At What Price Does It Make Sense To Purchase Rapid Rewards Points?

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Southwest Airlines is offering a 35% bonus on purchased Rapid Rewards points through April 22, 2015.

SWA-RR

Ordinarily the cost per purchased Rapid Rewards point is 2.75 cents, though through this promotion that cost is lowered to ~2.04 cents per Rapid Rewards point.

SWA-RR-1

Now, I’ll be the first to admit that I’m a big fan of purchasing points when it makes sense. For example, I think Alaska’s current bonus offer on the purchase of Mileage Plan miles is a great deal, since you can buy miles for ~2.11 cents each, which can efficiently be redeemed on some great airlines. And I’ve also certainly purchased Avianca LifeMiles and US Airways Dividend Miles (RIP) in the past.

But Southwest’s Rapid Rewards program is revenue based, and at best each point can be redeemed for ~1.43 cents each towards the cost of a “Wanna Get Away” fare. And this is after Southwest devalued their redemption rates by about 15% last year.

As if that last devaluation wasn’t enough, on April 17 Southwest will be deviating from a strict revenue based redemption program (which seems a bit backwards given the direction the industry is headed), as extra points will be needed for “certain flights:”

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.

When you have a revenue based program you’d think there would be no need to charge additional points per dollar for any flight, since presumably the revenue rate (and therefore the redemption rate) already reflects the increased demand and cost. But not at Southwest, it seems…

Lastly, for what it’s worth, Southwest points purchases are processed through points.com, meaning this doesn’t count as airfare spend for the purposes of your credit card.

Bottom line

I’d rather contribute to Creflo Dollar’s “Project G650” than buy Southwest Rapid Rewards points for more than they could possibly be redeemed for.

I suppose it could make sense to purchase Rapid Rewards points if you’re 1,000 points short of redeeming for a really expensive ticket, but that’s about the only scenario under which it would make sense. We’ve also seen (slightly) bigger bonuses on the purchase of points in the past.

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Comments

  1. “I think Alaska’s current bonus offer on the purchase of Mileage Plan miles is a great deal, since you can buy miles for ~2.11 cents each, which can efficiently be redeemed on some great airlines”

    what will you be redeeming Alaska miles on after March 28? Cathay?

  2. @ Lantean — Cathay and Fiji Airways are my personal favorites, but also LAN and Emirates business.

  3. Clefro? hahahaha…..it’s “Creflo”, but I like “Clefro” a lot better. It sounds like Jethro from the Beverly Hill Billies.

    On a similar note, unlike the greedy bastard Creflo Dollar, I have decided to become a part time minister and I am seeking donations to purchase a used Cessna 150 for $12,000. If all of your readers could generously chip in just 50 cents, I can reach my goal of creating a five county outreach program delivering hope to trailer parks throughout central Texas.

  4. @Lucky sez: “When you have a revenue based program you’d think there would be no need to charge additional points per dollar for any flight, since presumably the revenue rate (and therefore the redemption rate) already reflects the increased demand and cost.”

    Think again. From just three redemption levels, Southwest will be implementing full ‘dynamic pricing’, which would make the program even more revenue-based because the numbers of points required for a redemption would be changing “based on destination, time, day of travel, demand, fare class, and other factors”, i.e., exactly as do the prices of revenue tickets. How closely the number of points and actual ticket prices would match remains to be seen. However, it seems like a smart move for the program. This will allow them to make award tickets expensive , in real time, to discourage redemption when the demand for revenue tickets is high and to do the opposite when the demand is low…

  5. How about if you have a SW companion pass
    -does that make SW points worth 2X? their normal value?

  6. If you have the companion pass you still don’t come out ahead. You’re better off paying cash for a single flight and then using your companion pass on the paid flight.

  7. “Lastly, for what it’s worth, Southwest points purchases are processed through points.com, meaning this doesn’t count as airfare spend for the purposes of your credit card.”

    The email I received had this line in it. Maybe this was only included for those who have the mentioned cards.
    “Earn two points for every $1 spent when you use your Rapid Rewards Premier or Plus Credit Card to purchase points.”

  8. Off topic, but since you mentioned Alaska…….Has there been any word on Emirates lounge access for Alaska award tickets? Someone posted on one of the other blogs that the Emirates lounge at JFK had a memo from Emirates HQ that award tickets were no longer allowed access. Care to investigate and maybe post about this, Ben?

  9. I agree with the gist of the post (2.04 cents is too expensive for RR points, and there’s no way someone should buy them for a redemption that they won’t make until after 4/17). However, RR points are often worth more than 1.43 cents. I believe this value is a lower bound. I recently redeemed some one-way tickets with a cash price of $94 for 4649 points plus the $5.60 9/11 tax, getting 1.90 cents per point. At that value, I didn’t feel bad about transferring some UR points over top off my account and get all four of the seats that I needed.

  10. Several months ago, Southwest offered Rapid Rewards points at a 35% discount (which, counter-intuitively, is a better deal than receiving a 35% bonus – it brought the price down to about 1.78 cents each).

    Because of the way taxes and fees are handled in award pricing, you actually get more than 1.43 cents per point value on redemptions.

    Taking a fairly random example, I can buy a one way ticket SJC-BDL a month from now for $200, or for 11.551 points + $5 security fee. That works out to 1.69 cents per point. I’ve seen other cases where I can get about 1.78 cents per point. (Since points bookings are de facto refundable, and cash bookings are not, in this case, I would buy with points if my plans were likely to change; with cash if plans were firm. In my calculations, I’ve ignored the 990 points I would earn booking a cash fare.)

    So does it make sense to buy Southwest points speculatively during a points sale? No. But it can make sense if you have near-term plans for the points, or if you need a lot of flexibility to change bookings.

  11. They’re worth buying/manufacturing well under 1.43cpp, but Southwest isn’t going to ever sell them to you that cheaply.

  12. @joe & @jeff Yes, the Companion Pass is a game changer, as you are getting 2x the value

    @ UAPhil “Because of the way taxes and fees are handled in award pricing, you actually get more than 1.43 cents per point value on redemptions.”

    Exactly. I find that I usually get around 1.58¢ per point, but it’s never as low as 1.43¢. That combined with the Companion Pass means that I can get slightly more than 3¢ per point. I’ve transferred a ton of Chase Ultimate Rewards Points to Southwest, but only for use with the Companion Pass.

  13. Great article!

    Quick Question:

    Can I double dip the 35% bonus. Let’s say my wife buys it with her account and get 35% more points and then transfers it to me – will we get an additional 35% bonus points?

  14. @ Samwise — You could both get the 35% bonus, though transferring the points would cost you money, so wouldn’t be a very good deal.

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