Southwest Airlines filed its 10-K with the SEC and as always it’s a treasure trove of information not just about the airline, but also about the Rapid Rewards frequent flyer program.
One of the remarkable things about Southwest is that for years it has accommodated about twice as many award passengers on a percentage basis as competitors. Whereas an airline like American might see 6.5% of its passenger miles flown by award tickets, Southwest would see 13%. Southwest’s points are like cash, with little reason to save them (other than that award tickets do not count towards earning elite status).
Program members continued to earn points during the pandemic, and had a whole bunch of points burning a hole in their pocket. And the mix of pandemic passengers has skewed heavily towards leisure. So the percentage of passengers traveling on award tickets has only grown.
- 2019: 14.1% of revenue passenger miles
- 2020: 15.8% of revenue passenger miles
- 2021: 17.3% of revenue passenger miles
This uptick in award redemptions may help explain why midway through 2021 Southwest started charging more points for tickets (reducing the value of each point by 6.5%).
These numbers matter a great deal to the airline’s balance sheet. At the end of 2021 Southwest estimates the value of Rapid Rewards points outstanding at $4.8 billion. That includes a discount for points that won’t be redeemed in the near term, and an assumption about points that will never be redeemed.
In fact Southwest discloses that a 1% change in breakage is worth or costs $100 million. They still make assumptions about points that will never be redeemed even though miles no longer expire.
Another item of note, while Chase pre-purchased $600 million worth of Rapid Rewards points at the end of 2020, that deal has concluded with all of those points issued to members during the first six months of 2021. So the airline is no longer in hock to Chase. I still expect to be hearing soon about the two entities extending their co-brand relationship.
The point redemption and companion pass w status matching are three only reason I have recently flown SWA.
Interesting…..
Right now, I am one of them…as I have that temp companion pass and their mileage redemption rates out of DAL have been great during the winter months. The rest of the year? Not so much.
I now know why Southwest no longer has direct flights from LAX or San Diego to Los Cabos. That is the only way I fly to Los Cabos is with point and a Companion Pass so I guess a lot of other did as well. They took a 2 hour flight and made it a 5 to 7 hour flight with the stop.
How much revenue does Southwest book per point redeemed? If it’s close to 1 cent then Southwest would be almost indifferent as to the mix of points travel vs. cash travel.
One of the reasons SWA is unpopular in Hawaii by so many is they are viewed as using the state as a dumping ground for their frequent fliers. They are trying to flood the islands with low spending tourists that put a strain on the limited resources.
@JohnW: I was always a low-spending tourist. I’ve stayed cheaply or for free for 30 years, starting in the days of Hilton ALON and GLON awards. Six nights for 100k Hilton points! Plus $250 round trip fares on United.
Southwest has cheaper flights now after adjusting for inflation, but the bigger part of the story is still hotel points. As I see it, using hotel points frees me to spend more money on other aspects of the trip.
Omg lol bottom feeders who are tourists
How do we stop them from coming?
There goes the neighborhood with all the Burger King
Wrappers on the ground
Plus if you think of all the revenue they get on the early bird purchases on the points seats in addition to the cash from Chase they are raking it in!
@Gary: Dynamic pricing. It obviates the need for volume constraints.