when should my MacBook battery be replaced?

The simple answer is when you do not have enough working time the the MacBook Air is on battery, not what is indicated by battery life.

A very simplified example would be if you use your MacBook Air for "X hours" a day and eventually you can only use it "Y hours" a day which is not enough to meet your needs, replace it.

Quit micromanaging your battery and just use your MacBook Air.

Batteries - Service and Recycling - Apple

MacBook Owners

Your battery is designed to retain up to 80% of its original capacity at 1000 complete charge cycles. The one-year warranty includes replacement coverage for a defective battery. Apple offers a battery replacement service for all MacBook, MacBook Air, and MacBook Pro notebooks with built-in batteries.

It is not necessary to replace it.

You don't have to replace it until the battery does not perform properly for your needs unless the battery starts to swell. At one time Apple did distinguish the battery conditions to distinguish between a battery with low capacity and one with a hardware issue. Unfortunately beginning with a macOS 10.15 patch to implement the new battery management system Apple changed the battery condition reporting to now only indicate a "Normal" condition or a "Service Recommended" condition with latter meaing a consumed condition or a hardware failure with no easy way to tell the difference except by using a third party app like Coconut Battery to see whether the battery capacity is within 80% of its Design Capacity (the "consumed" condition can be triggered even if the capacity is even over 80% because of fluctuations in the battery chemistry).

So use the battery until it no longer works for your needs or if you notice it starting to swell (not sitting flat on the table anymore). The only other thing to worry about is knowing when you may no longer be able to get an original Apple battery replacement from Apple. Apple recently changed their rules to allow officially replacing a battery for up to 10 years after purchase, but the details are a bit vague and may only be available as long as the battery is still available so when your Mac is about six years old you may want to consider having Apple replace the battery if you expect to continue using the laptop for a while longer with a working battery. Until we see how Apple handles this "up to 10 year battery replacement" I would be cautious and not assume an official Apple battery replacement will be possible when the laptop is 9 years old.