Is Southwest About To Change How Revenue Based Programs Work?

Generally speaking there are two types of airline frequent flyer programs on the redemption side:

  • There are revenue based frequent flyer programs, whereby the number of points required for a free ticket is directly related to how much that ticket would cost in cash; these programs generally don’t have blackout dates
  • There are frequent flyer programs with awards charts, whereby the number of points required is pre-determined, and it doesn’t matter how much a paid ticket would cost; these programs generally have blackout dates, and also have different award tiers

Revenue based vs. award charts?

For the leisure traveler, I tend to think a revenue based frequent flyer program is a great option. There’s no learning curve, since each point gets you a set amount towards the cost of a ticket. In other words, there’s typically no wrong way to redeem. They won’t be outrageously lucrative, but you also won’t get screwed.

That being said, if you’re like me and put the effort into learning the programs, there’s so much more value you can get out of programs with award charts.

For example, you can can redeem ~92,000 Singapore Airlines KrisFlyer miles for Suites Class between Los Angeles and Singapore, a ticket which would otherwise cost $10,000+ one-way if paying cash. You could never get that kind of value through a revenue based frequent flyer program. On the opposite extreme, though, you can also get horrible value out of these types of programs.

Programs devaluations are unjustifiable for revenue based frequent flyer programs

I’m sure some will disagree with me, but personally I think award chart devaluations are unjustifiable for revenue based frequent flyer programs.

For example, Southwest Rapid Rewards is a revenue based frequent flyer program, and last April they devalued their redemption rates. When redeeming points, they went from requiring 60 points per dollar of airfare to requiring 70 points per dollar.

That basically means that each Rapid Rewards point went from getting you ~1.67 cents towards the cost of airfare to getting you ~1.43 cents towards the cost of airfare.

Usually when airlines devalue award charts, the argument is that the cost of airfare is increasing, so the number of points required should increase as well. But with a revenue based program, that argument doesn’t hold up. The increased cost is already accounted for — when airfare is more expensive, so are the redemption costs.

So how can they justify devaluing how many cents worth of airfare each point gets you?

Is Southwest about to radically alter their program?

Yesterday Southwest published some “Rapid Rewards News for [their] valued Members.”

Southwest-Rapid-Rewards

When it’s phrased that way you know the changes aren’t going to be positive. The update basically boils down to the following (bolding mine):

We created Rapid Rewards® because we think you deserve to actually feel rewarded. And, from 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. And don’t forget that when fares go on sale, so do the points needed for redeeming for a reward flight on those fares.

Is this the future of devalued loyalty programs? The number of Rapid Rewards points required for a redemption already varies based on factors like “destination, time, day of travel, demand, fare class, etc.” Because all of that is reflected in the price of a ticket, which is what the number of points required is based on.

But it seems they want to make the program less generous, presumably by making each point worth less for peak flights.

Bottom line

Southwest really has come a long way from their glory days. While there are still plenty of great things about them, their commitment to transparency and doing business differently than the competition has certainly changed. It’s interesting that they’re releasing this “news” without actually revealing all the information about the changes.

What do you make of this Southwest Rapid Rewards announcement?

Comments

  1. This has been the topic considerable conversation on a A-List Preferred members-only forum that I participate in. Speculation there is that these changes will primarily impact the award pricing for the new Mexico, Costa Rica, and Caribbean itineraries, and further route expansions there. Another topic of speculation, though one that I personally discount, is that Southwest is planning on getting aggressive with fare sales to grow market share but wants to do so in a way that means more revenues seats are sold – not award seats.

    Personally, I’m disappointed with Southwest on this move. I can more or less understand differential pricing for the foreign markets, but if it extends beyond that it really makes no sense other than a punitive measure to burn via devaluation a growing overhang in RR points available for redemption.

  2. Is anyone surprised? They’ve been pimping out the credit card bonus at airports and in their planes for the past 3 years, and with the rise of manufactured spending and blogs giving detailed instructions, any tom dick and harry can now get a Companion pass.

    I’ve personally flown Southwest for 3 years now without every paying for a single ticket. Many of my friends who are married or have girlfriends get double the value. SW has already compensated for this by having higher fares than legacy carriers, on almost every route I check nowadays.

    I think they just grossly miscalculated how many people would be abusing the CC signups + companion pass.

  3. ….to add to the above, the Companion Pass hits them precisely where it hurts most; on vacation routes during peak season. Imagine a family of 4 where mom and dad both get companion passes. Now they can fly to vacation spots for free for 2+ years on the dates when tickets should be the most expensive and other airlines would be having a higher margin.

  4. “The number of Rapid Rewards points required for a redemption already varies based on factors like “destination, time, day of travel, demand, fare class, etc.” Because all of that is reflected in the price of a ticket, which is what the number of points required is based on.”

    Ding ding ding.

    This move ONLY affects the people whose loyalty you’re presumably trying to reward. Cash buyers will be unaffected. So, in a sense, it’s a big middle finger to their RR members.

    This devaluation is *almost* more insulting than the UA Halloween of Horror.

  5. This is the problem with revenue based redemption. Your members will overwhelmingly use rewards on leisure routes. This means profits on the leisure routes will stay low and the business routes will stay profitable. If you want to make profit on heavy leisure routes you need to disconnect the price of the award from the price of the ticket. It would be better if they were transparent and used a multiplier when the award redemption percentage went above a certain level.

  6. Never ceases to amaze me how much ink is devoted to what “might” happen in our miles/points world. You’d think we’d be happy with discussing to death the myriad of details of what we actually know but no, that doesn’t seem to be enough. Let’s jump to conclusions, predict the worst, wring our hands and discuss to death what “might” happen too. It’s almost as if we think it will actually have one iota of effect on what will happen.
    Here’s an idea: how about just relaxing and waiting to see what actually happens so we actually know what we’re lamenting and whining about?
    But I guess doom-predicting and angst are a couple of the requisite parts of this points/miles blogging. Guess we gotta fill up that daily space somehow.
    (Sorry, people who are so used to traveling for nearly free and then crying bloody murder whenever a business actually tries to make their business a little more profitable (“How dare they!”) is just a pet peeve of mine.)

  7. I fly Southwest more than I care to. I’m in New Mexico so the Wright Amendment made Southwest the cheapest and easiest carrier by leaps and bounds. I could frequently get non-stop flights for half the cost of a legacy carrier with multiple stops. I really hate their open seating and favor AA as my airline of choice. Since the Amendment has been repealed their fares have gone up and number of flights has decreased. This change to the reward program may be the straw that allows me to switch to AA full time since I’m more invested in AAdvantage than RR anyway.

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