Four Things Southwest Airlines Just Told The Government About Rapid Rewards

Southwest Airlines filed it annual SEC 10-K and it contains some interesting information about the Rapid Rewards program.

They continue carrying a higher percentage of award passengers than anyone else – by a lot, and even more so during the pandemic – and leveraged the Rapid Rewards program for a $600 million cash advance from Chase.

  • Southwest continues to carry a higher percentage of reward passengers than anyone else. In recent years nearly twice the percentage of passengers on any given Southwest flight used points to buy their ticket than on carriers including United, American, and Delta (American in particular has been the laggard).During the pandemic the percentage of award passengers increased, even though unsurprisingly the total number of passengers paying with points decreased.
    # Awards % Of Revenue
    Flown Miles Flown
    2020 4.1 million 15.8%
    2019 10.7 million 14.1%
    2018 10.4 million 13.8%

    During the pandemic people have been inclined to use their points more often when they traveled, rather than spending cash, which isn’t surprising – many have felt cash-constrained (although overall consumer balance sheets are improved) but perhaps more saliently uncertainty favors point redemption since Southwest doesn’t have cancel and redeposit fees (and low fares mean Southwest tickets cost fewer points, too).

  • The total balance of unredeemed points at Southwest has grown, which the airline has attributed to “multiple loyalty credit card promotions throughout 2020” but I imagine is more driven by fewer redemptions (down 62%) while co-brand credit card spending and overall points-earning falling by much less. Co-brand card revenue was down 12% in the third quarter.

  • Southwest believes the total value of unredeemed points is $4.4 billion. That’s about on par with other large U.S. airlines adjusted for size.

  • They pre-sold points to Chase for $600 million during the fourth quarter 2020.

    United, American and Delta all mortgaged their frequent flyer programs for large cash infusions (ranging from $6 billion to nearly $10 billion) while Southwest hasn’t gone that route.

    During the Great Recession pre-selling miles to banks was a key way airlines like Delta, American and United raised money. However it meant granting a meaningful discount. This time those carriers were able to raise more money without discounting their points.

    Southwest’s pre-sale, though, represents only points “expected to be purchased during 2021” for its co-brand rather than multiple years’ revenue streams. This gives some lower bound, though, to the amount Chase is currently spending each year with Southwest.

    United renewed its deal with Chase just before the pandemic and Delta and American Express extended their agreement out to 2029 in 2019. American Airlines and Southwest are next up to renew their agreements (Southwest extended its deal in 2015 and American in 2016) so annual revenue flows may be changing (and renegotiation could well spur changes to the suite of cards as well).

Southwest is clearly doing well financially compared to its peers, and still has the lucrative Rapid Rewards program as an asset if they needed to go back to financial markets. What the value looks like, though, very much depends on the economics of their next credit card agreement (which will almost certainly remain with Chase).

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Southwest’s combination of a strong balance sheet pre-COVID and the fact that their flying is almost entirely the US and Caribbean (areas with the least COVID impact) is definitely positioning them to be the strongest US airline post-COVID.

  2. It seems a big reason that the percentage of award passengers increased is the near-total collapse of business travel, which is almost all cash. Even if leisure travel kept the same rate of redemptions, the overall redemption percentage would climb. I’m actually surprised it didn’t go up more.

  3. And not grubbing for bag fees likely means they have a more loyal group of customers. I’ve also had the sense it is just a happier airline. It is definitely a better experience all around to take this one rather than the other big carriers.

  4. Almost no travel bloggers recommend that people spend money on Southwest credit cards or accrue miles in the Southwest rewards program. Yet, millions of customers engage in the program, get value from it, spend on the credit cards, and vote for the program in awards competition year after year. Are customers irrational, or are the blogs wrong? I’ll trust the wisdom/preference of the customer here

  5. Airlines are being paid good money by banks for most of members’ points. In some cases, particularly for Southwest, the bank revenue for a points ticket approaches the cash fare.

    It’s time for airlines to give us tier qualifying credit when we redeem points or miles for travel.

  6. Don’t forget Southwest was (is still?) offering customers the option to convert flight credits from cancellations into points during the pandemic, so that could account for some of the increased flying as people spend down balances.

  7. @Anthony: If they are all like a friend of mine, who refuses to fly business or first class despite having the points, for “Progressive reasons” then I understand.

  8. The reason Southwest does better than the rest is simple. It IS so much better than the rest!!!! Last year, due to circumstances I had to fly another airline. NEVER AGAIN!!!! The difference was unbelievable!!! If I can’t fly Southwest, I’ll drive. I just wish they flew out of Syracuse,NY.They are far above any other airline I have ever flown!

  9. I have to give Southwest credit, they’ve done an incredible job of brainwashing people. Nothing about Southwest is remotely better… cattle car boarding, no in-seat power or entertainment, no extra legroom seating, and a lackluster rewards program. Sure – the points are “easier” to use the UA or DL or AA… but for what? A free flight to Tulsa? I have loyalty to an airline and save my points for aspirational travel. A free Swiss or Air France business class flight is well worth my loyalty to United or Delta (FYI – accrue earnings to Flying Blue). There’s not a single destination in the Southwest map that I’d call aspirational – maybe for Ma and Pa Kettle – but not for most of us. And yes… free bags… blah blah blah. I rarely check a bag and, if I do, it’s free with the United credit card that offers way more value that Southwest’s. Sorry – not impressed with the Walmart of the skies.

  10. @ Indy. As a retired SWA employee, former employee of other domestic and international carriers and still a revenue customer of many other carriers, I generally have to agree with you. But any travel on common carriers can be brutal … regardless of what airline you choose to fly. It’s why I’m taking road trips for pleasure travel. With road trips, “happiness is a journey and not destination.”

  11. My thought: my wife took 2 different trips to Greenville from the East Coast. First one was on United, we had to pay for the flight, pay for a seat. pay for boarding pass. and of course a bag ( $525.00 roundtrip). On Southwest the fare was $58.00 plus Federal Taxes, Which were, I think about $15.00 +/-. The choice is obvious: Southwest.

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