A year ago Southwest devalued their points, a mere 2.5 years into their revenue-based Rapid Rewards program.
Now they’re about to do it again — but so far it’s a secret how they plan to do it.
News went out yesterday:
This is what we know.
[F]rom time to time we must make some updates to our program. Beginning April 17, 2015, the number of Rapid Rewards Points needed to redeem for certain flights will vary based on destination, time, day of travel, demand, fare class, and other factors. However, there are still many flights which will stay at the current redemption rate.
From time to time? They just reduced the value of their points in March 2014.
And now instead of a fixed value per point, we get variable value — some factors feeding into that have been outlined, but not a range of values or even examples.
At best we know that many flights..will stay at the current redemption rate. So not every flight gets more expensive.
The current program model isn’t even a true fixed value, there are tiers of value. The best per-point value of 1.43 cents a point towards airfare only applies when the cheapest fare buckets on a flight are available. As fare goes up, the value per point towards that value goes down. They’ve already set it up so that full flights at popular times to popular destinations require more points, no change is required to implement that.
Fundamentally though there’s no legitimate reason to devalue a revenue-based program. And here they’re doing it for a second time.
The argument usually made for these types of programs is that consumers can get any seat by essentially using points as currency.
Traditional programs devalue for reasons not faced by revenue-based programs:
- Too many miles chasing too few award seats. They need to increase the price to balance supply and demand when they print lots of miles but planes are full. A revenue-based program has access to all of the seats on the plane, and those seats are paid for with fixed-value points.
- The price of tickets goes up. The argument is that miles prices should rise as the market value of what they’re buying rises. Not necessarily compelling, but inapplicable to a revenue-based program where built-in is the feature that more expensive tickets require more points.
- The economics of the program changes. Seats are costing the airlines more (such as a shift to more partner awards), or more rewards are being claimed at the rule-buster level and so the program increases the price of those. But the costs to Rapid Rewards are pretty constant since each point had a fixed value, and Southwest doesn’t offer alliance partner redemptions that cost the program more.
Thus all that is left is that they have a currency they choose to devalue, like a politically-motivated central bank looking to monetize its debt.
A revenue-based program does not ‘need’ to devalue, but Southwest proves that one can. This should be a cautionary tale to those inclined to like revenue-based redemptions. Like Lucy, Charlie Brown and the football revenue-based programs will still cause you to accumulate points and then pull the rug out from under the value of those points.
Fortunately Southwest doesn’t charge cancel/redeposit fees so if you wish you can make a bunch of bookings with any balances you may have (locking in use at current value) and cancel if you choose not to use your awards.
I close with one of the greatest YouTube videos of all time which explains the federal reserve inflating the U.S. currency.
So why do they call it the quantitative easing? Why don’t they just call it the printing money?
Because the printing money is the last refuge of failed economic empires and banana republics, and the Fed doesn’t want to admit this is their only idea.
By simply declaring that their points will be valued differently, they categorize themselves with failed empires and banana republics. But here it’s a step even worse, because they haven’t even told us what the value will be.
(HT: Mommy Points)
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Calm down.
They’re doing what JetBlue has done for years.
Plenty of value in JetBlue, just not so many good credit card deals and 1:1 transfer to JetBlue so we don’t pay much attention, not to mention not much of a network.
Everyone needs to cancel Chase cards and your fellow bloggers need to stop promoting them. If people abandoned Chase en masse that would cut off a significant revenue stream and thereby potentially cause a change in behavior.
Otherwise management will continue to devalue because there is no penalty.
At this point there is no reason to charge anything to a Chase RR visa card except for airfare on WN.
Why not just practice pricing discipline on markets where they feel they are selling to many award seats?
The market is just not competitive enough and the airlines are basically taking advantage of that.
Maybe it’s time to support an underdog. Southwest is not that anymore.
Don’t be naive, Gary. There is absolutely a legitimate reason — there are too many points chasing seats, just as with the other mileage programs. Every person who signs up for a Chase card suddenly possesses 50,000 points and wants to use them. There are only so many seats available. The same paradigm as with the legacies
If they raise prices of awards, therefore people burn their points quicker and the airline can sell more seats to people paying with cash. Right?
Gary,
Do you think that Southwest planned to do this prior to Delta’s taking away the award chart? It seems very similar to Delta’s moving to a system where they don’t have to let you know how much that awards will cost.
Boraxo, except for earning a sign-up bonus or trying to earn a companion pass, I do not see a reason that it is worth charging anything on a Southwest credit card. Since points can be transferred 1:1 from Chase Ultimate Rewards, it seems like getting a Chase Sapphire or Chase Ink (Business) is a better deal in nearly all cases than earning from the Southwest credit card.
You point out the silly “from time to time”, but I spit out my drink when seeing the “we must”. What it means is this “From time to time we determine that we can make more money by making updates to our program and we don’t care how it impacts you. We understand that you have been giving us money and loyalty based on our previous statements about how we do business, but our lawyers will be happy to show you that we legally can make any change we want at any time and all you can do is whine about it on blogs. We are sorry that you are so trusting of us when we have really never shown any reason to be trustworthy; perhaps we will in the future post a support group that you can attend that can help you overcome this significant flaw in your decision making promise.
Please don’t complain about this too much or we might just close your account and take all of our points back since we own them and they really aren’t yours in spite of what you think.”
@James K – but there aren’t “too many points chasing seats” when the points are a currency that work like cash.
Yeah, this is a kick in the junk, especially after they JUST DEVALUED last March. They are going to do this every year, forever.
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@Daniel: Only reason now to use WN CC is because with them and partners, you get 2x and they are CP-qualifying. No other use makes sense, except to get 2%-all-in convenience checks for 14 months, which is what I do.
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Once I get my convenience check loans paid off, I think I will cut up the cards and mail them to Gary Kelly with a nastygram.
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Please hit WN’s Facebook page, people.
I agree with James K. It’s a classic case of handing out miles like paper resulting in too much currency circulating. Being revenue-based does not change that. @Gary, OK, how about “too many points taking up seats they would rather sell”, in a steadily increasing fashion, I would wager.
With a revenue-based program they *are* selling the seats. Cash -> points -> seats. Program buys the seats from the airline.
Their redemptions already cost more than revenue tickets
Wtf?
Im cancelling my credit card with them and getting a cash back card
Screw em!
@JamesK you have to think of it like when Hyatt hands out 2 free nights as a sign up bonus. SW even markets their bonus as 2 free flights, when in reality, they’re just handing out SW currency that is the approximate equivalent value of 2 free flights. They could hand out free flight certs but they dont like the thought of people redeeming them for the most expensive flights. So SW is instead printing money that should be as good as cash. Now they’re saying it isnt, AGAIN.
Points inflation is getting ridiculous though. Credit card signup bonuses always going higher and rewards for actually traveling getting slimmer. While cost of redemption keeps going up. The fact that “we’re not devaluing yet” from AA qualifies as good news tells you pretty much all you need to know.
IMHO we can partly blame accounting distortions for this situation. All airlines carry miles/points on their books as a much lower liability than the value customers perceive. When Southwest set up “good as cash” redemption at 1.66 cents per point, reduced to 1.43 cents per point a year ago, it created a situation in which the company faced real losses of revenue exceeding the income booked when points are redeemed. This happens whenever the flight sells out, an increasingly common situation.
Southwest’s solution is to steer redemptions to flights which will not sell out. In short, Southwest is creating a version of capacity controls for revenue-based redemption, combining the member-unfriendly aspects of both forms of FF programs. I understand the financial motivation, but this change cuts very much against the concept of two-way loyalty. I suppose the term “loyalty” was a misnomer from the beginning.
Is it possible the dynamic pricing searches will come up with different redemption costs depending on the number of miles in someones account (got lots of miles–> charge more)
@Gary, I don’t follow. RR pays SW for every point it hands out?
There’s a fundamental difference between Southwest and Delta. In general, Southwest has been trustworthy and customer-focused; Delta has not. Let’s not panic just yet; let’s give Southwest a chance to give us specifics first.
But it is true that Southwest already has a way of protecting revenue for heavily booked flights: As soon as the last Wanna Get Away seat is sold, it costs 10 points/$ to redeem, up from 7 points/$. (When buying Anytime fares, you’re actually better off redeeming points for Southwest gift cards, then using the gift card to purchase the flight, since you then earn points.)
Oops…make that 100 points/$ instead of 70 points/$ when Wanna Get Away fares are unavailable. (And earning my living depends on having good math skills….double oops….)
@italdesign – Southwest pays Rapid Rewards when it awards points. Chase pays Rapid Rewards when it awards points. So do other partners. Then Rapid Rewards buys seats from Southwest.
@LK – I highly doubt it.
i don’t like devaluations either, but I don’t understand the argument that there is no reason for a fixed value program to change the value. There presumably is an optimum ratio of points to dollars for the program to set. You’re assuming that they set it correctly with the initial value. What if the initial ratio had been 20 points to one dollar.