Southwest Rolls Out New, Straightforward Rapid Rewards Program

I never thought this day would come. Southwest has been talking about rolling out a new Rapid Rewards program since, I believe, the airline first took flight in the 70’s. And today, the airline is finally doing it, effective March 1. It’s a dollar-based program that is very straightforward. That part I like . . . a lot. It also, however, has a lot more tiers than I would expect for an airline that likes to say it’s an airline for everyone. And there’s also little thing about the Southwest credit card that really bugs me. But overall, it’s a good move.

Let’s start with the basics:

Southwest New Rapid Rewards Structure

Southwest is leveraging its three different fare categories by assigning different earn rates depending upon the category. That’s perfect. Without this, someone who spends $300 on a 500 mile flight will get the same number of points as on a 2,000 mile flight. But now, that $300 fare will be in a higher category for the short haul so it will earn more points. It also gives more reason for people to buy up to the higher fare categories, depending upon the difference in fare.

But where this is really differentiated is in the redemption. We’ve seen Virgin America and JetBlue put out similar programs but they’ve never been so clear on how they calculate redemption points. In this case, it’s 10 times the earn rate in each category. Makes sense. Let’s do some math.

Let’s say I was thinking about buying a $99 Wanna Get Away fare from LA to Denver. If I pay for it, I’ll earn six times that amount, or 594 points, when I fly. Let’s, however, now say that I want to redeem points instead. It will cost sixty times that, or 5,940 points. So far so good. If I decided to buy an Anytime fare for $251, it would earn me 10 times the points. You get more when you buy a higher fare. But the same thing goes for redemption. It would cost 100 times for that.

Why would you redeem for an Anytime fare? Well, when you redeem points, it’s treated like a fare in that category. Let’s say two weeks later you need to change your flight. If it’s more expensive, you’ll have to pay the “fare” difference in points. If only Anytime fares are available, that means the flight is probably pretty full or it’s last minute, so it makes sense to charge a point premium for that as well.

What if you don’t have enough points? While you can’t pay with cash plus points, you can buy points for $50 for 2,000 points and then $25 for each additional 1,000. So you can use your award whenever you want on any fare, as long as you’re willing to buy those additional points (which admittedly, cost more than the value you’ll receive but are good for top-ups).

So what don’t I like about this? This is an airline that has long been proud of its egalitarian model. But it has moved away from that significantly over the last few years, and this continues that trend. Southwest has long had its companion pass for its most frequent fliers and that will stay. A couple years ago it introduced the A-List and now there’s another tier, A-List Preferred. Here’s what you get:

Rapid Rewards Elite Status

I’m not really sure why the A-List Preferred matters here. Yeah you get bonus points and free wifi, but that’s a pretty small recognition of so much flying. (I do love free wifi as a benefit in general, however.) It seems like they need to beef this up further if they really want to make it relevant, but that gets further into this tiered structure that Southwest has always eschewed. Also, not sure why they didn’t try to fold the companion pass earning into the standard format here instead of just keeping it as a legacy standalone. But it does seem that Southwest is convinced it needs elite tiers and is strengthening them over previous offers. The old A-List only gave priority check-in/security and an earning bonus. That’s not bad, just different.

The only part that really does bother me is the new redemption options beyond Southwest flights. You can now redeem points to fly on a bunch of other airlines internationally as well as car rentals, hotels, etc. Only one problem. Southwest will only let you do this if you have a Southwest credit card from Chase. The technology for this is being outsourced, so I assume it’s just the same thing Chase offers its own reward cardholders. My assumption is that Southwest had to make this work economically to make it possible, and that meant giving Chase this sweet deal which will only encourage new signups. But I still don’t like it. Forget about the people who don’t want a Southwest credit card, but what about those who simply can’t qualify for a card? This is not very egalitarian at all.

Now let’s talk transition. The new program starts on March 1. If you have award tickets already earned, you can still use those with no change in the program. If you have credits, you’ll be able to convert points from the new system to old credits to finish it off and earn one last award. The price is 1,200 points per credit. Also, Southwest is now changing from earning during a rolling 12 month period to a calendar year instead. So if you have a companion pass or an A-List membership that expires before the end of the year, it will now be extended to the end of 2011. If it expires in 2012, it will now be good through the end of that year.

Overall, I like what they’ve done here. The earning and redeeming is very simple and sensible. The increased tiering of the program bugs me as someone who has been flying Southwest since Rapid Rewards was the Company Club, but I understand why they’re doing it. It’s all about catering to the top travelers, even though that’s historically a very un-Southwesty thing to do. The only thing I don’t like is the credit card requirement for non-Southwest redemption, but overall, they’ve done a really good job here.

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