectors have been scrambling to find rewards for their miles. They were rushing to redeem ahead of a looming policy change that would have seen miles collected before 2012 expire.

Air Miles announced on Thursday it was cancelling that planned change, and that points would not expire.

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For Ottawa's James Fulcher, who spoke to Marketplace before Thursday's announcement cancelling the expiry policy, the planned change would have cost him 15,700 miles at the end of the year. He wanted to use his points — collected over two decades — to take his wife on a dream trip to Europe.

But when he checked routes to London, Paris, Vienna and Frankfurt, he found the cost of the taxes and fees to be much higher than those being charged when booking directly with the airlines.

When we crunched the numbers, we found out using Air Miles would only save him $198.

Part of the reason? Airlines add a surcharge to certain fares on long-haul routes and Air Miles, along with some other loyalty programs, won't let you redeem your miles against this part of the fare. Better deals can be found using the loyalty program on flights within Canada and to the U.S., Mexico and the Caribbean as surcharges are much smaller and are covered by your miles.

Let's break down one of the examples of what Fulcher found with prices that Marketplace checked the week of Nov. 21.

If you're looking to book an Air Canada flight from Montreal to London using your Air Miles, here's what that would cost:

But if you booked the exact same flights directly through Air Canada's website, the total cost comes to $798.55, of which only $250.55 is labelled as taxes and fees.

The difference in those taxes and fees is no small sum: $365 more if you're using Air Miles.

We found similar examples on other routes into western Europe including flights on Lufthansa, KLM and Delta.

Air Miles covers base fare

So why the discrepancy? Air Miles adds a $15 booking fee if you make the reservation online, but that doesn't explain the extra $350.

Marketplace asked Air Miles to explain the difference. In an email, the company wrote: "the mileage portion of an Air Miles flight covers the base fare for a route…all additional charges are set by and remitted to other organizations; this includes taxes and fees."

Here's the thing: The "taxes and fees" when you book with Air Miles aren't the same thing as "taxes and fees" when you book directly, because Air Miles includes part of the fare into the equation.

It all amounts to how the cost of the flight is broken down. Marketplace asked Air Canada to explain the math.

Here's how Air Canada breaks down that fare from Montreal to London:

The taxes and fees are airport and government charges that are levied on all passengers and the airline does not receive. But the air transportation charges are set by the airline and goes to them as revenue.

Air Canada explained that air transportation charges breaks down further into two parts: the base fare and their carrier surcharge. Here's the full breakdown:

Air Miles will only allow customers to redeem miles against the base fare part of the air transportation charges  — they expect you to pay out-of-pocket for the rest.

The base fare is less than half of Air Canada's cost in our Montreal-London example.

Of course, it's not immediately obvious that you're paying Air Canada for the flight. Air Miles bundles in the airline's cost with the other taxes and fees, so you might not be able to tell that you're paying part of the fare.

So those 5,100 miles you saved up? You may think you're getting a free trip, but the actual value in this case? Only $198.