Southwest Airlines introduced ‘Rapid Rewards 2.0’ — their revenue-based program — in 2011. After just two and a half years they devalued their points about 15%, reducing the maximum value you can get out of a point to 1.43 cents.
Then a mere year later they devalued again by introducing a sliding scale of value — sometimes you’d still get 1.43 cents a point in value on their cheapest fares, but sometimes you’d get less. That change went into effect April 17, 2015 after two months’ notice.
Now, a year later, they appear to have devalued again and this time they did it without any notice at all.
In mid-April they increased the number of points per dollar that you need for their cheapest tickets from 70 to 72, meaning that the most you can get out of a point dropped from 1.43 cents apiece down to 1.39 cents apiece.
That’s only about a 2.8% devaluation, so a far cry from the 15% what they gave the program in 2013. But it’s striking that Southwest didn’t even feel the need to its members they were doing it, or give them an opportunity to make use of their points at the value they were expecting to get when they were earning.
There are (3) reasons we usually think of a frequent flyer program devaluing. None of them apply in the case of Southwest.
- There are too many miles chasing too few award seats. They need to increase the price to balance supply and demand. But 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. In this case, award pricing just keeps up with price inflation. But a revenue-based program like Southwest’s has this built in — more expensive tickets simply cost more points already.
- 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 isn’t offering alliance partner redemption.
That leaves only “because they can” and it runs directly counter to the brand that the airline has sought to cultivate and maintain.
A revenue-based program does not ‘need’ to devalue, but Southwest proves over and over that one can. And in doing so they simply declare the value of their currency to be lower.
(HT: Miles4More)
Great post. Thank you.
The companion pass via non flight points not counting will be coming soon
This comes at a time when their ticket prices are so high they could choke a horse. Flights I once got easily for $69-150 are in the $200-550 range now. They’ve quite literally priced themselves out of the market. I guess they think the changeability, free bag and internet will make up for it.
It does seem they devalued (though I believe the new pricing has been in place for a few weeks now). There are still many many awards available for 1.6-1.7 cpp. It seems that the routes with higher demand are more affected (like anything touching LGA in the summer). It also seems that this is very similar to last year and that award cost will drop as the summer ends. But this was always the case and a frequent southwest user should always do an analysis of cash (or vouchers) vs. points.
Southwest always says that the redemption per point varies. Sometimes you can get really good value. For example about 6 weeks I booked a RT to Puerto Vallarta for 5600 points RT plus tax of $81. It worked out to a value of over 3 cents per point when your assumed rate was 1.43.
@Greg…. “I guess they think the changeability, free bag and internet will make up for it.” In some ways it does.
I don’t know where you get your numbers from. I regularly book tickets in the 1.6-1.83 cpp range. I just looked up a route for a random Tuesday in September and found the rate to be 1.70 cents a piece for 4 out of the 5 flight options that day (transcontinental, btw) and the 5th flight was 1.67 cents.
Lest I be told that kind of value only happens on a transcon, I looked up a route from Chicago to the east and got 1.71 cents.
Lest that also be a bad comparison, I looked up a 1 hour flight from BWI and had no trouble finding 1.71 cents.
Where are you getting these 1.43 and 1.39 rates from? They’re just not true. I come to your blog because I trust your info. I’m disappointed that you’re disseminating false information. Did you just read it somewhere and not fact check?
@Marty: Southwest appears to be happy selling points to Chase and others and then handing out companion passes. It must work for Southwest, or they would have changed it years ago. Most people’s companion passes don’t cost Southwest very much compared to the bank’s purchase price for 110k points.
Another quick search with two small airports connecting through one hub yielded 1.72.
@Nico: The points redemption rate applies to base (pretax) fare. Points bookings avoid most taxes, so your cash savings are higher by the amount of avoided taxes. Most of the time the cheapest cash fare has the higher percentage of taxes so it will save you the most dollars per point.
@Gary @All the other people saying he has the points value wrong
1. Gary is quoting how many cents towards the base airfare (not all-in) it costs. This is misleading and not helpful. Gary doesn’t really Southwest so he’s grabbed the numbers from other bloggers/FT without explaining them.
2. I use the following model which represents the true marginal value of miles:
(Flight cost – taxes paid)/(miles spent + mileage opportunity cost of paid flight) = value of miles.
When I booked in February, I was getting 1.62 cents/mile using the above formula for WGA fares. In May, I was getting 1.58 cents/mile on the same route but 1.36 cents/mile on a Sunday leisure flight back home from an extremely popular destination with perfect timing.
Poor form Southwest.
I don’t like it, but isn’t this exactly what SW built into their last devaluation, which made it so bad? They essentially said you will need somewhere between 70 and 80 points per dollar, but we don’t have to tell you where it falls on that scale and we can change it at any time. So its not a new devaluation, just an effect of the last one.
I did notice that they devalued a little bit, but i’m still getting ~1.6 cents per point on my recent reservations that i made today. I also recently rebooked a flight to an earlier time, and even though both times they were booked the revenue price was $131 including TSA fee, when i rebooked it, the ticket was slightly more expensive (7,829 vs 7,611), which is 2.78% more, dropping from 1.64 to 1.60 cents per point.
I have noticed that overall ticket prices are higher this year than last year though.
@AnonCHI, thanking for posting your fomula. Does your first value (“flight cost”) include the cost of the perks that Southwest provides for free? Baggage, change insurance, Wi-Fi.
If not, then it’s tough to compare the $0.0139 point value to another airline’s $0.0175 value. (I’m not saying you did that; I’m just wondering if this “point-value” is considered a currency in the frequent-flyer world, and wondering how various perks are factored into the equation.)
@Lindy, it probably doesn’t, and they don’t compare, and all mileage valuations are inherently subjective.
Taxes go up all the time do to inflation so don’t support Bernie Sanders. Keep it simple and just do Cost of ticket / Number of points.
Why not keep it easy and do Cost of Ticket / number of RR points needed?
@Lindy @Sean – no, it doesn’t. That being said, when I pursue Premium Cabin airline redemptions or hotel redemptions, I only use the cost that I would actually pay.
For example:
JFK – LHR non-stop economy round-trip: $900
JFK – LHR non-stop business round-trip: $3,900
If I redeemed miles for business, I’d wouldn’t use $3,900 as the cost because I, at this stage in my life, wouldn’t pay that. I’d say well economy is $900. If someone offered me the ability to upgrade both ways for another $1,000 would I pay it? Sure. For $2,000? No way. So I use that to add a premium.
Similarly for hotel redemptions, let’s say a Westin is 12,00 SPG points and the retail rate is $450/night. On the other hand, I can see a 8/10 or higher 4* on Priceline Express for $240 inclusive of taxes. I’ll use the $240 as my price to calculate value per point.
All of us can make ourselves feel great by saying “OMG I got 25 cents per point!” but that valuation only matters if you’d actually pay the cost.
I now have a reason to try Virgin, soon to merge with Alaska.
@Sean: Someoneone on Flyertalk, I think correctly, recently posted that WN never mentioned a figure of 70-80 against the base fare. WN just said the rate would fluctuate. 70-80 was figured out by FT WN forum members.
What’s insulting to me is that this comes during high profits and low fuel prices.
Agree with the folks posting comments on true redemption value of 1.5 ~ 1.67 cents per point and not Gary. Add on top of that 2 free luggages and fully refundable no fee cancellations, you’re probably slightly ahead of other airlines’ domestic economy redemptions.
CMH->FLL 6/15, 12:30 PM
$122 or 6556 points
1.71 cpp
So I’m still flying to Florida cheaper than any numbers you’re tossing out. Florida is about as good as Southwest gets for destinations – What else could I ask for?
CMH->FLL 6/15, 12:30 PM
$122 or 6556 points
1.71 cpp
So I’m still flying to Florida cheaper than any numbers you’re tossing out. Florida is about as good as Southwest gets for destinations – What else could I ask for?
*$112
“There are too many miles chasing too few award seats.” <— why would you possibly say that does not apply to Southwest? that is EXACTLY what is happening.
@Joseph N – because in a revenue based currency the points are cash and all seats are at play
Another reason not to trust bloggers. They are selling us junk that will get devalued soon anyway. And even worse, whenot their product gets devalued is not even in the hands of the bloggers.
@Adam K – Subtract the $5.60 that you have to pay along with those points, and you get 1.62 cents value. However, the base fare (which is what the points price comes from) on that is $91.05. Regardless of the ‘value’ calculation you use, each additional dollar in base fare on the lowest WGA fares now requires 72 points rather than 70. Before April, the same flight would have required 6374 points rather than 6556. No big deal on a single cheap ticket, but it’s an unannounced across-the-board 2.8% increase that they hoped nobody would notice.
Given the comments, it seems clear to me that the value of a WN point can vary for redemptions.
Here’s my experience. Today I redeemed WN points for a $49 fare (WN was matching a cheapo Jetblue fare). The ticket cost me 2336 points and the $5.60 PFC. Back out the tax, and I still got about 1.85 cents per point. And then I used my Companion Pass to book a free companion ticket! So I’m pretty happy with the valuation I’m getting.
Unfortunately, Southwest is no longer the discount airline that they used to be. Apparently they want to increase their profits like the other airlines (big surprise). It would be nice if they provided advance notice on the RR change, however.
This is the current wave by the large airlines…sell to credit card issuers then devalue points. But the discount airlines keep taking market share. I use discount airlines now… Particular is cash ticket. Never before. The next wave. We will see where it goes. Southwest is tricky as says it is a discount airline but it’s tickets are now pricier than lagacy airlines with out of area airports like BWI and cattle car loading. I am surprised that they continue to do well or have great loyalty.
To me, Rapid Rewards points are valuable for when I may need to cancel – I can do that freely, whereas if I pay for a ticket, I can extend the value if I need to cancel, but can’t get my money back. But despite that I’d always prefer to use up my Rapid Rewards because it’s a deflating asset and cash has many other uses besides booking flights on Southwest.
I got the Chase card for the signup up bonus, then put it in the sock drawer after meeting minimum spend. I’ll cancel when the year is up. Relatively fixed value points (unless they’d be at a much higher valuation) don’t interest me, since I can usually get more value out of other points currencies. And of course, since most of my travel is international, I’ve got to focus on those anyway.
But while it doesn’t affect me much, I agree one of the worst things an airline can do is make no-notice devaluations.
@credit You’ve just discredited yourself.
For the novices out there, never transfer UR points to Southwest unless you’re flat broke. You’ll get more value for your points with Hyatt, or United/Korean/Singapore premium cabins.
@Rob P – Not to mention converting URs doesn’t count towards WN CP.
@All – Not understanding the hate and superfluous posts to Gary on his valuation method. Considering WN last year un-attached Wanna Get Aware fares from the 70 point / $1 conversion and made it dynamic, he’s just using what many bloggers like TPG use. Grow up.
Low cost airline? Today SW opened up booking thru end of the year. An hour and a half flight the day before Thanksgiving, returning the Sunday after, costs $500 R/T. On AA the same flight is pricing right now at $250. 🙁
Southwest is minting money hand over fist. When they keep raising prices and people keep paying they can do stuff like this.
Just redeemed at 1.79 cpp. The primadona bloggers need to do some homework
What folks are missing is that Southwest calculates the cost of an award using base fare and a points value corresponding to the type of fare, and then since there’s no fare paid there’s no federal excise tax on tickets.
The devaluation then comes in the form of value of points relative to base fare. And that’s the value I am writing about.
It is of course valuable to not pay taxes on a ticket, too, so your cost savings will be greater than the points value per base fare as some commenters are describing above (by the value of non-security taxes).
Hi Gary, I called Chase Southwest this week in order to cancel my credit card and they very kindly offered me a $70 credit to cover the annual fee of $69 (I think) for my Plus credit card. I’ll keep it for another year. I won’t be using it much since my partner has a better Chase credit card. Since my partner’s credit card charges $ for additional authorized users, I’ll use this credit card when I’m making purchases by myself. Any new news (good and bad) on this credit card is very helpful, thank you!
@DaninMCI:
I totally agree that Southwest’s higher ticket prices during high profits and low fuel prices are insulting.
If they are going to raise their prices, then please buy new planes and pay your pilots (recent dispute) and crew more money. Happy crew = happy traveling for passengers.