So, How Bad Was Southwest’s Recent Devaluation?

In February, Southwest announced that they’d be making some changes to the Rewards Rewards frequent flyer program as of April 17, 2015.

Southwest-Rapid-Rewards

Historically Rapid Rewards has been a pretty transparent revenue based frequent flyer program, whereby the cost of an award ticket is directly correlated to the cost of a revenue ticket. That hasn’t stopped Southwest from making devaluations, though.

For example, last April Rapid Rewards devalued their redemption rates. For Rapid Rewards tickets, they went from charging 60 points per dollar of airfare to charging 70 points per dollar of airfare.

However, as of this past Friday, Southwest made award ticket pricing even more dynamic. Here’s how Southwest described the changes:

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.

Now that the changes kicked in a couple of days ago, how much has Southwest Rapid Rewards award pricing changed?

The changes aren’t (necessarily) huge

Well, the truth is that the changes haven’t been huge. The pricing is indeed dynamic. In some cases award costs haven’t changed, and in many cases awards are requiring up to an extra ~10 points per dollar of airfare.

This is a pretty significant devaluation, especially since Southwest already devalued their redemption rates about a year ago.

But here’s the real crime

But the real crime here isn’t the change in redemption rates, but rather the change in transparency. Southwest Rapid Rewards just pulled a Delta SkyMiles here. They’ve gone from running a transparent program where members know how many points they need for an award redemption, to literally saying that they’ll charge whatever they damn please.

To me that’s the worst part of this. A loyalty program should go both ways, and it should be transparent. Want to change redemption costs once in a while? Fine, go ahead and do it. Members won’t be happy, but that’s life, as long as it’s communicated with advance notice.

But when you’re literally saying “hey, we’ll award you these points, but we won’t tell you how much redeeming them will cost,” well, that’s just low.

For an airline which for so long based they’re marketing around the fact that they have “no hidden fees,” they sure aren’t applying the same “nothing to hide” logic to their frequent flyer program.

Southwest Airlines’ new aircraft seat

Does anyone have a different take on the Rapid Rewards devaluation?

Comments

  1. The change in the value of the points that we have seen so far is not catastrophic. But what is a huge deal is BOTH the lack of transparency and that the value of the points become worth less as the need for points becomes greater as prices rise even within Wanna Get Away fares. I do think that’s pretty much undercutting the value of the program.

    http://viewfromthewing.boardingarea.com/2015/04/18/has-southwest-figured-out-the-perfect-way-to-stick-it-to-their-members/

  2. Doubt we’ll ever see you Lucky on a Southwest flight, and that’s fine.
    What ticks me off is the “fuel surcharges” which started off when fuel prices were originally spiking, but have remained as a catchall for getting more money. Use the devaluation and get rid of them.

  3. Theoretically, a fixed point redemption should not deflate or inflate except with the fluctuations of the currency to which it is fixed and the variability of airfare. That being said, I imagine redemption rates are generally higher for Southwest because people don’t wait to redeem their points (unless WGA fares aren’t available perhaps). Because they are their own central bank, they can print as many points as they want and devalue as they wish. I don’t consciously earn Southwest points, but if they’ll continue to give me a companion pass, it is hard not to keep flying them. In the end, when considering an award redemption, you look at all your programs to see what makes the most sense. I do wish they would remain transparent.

  4. I still am trying to wrap my head around how doing variable rate redemptions makes any sense. The ticket price already has destination/time/day/demand/everything rolled into the revenue price, which is what a revenue based program already bases prices off of.

  5. It was once 60x and now its 70X to 80x. That’s big devaluation in just over a year’s time. Why would anyone use their credit card which earns a max of 1.43% back (~1.5% with tax savings) when you get get a 2% back card ?

  6. SW, Delta, etc… The revenue based thing is a tad confusing. It will soon be to a point, if it isn’t already, that you can’t earn award travel by flying even at a rate that will make you a Gold or Platinum or higher traveler.

    Why not keep award travel at a somewhat attainable rate if you’re trying to create loyalty? Award travel seems fairly low versus revenue generating tickets in a given year. Of course, the only smart way to play the loyalty game with airlines is with credit cards and such, but on principle, why isn’t there a way for a regular but not strategic flyer to earn some loyalty back?

  7. I’ve always relied on Southwest points for peak travel (Friday/Sunday weekend trips and holiday travel). I can see why they wanted to make these awards a higher price because during these times, there is almost no award travel available, especially during the holidays. So basically if you wanted to travel on an award during Christmas, it was either Southwest or paid ticket (at a ridiculous holiday fare). With the companion pass, it made for an incredible value.

    I think they basically wanted to put a premium on peak travel because they basically have no competition in the award travel space from a lot of destinations (Virgin and JetBlue don’t travel enough places and are harder to accrue). Doesn’t mean I like it but I see why they did what they did. It wouldn’t surprise me if holiday travel award prices go through the roof (maybe even less than one cent per point). Hope that is not the case.

  8. @Ben– Actually, the sleuths over at FT have been comparing numerous datapoints post-devaluation, and the consensus is that NO redemptions have gone down in points. The minimum is now 70 points/dollar, with a current max for WGA fares of 80 points/dollar.

    Of course, you hit it right on the nail– like Delta, because pricing is now dynamic, this gives Southwest the opportunity to raise redemption rates above the 80 points/dollar at any time without having to notify members.

  9. @Kris

    There can be subtle business reasons for aiming to fluctuate the paid/redemption passenger choice that doesn’t directly show up in fares. For example, I’ve heard rumors that some of the new international routes are award-heavy. Southwest wants people to perceive new international service as something to be paid for rather than an aspirational award redemption, because they think that will support long-term growth of international routes.

    I agree with you though that if they have a problem with the ratio, they should just change it and not be shady.

  10. Like DTW, I’m guessing they started this off at a low increase, so that when everyone hears about it, the general consensus will be “not that big of a deal”. Then they can slowly let it creep up and up, without the bad publicity that jumping the rates up all at once would entail. Redemption rates for Thanksgiving will most likely be thru the roof, since they know they can sell every single seat, so why give FF members a break?

    I let both of my SW cards expire when the AFs came due. The bonus miles for renewal were almost exactly the same cost as just buying the same ticket, and I had no immediate need for redemption, so why pay in advance?

    Really appreciate having the Companion Pass, but now with only one SW cc instead of two, and the sign up bonus cut in half, can’t see any way to get another one when mine expires. I’ll be back to comparing ticket prices again, since SW is no longer a low cost airline. Another one bites the dust…

  11. Having just earned our second companion pass this year, I will continue to use their credit card. Did book MDW-LAS the day before the devaluation. What was 23k r/t is now 27k.

  12. I say let’s speak up through our wallets, more specifically, through our credit cards. When the time comes to cancel our credit card/s, let’s say to Chase that the RR points they’ve awarded to us have devalued to an undeterminable extent, subject to the whims of Southwest.

  13. The “now you see it no you don’t” aspect of this is troubling and I’m disappointed with SW’s approach – though I do understand the business side of using dynamic pricing – that being that paying passengers are worth more the award passengers to the bottom line because they generate real but in seat revenue.

    On the practical side, I’m not that all personally concerned. I’ll likely fly SW 75 to 80 times this year – all revenue, and all reimbursed in one way or another.. That’s my normal pattern. I’ve been A-List Preferred for 4 years and had the Companion Pass for same period of time – earned the last 3 times without needing the credit card “booster”. I’ve got over 750K RR points in the bank, never redeem any of them on myself, and less than 30k/year on relatives. Just keep stockpiling. I’ve never been, and never will be, an “earn and burn” type. Call me a serial hoarder instead. I’m fortunate enough that my post-retirement career (retired 8 years ago at 55 from finance) has allowed me to essentially get paid nicely and travel a lot. So I’m approaching 64 now and will probably really retire in another 4-5 years. And with that will come the end of “reimbursed” travel but not the love to travel. That’s where/when the hoard of hotel and airline points/miles will come in handy – sort of “soft-landing” plan for indulging my wanderlust. Sure I know the points/miles will buy less “then” than “today”, but since my objectives are very much long-term I don’t really care about that because I have no immediate need for them. When I do – they will buy what they buy, and I’ll take it. No complaints.

    So, in this sense, I have a little bit different take on this then you Ben.

  14. I think the new DYNAMIC system of change is as Lucky points out – unpredictable and non-transparent. As far as a legitimate form of dynamic pricing, they already had that to begin with, since points were correlated with the market price (always subject to change) cost of airfare. In short, they had one rather good market-adjustable form of a built-in dynamic devaluation already!

    But that wasn’t good enough for the now #1 US domestic passenger carrier. Corporate ethics is again challenged.

    It is sad, because now this new improved version 2 of dynamic reward pricing (“we may change it when we want to”) is simply now a means of avoiding having to announce a devaluation…since they have a system in place to do it at will, as they wish without any notice, announcement, and sadly perhaps less public scrutiny since they can do it on a case-by-case basis…just like they did in making the announcement of this change in the first place. They made the announcement, without giving any real details in the first place….”because they can.”

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