Man oh man, it has been quite the 24 hours for Southwest Airlines. As I’ve already covered, the airline will start charging for checked bags, will add expiration dates to flight credits, and will introduce basic economy.
Now I want to cover the development that has the biggest implications for the miles & points world, which is that Southwest is making changes to how Rapid Rewards award ticket pricing works.
In this post:
Southwest will vary Rapid Rewards redemption rates
Southwest Rapid Rewards is a revenue based frequent flyer program, which is to say that the number of points required for an award flight is based on how much a ticket would cost in cash. Currently, each Rapid Rewards point will get you roughly the same value toward a ticket (somewhere around 1.3 cents per point).
While there’s very minor variability, this means that a $200 flight will generally require twice as many points as a $100 flight. If you’re going to have a revenue based frequent flyer program, then arguably that’s the logical and fair way to do it.
However, there are plans to change that. Southwest has announced that Rapid Rewards will “introduce variable redemption rates across higher-demand and lower-demand flights.” We don’t know exactly when this will be implemented or how extreme the changes will be, but it’s easy enough to figure out the motivation for this change.
Airlines want award redemptions to displace as few revenue passengers as possible. Presumably the goal is to incentivize passengers to redeem points for seats that would otherwise go out empty and/or at a very low fare, while discouraging redemptions for seats that would go out full and/or at high fares. Think of it like saver award availability vs. standard award availability.
Of course Rapid Rewards members are already paying dearly when redeeming points for expensive tickets, since the points requirements reflect the cost. But I imagine that will be taken to the extreme. So if you want to redeem points for a high fare ticket or for the last seat on a flight, anticipate that your points will be worth significantly less than before.
Is Southwest killing the Rapid Rewards golden goose?
I know I say this often, but it can’t be emphasized enough. Here in the United States, airlines make very little money directly from transporting passengers. Even at the most profitable airlines, like Delta and United, the cost per air seat mile is very close to the revenue per air seat mile (and sometimes cost is higher than revenue). Instead, much of the profits come from the loyalty programs.
For full service, global carriers, loyalty programs are quite appealing to consumers, as they want elite status that scores them first class upgrades, award tickets for their summer vacation to Europe or winter break in Hawaii, and lounge access.
Historically, Southwest has punched above its weight when it comes to loyalty program revenue, for an airline that has no first class, no lounges, and no long haul flights. I’d say this primarily comes down to Southwest’s massive route network, plus it being an airline that people actually want to fly, thanks to its great service and customer friendly policies. There’s a huge halo effect to that.
With all the changes Southwest is making, including making points less valuable and eliminating all the policies that customers love, will the Rapid Rewards program suffer?
Rapid Rewards has often relied on goodwill and love of the brand for engagement, because most consumers are better off just using a cash back card, rather than a Southwest credit card. The exception is if you’re going for Companion Pass, which is a great deal. Speaking of which… I wonder when that will be “enhanced.”
Will consumers now look at the airline more critically, and consider their options?
Bottom line
Southwest is making changes to its Rapid Rewards award pricing. Rapid Rewards is a revenue based program, and currently each point gets you roughly the same amount of value toward the revenue cost of a ticket. With these changes, Southwest will have the value of points be more variable, presumably to disincentivize redemptions for seats that the airline could sell at a high cost.
We don’t know the full details yet, but given the direction Southwest is heading, I can’t imagine that this will be good…
What do you make of this change to Southwest Rapid Rewards?
I've been telling friends of mine to use their WN miles when they can and to not save them because I figured something like this was gonna happen. I still have ~320k left, plus another $300 in credits, so it's not like I'll just stop flying them, but out of DEN they have almost always been consistently the most expensive carrier, and sometimes by a wide margin. I'll fly them when it makes sense, but...
I've been telling friends of mine to use their WN miles when they can and to not save them because I figured something like this was gonna happen. I still have ~320k left, plus another $300 in credits, so it's not like I'll just stop flying them, but out of DEN they have almost always been consistently the most expensive carrier, and sometimes by a wide margin. I'll fly them when it makes sense, but I stopped being loyal when the price was no longer right. I kinda hope the IcelandAir partnership finally gets the ability to book flights with points and I might just burn a bunch and go there for a week.
“ most consumers are better off just using a cash back card, rather than a Southwest credit card. ”
That’s a bit extreme, Ben. I’d say most would be better off with a simple low/no-fee travel card like Venture or Autograph.
Easy to say as an observer, but the only way for all the changes to work would have been to rebrand and relaunch as essentially a new airline.
Huh? These changes will accomplish exactly what Elliott is looking for, short-term gains.
Generally bad but not end of the world for savvy FF community: Southwest generally increases fares as you get closer to flight date and consequently require a high number of points. In my experience, many of those flights go out half empty (e.g., your Tuesday flights) - I can see them wanting to sell those seats at lower points redemption - you'll typically see UA & AA make these seats available at saver levels using...
Generally bad but not end of the world for savvy FF community: Southwest generally increases fares as you get closer to flight date and consequently require a high number of points. In my experience, many of those flights go out half empty (e.g., your Tuesday flights) - I can see them wanting to sell those seats at lower points redemption - you'll typically see UA & AA make these seats available at saver levels using miles, despite cash price being high. On the flipside, when they do sales and you see $99 cross-country flights; you'll no longer be able to redeem 6500 points for them.
OT but why isn't your stuff being shown on BoardingArea (at least the Bluesky version of BoardingArea)?
They handed out hundreds of millions of points (which don't expire) following the 2022 holidays meltdown, so that is a big liability sat on the balance sheet - this is their way of reducing that.
Given that most planes file always near full in the US, and the large increases / very high prices for flights, it's shocking to me that the statement "even at the most profitable airlines, like Delta and United, the cost per air seat mile is very close to the revenue per air seat mile (and sometimes cost is higher than revenue)". Not least given that in Europe, flights are way cheaper for similar distances and...
Given that most planes file always near full in the US, and the large increases / very high prices for flights, it's shocking to me that the statement "even at the most profitable airlines, like Delta and United, the cost per air seat mile is very close to the revenue per air seat mile (and sometimes cost is higher than revenue)". Not least given that in Europe, flights are way cheaper for similar distances and dates between popular multi-airline cities (even if including incumbents (BA/AF etc.). As taxes are higher in Europe and fuel/labor are similar (at least to my understanding, maybe higher in Europe), the only thing left is that US airlines are run less efficiently?
labor is similar? swing and a miss there
Stop! He's already dead!
LOL. Knew this reference immediately... (For the uninitiated: https://youtu.be/qQ6wSei-NJU)