Southwest Alters Rapid Rewards Redemption Rates to Be More Opaque

Frequent Flier Programs, Southwest

Last week, Southwest quietly let it slip that it was going to vary the number of points required to redeem for flights. This wasn’t something I was going to write about, but after giving Delta a Cranky Jackass for making a move toward less transparency, I decided I couldn’t let this one drop.

Southwest Makes Rapid Rewards More Opaque

This move doesn’t deserve a Cranky Jackass award, because Southwest isn’t hiding the change. Near the top of a recent update mailed out to members, Southwest said this.

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.

Of course, that doesn’t mean I like this. It just makes it hard for people to know what they need to save in order to use their points. And that sucks.

A couple years back, Southwest changed from its completely simple program (fly x times, get a free ticket) to a revenue-based system. The idea was you’d earn points for the amount of money you spent with the airline. But then unlike what Delta and United have done, Southwest also tied point redemptions to the value of what a paid ticket would cost for that seat.

When it launched, the math was simple. If there was a Wanna Get Away discount fare selling, then multiply that dollar amount by 60 and you’ll know how many points you need. A year ago, Southwest decided that was too generous so it bumped the multiple up to 70 points. Anytime fares cost even more.

This does make it tough to save up exactly how many points you need for a trip since you don’t know how much the fare will be on each flight. But it’s a simple program, and you can get an idea of what you need based on the fares you see in the market over time. It’s at least fair to put something out there that’s so clear.

But now Southwest has gone and mucked it all up. We don’t even really know how much it’s been messed with because Southwest won’t say. What we do know is this, which I got from a spokesperson at the airline.

Southwest Airlines has slightly increased the number of Rapid Rewards Points needed to redeem flights. The number of points needed will vary based on destination, time of day, demand, fare class, and other factors, though, in many cases, the current redemption rate will remain the same.

Ok, so it is increasing “slightly” on some routes and on some days and some flights. But that’s pretty vague. I pushed back to get more detail and this is the best I could get.

It would be impossible to summarize how the displayed prices to consumers vary between BUR and LAX (or between any two airports for that matter), because each flight’s inventory is individually managed, and a fare filed in BUR may not be the same fare filed in LAX (and vice versa). Further, both parameters are subject to frequent changes (inventory can change instantly in real time; filed fares can change up to 4 times per day). In addition, our service offering (number of flights, nonstop routes, connect opportunities) between the two airports may not be comparable. In the same way that it’s often more expensive to book a flight to New York vs. Albuquerque sometimes point redemption will vary based on what I referenced in the statement: destination, time of day, demand, fare class, and other factors. But I can’t reemphasize enough that in many cases, the current redemption rate will remain the same.

I think it’s safe to say that I understand how airline pricing works. But that’s the whole point of tying point redemptions to fare levels. You can handle the revenue management piece on fares and then just piggyback on that work with a fixed point value. It’s not like Southwest wasn’t managing redemption levels between Burbank and LA before. If demand was higher in LA, then the fare would be higher. So would the redemption cost.

What I read into this is that Southwest is seeing certain routes that have higher levels of redemption than others. The team over there doesn’t like it. So to cull redemptions, the airline is adding a secondary level of revenue management on the points themselves. Maybe that’ll push more people to Burbank.

That sounds great from a supply and demand perspective, but it seems to me that airlines are losing sight of what loyalty programs are supposed to do. Forgetting about the whole elite program issue, loyalty programs are supposed to reward people for traveling with the airline, and it’s not an instant reward. Instead, it’s something people can save for over years of travel. But when the end goal keeps moving, it’s really hard to justify any loyalty.

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32 comments on “Southwest Alters Rapid Rewards Redemption Rates to Be More Opaque

  1. As an avid points collector, I’m sad to see the continued erosion of frequent flyer programs but this shouldn’t come as a surprise to anyone. As the competitive landscape has changed dramatically over the past several years, airlines simply don’t need to do as much to fight for business. They recognize that for us, as consumers, the options are much more limited than in previous years. Sure – Southwest or Delta or United or American change their programs. What can you really do? It’s not as easy to jump to another carrier as in previous years (fewer options) and, even if you do, it’s not like carrier B is going to wine and dine you with benefits either. I recognize that premium cabin reward levels were maybe too generous in the past but I don’t think that these convoluted redemption schemes are the way to go.

    I travel somewhat often for work but never enough to build status. But, over the course of a year, it’s enough flying to maybe get to a domestic economy ticket (in the old world). The evolution of reward programs kills my motivation to fly any one carrier. Who says the flights will be available when I want to cash in the miles? Or maybe it will be 3x the points? I, like many people, consider myself to be goal driven. If I know it will take XXXX points to get to a free flight, I’ll fly that carrier when possible to get there. Maybe the flight times are slightly less convenient – but if I just need one more flight to hit a goal, I’ll do it. Now there’s no reason to do that. And, as a Chicago flyer, I have tons of options. I live halfway between MDW and ORD. 3 major carriers have operations here and Spirit and Frontier (while never my preference) are stepping up their game. This recent move isn’t doing anything to build my loyalty with Southwest or any of the other guys. And ditto with their rewards credit cards and the nice kickbacks those provide. No sense in swiping the airline card when Chase, Barclay, and others offer points that are far more flexible.

    1. Southwest is slowly becoming like all other carrier’s with fee’s for this and that….Southwest will eventually charge for bags and preferred seats…..IMO Southwest should leave their FF program the way it is, its simple and easy to use and if you book far enough out, it turns out to be a good deal but like all other airlines, they are following the pack….it is interesting to see how Southwest does things….they wait while the other carriers do their Fee for this and Fee for that dance and when the dust settles, then Southwest slowly makes their changes and then blames the other airlines for changing things so they must change things to remain COMPETITIVE….

  2. I can deal with awards getting more expensive. Sure, it is annoying, but the economics of flying are completely different today than they were even 5 years ago. What I dislike is the disdain for the customer that we are seeing. Carriers continuing to make the process less transparent, less consistent, less predictable.

    Loyalty does not mean giving things away for free. But it is a promise to show support and appreciation. These latest moves, by DL / UA / WN are anything but appreciative.

  3. I’m also a little baffled as to they feel the need to randomly de-couple reward redemption pricing from outright fare pricing.

    Maybe they were seeing some destinations that certain customers only traveled to on points, and never dollars (and they figure people will be willing to pay more points to go there than they do), but I can’t imagine the difference is so great as to expend all the effort to have a completely separate FF fare system.

  4. SNA – LAS Friday at 1700. This flight I guarenty will need more points than ever. And if you ever get the chance to take this flight I highly recommend it. Hooker Air.

  5. They just don’t want to give something away for free that they could sell to someone, and you can’t blame any company for that. But it doesn’t sound like you can plan a head for something since what points would be needed today could be different next week and then different a month from now.

    Doesn’t it sound like the airlines want to get rid of their mileage programs but they all know they can’t be the first to do it so they are all trying to get people annoyed so much they will just stop dealing with it and stop trying to redeem them for air travel?

  6. If your theory is correct, perhaps it is more that they are just seeing a large share of passengers booking awards to MCO, LAS, etc. If they were accounting for their FFP correctly, they shouldn’t really care — when they issue those RR points, they have put some money in a bank, and they know it’s going to be spent somewhere, so if a flight to MCO goes out 100% full of award passengers, they shouldn’t care because they should just “pay” themselves for that flight with money taken out of that bank.

    But it sounds like, quite possibly because of some poor alignment of internal incentives (perhaps revenue managers are not given the same ‘credit’ for award passengers on their flights as they would be for revenue passengers), that’s not how they’ve set themselves up to work. In which case, why not just go full Delta and establish an entire parallel RM system to set the price of awards? That’s definitely more efficient than what they’re doing now *sarcasm*.

    1. This is not how accounting works. There is no revenue recognized when a passenger, who earns miles via travel, travels on an award ticket. The revenue has already been recognized when the passenger flew on the flight they earned the miles on. This does not hold true, however, when miles are earned through means other than travel i.e. credit card, partners, etc. That is a whole different recognition process, but still different than your first paragraph.

  7. This is the next logical step in revenue management. Just like airlines put barriers in order to offer different fares to different populations (such as a Saturday night stay to distinguish business and leisure travelers), it makes sense to offer different fares based on currency, since users of different currencies also have distinct characteristics. In principle airlines should want to revenue manage each currency separately, for example offer different fares in U.S. dollars and Danish kroner, but this won’t work because the currencies are fully interchangeable. Points are not interchangeable with cash, so it makes no sense to tie the fares together; it was just a technical limitation that Southwest has now overcome (and Delta is going this way as well).

  8. Another way to look at this is… “passengers will fly the airline anyway, so why should there be an incentive to do so.” After all there are four national airlines & we fly to all the same large cities as they do. It’s a bad assumption, but in practice that is how the big four operate as a construct.

  9. I read in Terry Maxon’s blog that in their annual report, Southwest noted that 11% of their revenue miles last year were on Rewards tickets, up from 9.5% or so the year before. Seems actually a bit high, but it does show that there is plenty of usage of these tickets.

    Brett, do you have access to the same information for AA, DL, UA, or any of the other airlines? It would be an interesting comparison.

    1. John G – I’m sure that info may be accessible in some quarterly or annual reports, but I don’t have it at my fingertips. It’s not info they’d have to release, so it wouldn’t be in a standard location, as far as Iknow.

  10. These programs have gone way past there prime. I think most travelers are really looking at convenience and cost rather than how many points they gather. Really is time to get rid of the programs and hopefully provide decent service in order to draw customer loyalty. I do think the airlines would find out fairly quickly that a lack of a program will have little or no effect on there customer base.I actually see the big three dropping the programs sooner rather than later and I don’t think it will be a bad thing. They actually need to be re-regulated at least on fares and forced to concentrate on service and reasonable comfort for there customers. That would provide more loyalty than just about anything else they could do.

  11. Brett,

    I disagree about not granting Southwest a Cranky Jackass on this one because while they made an announcement thy didn’t and won’t provide any hard information.

    The result is that under the new system until you actually try to book a reward flight you will have no idea how many points it’s going to take. And because that multiple is hidden you can’t see if your even being charged the right amount. Their total unwillingness to tell you that the multiple will range from X to Y isn’t acceptable and certainly merits a Cranky Jackass.

    The larger question of course is what value the airlines see in their loyalty programs. They have for years pushed and promoted their FF programs but it seems they didn’t notice that people might want to use those miles to actually travel. So now they are working hard to devalue the programs and prevent people from using their miles. Consequently one has to ask what is the future of the FF program? What is the value to an airline and is that value being shared with the cutomer?

  12. Under “other factors” let’s add: ‘…and the mood of the agent processing your award booking.’ If one does not wish to be thoroughly screwed, it is now almost mandatory to employ the services of an Award Ticket Booking Specialist. WE are not amused!

  13. Not all routes are created equal and adding these fences are ways to increase their bottomline from their FFP. I find it understandable however the opacity they are adding into the used to be simple structure makes it a devaluation of sorts for the avid points collector. Now what it does is that it will just make some redemptions more expensive. So I guess there will be less BUR-LAS award redemptions for me

  14. We must get 3 or 4 “invitation” letters a week in our household for the Chase Southwest credit card. I almost got lured in by the bonus points. However, they then offered my daughter a $100 bonus (on top of the bonus points)–the $100 basically covers the first year annual fee that so many other credit cards waive. However, they wouldn’t extend that “targeted” $100 bonus to me. So I said NO. Now I am REALLY GLAD I said NO since those bonus points will now be worth (a lot?) less. Best to get CASH credit card rewards! Cash will buy an airline ticket any day, and the pricing is transparent.

    1. Cash pricing is transparent?! You have no idea what the price will be until you search, and even then, there’s no guarantee that the price will remain valid while you finish your booking (ticketmaster will hold your seats for 5–15 minutes, but with an airline ticket there’s a non-negligible chance that you’ll get booted back to the search page because availability changed during the booking process).

      Southwest already displays fares in dollars and points on their search output pages. The only difference will be that the two currencies will no longer be a constant multiple of one another.

      Come to think of it, it would be a nice feature if they could show cash and points fares side by side (instead of a toggle button), and maybe even throw in a conversion factor, so you know which currency is more economical for each particular flight.

  15. IMO, southwest approach to business has, sadly, changed from a simple yet wise way to a complex and foolhardy way.

    I don’t know if you intended it to be read so, but a couple of items in the title caught my attention. I think of southwest now as more and more ‘alter’ing its ways to be more like the legacies, ‘opaque’.

    “Southwest Alters Rapid Rewards Redemption Rates to Be More Opaque”

  16. I agree this sucks but I think that saying the customer has no idea what the price will be so they can’t shoot for that goal (in points) is a little exaggerated. If you want to fly from X to Y, search a bunch of examples after April 17 and get an idea of the range. Then you know what you’re shooting for. Even with RR 2.0, the same flight at different times was anywhere from 5,000 points to 20,000 points (non-stops often cheaper than connecting flights). Your ratio of RR:$ was fixed, but you couldn’t save a certain amount of points and be sure of getting your ticket in 2.0.

  17. Its really sad… What they are doing makes no sense unless its due to an internal metric factor which is terribly sad…. This is outright terrible. How can they say their goal will always be to be the best rewards program… Can a class action suite be made from that alone? How can they prove it…. It certainly feels there are many signs they don’t.

  18. It seems that Southwest is trying to undermine their FF program and discourage loyalty. I used to like Southwest which I thought was fair; however, things have changed. I am not obligated to use their airline if another one offers a better FF program. The original idea behind the FF programs was to encourage people to use their airline by awarding them points to fly with them. If it is hard to use these points, when the incentive is gone.

  19. It’s no longer a loyalty program – just another form of we are doing this because we have to. The points are just another form of currency, which most people are earning from alternative means (i.e. credit card) more than flying.

    1. You make a good point. It does appear that loyalty programs are becoming a thing of the past. Credit cards and other means are becoming much more popular. Maybe milage rewards are becoming obsolete.

  20. Southwest still has the best and easiest mileage plan in the business. No change fees apply to rewards tickets too. I travel for leisure with them a few times a year, and only ever buy during sales. For example I recently bought tickets PDX-ABQ on sale for 6902 miles each way (my wifes ticket $120 cash each way).
    After finding out my friend in ABQ was moving back to PDX before my trip, I changed my trip to go to DEN instead. The sale was still on, and I got back 200 miles, and a $10 credit for my wife. No other airline makes it that easy.

    1. This is an excellent point. No one else allows Joe Average to make changes without paying huge fees. After making a SW booking, I have to remind myself to periodically check if the price has gone down in order to get my credit.

      Now that I live in a Southwest city and have the option of using points to get to the Caribbean, Southwest is becoming my go-to airline. On the side I do collect AA miles to use on Europe or South America bookings.

  21. For a flight from BWI to LAS I use to get 14k each way but now the points have significantly dropped to 9k each way Ouch!!!. Wouldn’t be so bad if they dropped the cost of the flight when using rapid rewards to purchase a flight.
    it was one of the perks that keep me loyal.

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