In response to the news of Southwest Airlines devaluing its currency 6.5% without notice, Pizza in Motion thinks we should stop losing sleep over devaluations or lack of notice.
Southwest Rapid Rewards Has Devalued 38% Compared To 8 Years Ago
When Southwest Airlines launched Rapid Rewards 2.0 in 2011, $1 in airfare cost 60 points.
Then in 2013 they announced a devaluation to 70 points, with six months’ notice.
They devalued again, with two months’ notice, in 2015, creating a sliding scale of value (sometimes it would still take just 70 points to redeem $1 in airfare).
In 2016 they devalued without notice so that $1 in airfare cost 72 points.
In 2018 things changed again so that $1 in airfare cost 78 points, but expensive fare types (Anytime, Business Select) didn’t cost more than that.
Now we’re looking at $1 in airfare costing 83 points, a 38% increase compared to 8 years ago. And this changed happened overnight without notice – a change in how Southwest used to treat its Rapid Rewards members.
Should We Just Assume Poor Treatment From Programs And Shrug It Off?
Ed Pizzarello writes that we should “[s]top complaining about airlines and hotels when they make changes. Start figuring out how to get better value for your miles and points.”
If his point is, don’t gnash teeth because you shouldn’t have expected any better from these programs anyway, just capitalize that they aren’t trustworthy, then ok. But I think that misses that there are relative degrees of deplorableness across programs. It’s a mistake to say they’re ‘all the same.’ Hyatt isn’t as bad as IHG, Air Canada isn’t as untrustworthy as Delta.
How though can people be expected to figure out how to get better value from Southwest’s Rapid Rewards points, when they’re a fixed value program? Your points are worth the amount Southwest says the points are worth, and now Southwest says the points are worth less.
More broadly though I laid out a simple model for why we should expect devaluations back in 2003, and more recently explained why programs devalue.
Loyalty programs are not a store of value and the best thing you can do is earn and redeem, and then earn again, so to the greatest extent possible you’re doing both in the same period, at the same award cost. Ed’s argument is right that saving for the future is a fool’s game with these private currencies that lack any sort of central bank or other constraint. There’s a reason new electronic currencies limit the amount of coins that can be minted.
Is It Worth Shaming Programs That Treat Members Badly?
Ed writes, “[w]e’re past the point where public shaming will have an effect. The only time I can recall a program looking in the rear view mirror on negative changes was when Suzanne Rubin ran the American Airlines AAdvantage program…”
My memory is a little longer than Ed’s!
- In 2008 American Airlines announced a $5 online award redemption fee. In the face of outrage, they backed away.
- United required a Saturday stay on a roundtrip ticket in order to redeem a saver award. They rolled back the change amidst consumer backlash (while Northwest slipped in their own version of the change – which stuck for many years).
- United made systemwide upgrades redeemable only on nearly full fare (H and above) tickets in 2003. There was enough of an uproar that they even issued additional sweet spot certificates valid on nearly any fare for the same year, and had less restrictive international upgrades the following year (that still excluded the cheapest fares). That policy remained in force until the introduction of PlusPoints right before the pandemic.
- US Airways planned to count only full fare tickets towards elite status. Then-marketing VP Ben Baldanza described customers buying the inexpensive tickets they offered as not having the kind of loyalty they were interested in. They backed away from that plan.
- US Airways announced the end to flight bonuses for elite members in 2008 and reversed course. And they even did so retroactively. At the end of 2008 elites all received the flight bonuses they would have earned while the change was in place (May 1 – November 19).
- In December 2002 Delta announced they would stop giving full elite credit to discount fares. Two years later they rolled back the change and also rolled back award fee increases.
Now, these cases where airlines made changes to their loyalty programs and then reversed course due to outrage are for the most part quite some time ago. We’ve seen it more recently in foreign programs (Thai Airways walked back an award chart devaluation, Qatar Airways reversed a 50% devaluation back in November). For U.S. programs though,
- There were more competitors then
- Banks didn’t pay as much for points then, which is partly a function of consolidation (power shifting more to the airlines) and part move to a new equilibrium set off by American Express losing its Costco co-brand and bidding up the price of other partners.
Why Shaming Programs Matters
If it didn’t make sense to shame bad behavior from a travel provider, then it wouldn’t be worth telling people how the Westin Fort Lauderdale Beach Resort is cheating them. We should just take it.
Even if programs aren’t going to reverse course, some might be more reluctant to move forward knowing there will be blowback. Other programs will see whether customers change behavior. They might even be encouraged to keep award charts around.
But if Ed is right that we shouldn’t trust loyalty programs, and that ought to become our base case, then the way that information gets out to the public is precisely by shaming loyalty programs when they behave badly. Rather than shrugging our shoulders at no-notice devaluations, it is important to shout it from the rooftops so that members know to build lack of trust into their base case.