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 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:

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.

By now, you undoubtedly know that the United and Continental merger has officially closed and United Continental Holdings is now the parent company of both airlines. But that was actually the third most interesting story on Friday, and of those three, the merger actually has the least impact on you as a traveler. The other two, one involving American and the other Frontier, have the biggest immediate impact.

See, the merger closing means absolutely nothing for you as a passenger. Ok, maybe that’s not true. It did mark the start of free beer and wifi in United’s Red Carpet Clubs. Nothing else has happened to impact you yet. That’s all coming later, and I’m eagerly awaiting details on what will happen and when. But for now, it’s all a financial deal and that’s boring. Let’s talk about the other two.

Use BA miles on American Transatlantic Flights and Vice Versa
To paraphrase Vince Vaughn from his earlier, funnier days, British Airways and American are now all growns up. Friday marked the day that American AAdvantage members could earn and use miles on British Airways flights over the Atlantic.

To those who don’t fly American, this may sound insane. You United Mileage Plus members and Delta SkyMiles members have been able to do this with your European partners for years, but BA and American have always been a pain in the butt. They didn’t allow “earning and burning” on each other’s flights because they weren’t able to get antitrust immunity. Nothing like punishing your customers, but hey, that’s all behind us now, right?

And yes, I have proof this works. My parents had been waiting for the day to book a planned trip to Europe in March, and I called American first thing on Friday to put it on hold. The agents said they had been receiving a lot of calls, and they seemed pretty happy about that. I got the seats for my parents without any trouble. Happy day.

The reaction has been mixed in the mileage community, but as usual, I look to Gary Leff at View from the Wing for his opinions as an expert. There are some goodies in here for BA Executive Club members, but in general, this is a very welcome move (except for those pesky fuel surcharges).

Midwest is Finally Dead
It seems like such old news, but Friday also marked the official (in my mind) death of Midwest Airlines. Oh sure, it had been left for dead years ago, but up until Friday, you could still book a flight at midwestairlines.com on flights with the old YX code. On Friday, the switch was flipped and that was gone. This is all good news for travelers, and to celebrate, I’m bringing back an old favorite image.

I’m very happy about this one, because it means all reservations are on a single (Frontier) system now and there are no confusing crossover issues. I had all kinds of problems before with a Midwest record locator on a Frontier flight operated for Midwest or something like that.. It was just a mess. No more. Thank you.

This does not, however, mark the official end of the Midwest Airlines website. It’s still hanging around for Midwest Miles redemptions for now, but that’s about it. If you try to book a regular flight, it redirects you to frontierairlines.com.

I suppose it’s an appropriate end for Midwest. The airline had long ago been forgotten about by most people in the US, so the fact that its disappearance was overshadowed by other news is quite fitting. It is important to remember that the one thing most people remember about Midwest, the cookie, will continue to live on. So this is all good news, except for those people who used to work for the airline, I imagine.

And now, the talk you’ve been waiting for. Let’s talk SkyMiles. As someone who considers himself miles-agnostic (meaning it doesn’t impact my flight purchase decision), it’s kind of funny that I end up getting into the details with these programs. But I know that it’s a topic that’s important to a whole lot of you. And SkyMiles is one of the more talked about programs.

It’s a program that many elite members love to hate, but it hasn’t deterred them from actively participating. Sure, many former Northwest elites have put on the rose-colored glasses and miss the days of WorldPerks, and others have a long list of complaints as well. It’s a tough balancing act for the airline, and that was the chief topic of discussion when I sat down with Jeff Robertson, VP of SkyMiles.

Despite what you might imagine, Jeff doesn’t wear a bullseye on his back, but he really does enjoy debating what’s right for the program. I found him to be thoughtful, and when our allotted time was up, the conversation just continued, probably to the dismay of the people waiting outside for his next meeting.

As you might imagine, he began by saying that “we want to do what’s right for Delta.” Of course, that’s never going to please everyone, but I was particularly interested in what that meant for dealing with the competition. American and United/Continental were that ones that had me most interested because they are the main competitors, have more flexible award use and, in my opinion, have better availability at the lower levels. So what about them?

He admitted that it’s really difficult to compare availability across airlines without just manually looking at routes, but they have recently decided to work with a third party to help get better insight on what others are doing. So this isn’t something Delta is ignoring. Then, he went to the spreadsheet to talk about availability.

It seems that Jeff has his availability reports accessible at all times. He pulled one out to give me a snapshot of what he was seeing. “We were tight this summer with availability.” But things are now more open. It seems that this will be an ongoing struggle for the airline, but it is something that is constantly on the radar.

Some more interesting topics from our discussion . . .

On Eliminating Last Minute Award Fees
“When we eliminated the award redemption fee, the percent of increase in redemptions was tremendous. It was one of the best decisions we’ve made. That’s not coming back.”

On One Way Redemptions
“There’s no reason we haven’t done one-ways. It’s just not at the top of the priority list.”

On Having Three Redemption Tiers Instead of Two
“The purpose was to provide another pricepoint that wouldn’t require double miles. We felt like introducing 40,000 and 60,000 is the right solution. Really, 40,000 miles is becoming popular. We have 90% or greater availability in that tier. So instead of someone spending 50,000 miles to come back at 4p on the Sunday after Thanksgiving. They can spend 40,000 miles to come back in the morning on Sunday or 60,000 to come back at 4p. It helps us manage demand.”

On Upgrade Co-Pays
“It would be really easy for us to do a copay. I don’t like them, so it’s not a priority of mine. I have bigger fish to fry.”

On Only Allowing Elite Upgrades From High Coach Fare Classes
“We have looked at YBM [the three highest fare classes that are the only ones allowed to be upgraded on international flights]. The #1 ask in the elite program is to let us upgrade off discounted fares. Two reasons why we don’t.
1) We don’t historically because we have free domestic upgrades, so we don’t subsidize international upgrades by making people pay for domestic.
2) We measured upsell to M [so that the ticket could be upgraded] and it is hundreds of millions of dollars
So we continue to look at what things do we do to YBM to make it more valuable, provide a better service benefit.”

On Rollover Miles
“Rollover miles are paying off big time. Elites are significantly ahead of where they were last year excluding rollover.”

On Getting Feedback
“The most important feedback for us is what we get directly. We also do surveys, and yes, we look at FlyerTalk, blogs, news media.”

On Choice Seats
“When we rolled out Choice seats, we got killed [in the media]. But American rolled out the same program and there’s been nothing. Delta’s the only carrier not charging. Is it gaining us market share? At the same time, I hate them myself, so it’s tough. I do think seat assignments are the next horizon [for fees].”

On Mileage Earning
“We have the most generous earn program. We always give a full mile regardless of fare class. We always give 500 minimum miles per flight to every passengers. With that said, we’ve looked at recently how many miles we give per dollar – it’s about 5 miles per dollar spent with great variation. We’re looking at what to do.”

On the Future of the Frequent Flier Program
“The frequent flyer model of over-awarding is not sustainable and must be changed. It’s either going to be redemption or accrual or both.”

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Yep, it was an interesting discussion. Now let the commenting begin. I know you all have plenty to say.

Airport Effort to Charge More During Peak Times Could Hurt Passengers – BNET
Airports are one step closer to being able to charge more to airlines during peak times. This may not be a good plan.

JetBlue and American: Why Frequent-Flier Sharing Makes Sense – BNET
JetBlue and American have gotten one step closer to each other by starting frequent flier earning on select flights.

Delta Earnings: Outlook Weak Despite Strong Industry Premium Traffic Trends – BNET
Lots of conflicting information out this week. Huge profits but weaker outlook = confusion.

LA World Airports Smartly Reconsiders Regionalization Strategy – BNET
Interesting words from the LA airport folks – they’re thinking twice about the regionalization strategy now that traffic is so far down at LAX itself. Good.

Continental and Wired: How Not to Do a Promotional Partnership – BNET
Continental has teamed up with Wired to do a pretty awful job of promotion.

Leave it to those wacky Canadians to launch one of the more unique and straightforward frequent flier programs. WestJet has rolled out its Frequent Guest program along with a WestJet Mastercard, and I like the idea even if it’s not the most lucrative program around.

As I said, the program is simple and it’s only targeted at frequent fliers. In other words, “if you fly Air Canada, please stop and fly us.” Once you reach $1,500 in spend on airfare within 12 calendar months of enrollment, you get a $50 credit to use for a future flight. After that, for every $1 you spend on WestJet, you get 2.5 cents to spend on a future flight. Oh sure, there are a couple of tweaks, mostly around WestJet Vacations spend, but otherwise, that’s pretty much the deal. The dollars you earn must be used within five years. The credit card works the same way. You get 1.5 cents back per dollar you spend on regular “stuff” and bonuses for spend on WestJet.

So how do you spend these magical “dollars”? Each dollar is worth one real dollar when you spend on WestJet. Well, not one “real” dollar. It’s actually one Canadian Dollar, but close enough. So it’s effectively like a cashback card but instead of cash, you get a bank of dollars to spend toward travel on WestJet.

On top of that, you also get a bonus for every $1,500 you spend. When you spend $4,500 a year ($3,000 for this year only), you get a free companion ticket to be used within Canada along with a few advance seat selection vouchers (everyone else pays) and a couple lounge passes. Swanky. At $6,000 a year, you get a companion ticket for international travel along with more free seat selections and lounge passes. You also get some bonus bucks at each level along the way.

So is this a great deal for travelers? If you’re an infrequent flier, no. It’s worthless to you, because if you don’t spend $1,500 a year, you get nothing. But those are people who are more than likely shopping on price anyway. This is a fight for the lucrative business traveler.

But even if you are a business traveler, whether or not it’s better than Air Canada’s program is highly dependent upon what you’re doing. If you fly from Vancouver to Montreal, you’ll earn about 4,600 miles roundtrip. Six of those and you get a free trip domestically, if you can find availability. On WestJet, let’s say the price is $500 per roundtrip. Six of those and you get $105 to use on a future flight, any flight you want. If you spend more, you earn more, of course. So we’re really comparing apples and oranges.

The reality is that this is a nice, if small, bonus to keep those fliers that really wanted to get some sort of recognition flying with WestJet. It’s not the most lucrative program, but it’s simple and straightforward, and that’s something we’re lacking in this industry all too often.