Travel Summary alerted me to a coming devaluation by Southwest Airlines Rapid Rewards. While I’m not a frequent Southwest customer these days, I once was and can appreciate their business model. They’re cheap, friendly, and easy to understand — there are no crazy rules like Spirit has to truly get the lowest fare.
Part of that service model has been a revenue-based loyalty program. Points are earned at a fixed rate per dollar (though it varies by fare class, e.g., Business Select). Points are also redeemed at a fixed rate per dollar (again, it varies by fare class). It works out to a predictable rebate. For every dollar you spend with Southwest Airlines, you will get some percentage back toward future travel. It’s very different from how traditional airline loyalty programs work, where you earn miles based on distance and redeem them based on geographic zones without regard to price.
Now Southwest is saying that you won’t be able to predict how many points it takes to earn a free flight:
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.
It could stop at “will vary.” It doesn’t matter what the factors are. Southwest defines them internally and doesn’t explain them to customers. It also doesn’t matter that some flights will stay at the current redemption rate. How are these flights chosen? In effect, Southwest will apply an arbitrary premium whenever it feels like it.
But no one is screaming from the rooftops! Delta made this exact move last week and people were up in arms. I’ve seen very few posts on this change.
Why It Matters
Is Southwest just more sneaky? It didn’t have a real award chart that it could remove, and some of its flights will still cost the same amount. (We’re told some Delta flights will cost the same amount, too, though we don’t have a place to identify what that amount is.)
One could argue that Delta’s violation of trust was much greater by removing the chart without warning and replacing it with an automated system that still fails to price awards correctly.
But Southwest violates the accepted tradeoff of pure, revenue-based programs. In theory, earning and redeeming points at fixed rates enables the airline to offer award space at all times without restrictions — there’s no way to game the system, and the points have a lower value that more closely tracks the accounting liability they create. And in theory there should be no need to ever devalue a program like this — the points awarded are a fixed percentage of the fare paid, and they depreciate naturally since you’ll need to redeem more anyway as fares go up.
(Of course, my theoretical situation ignores the impact of points issued by credit card rewards programs and other partners.)
These announced changes remove predictability on the redemption side, and so points go down in value without any increased utility. Award space can’t get any better than it already is.
Why It Doesn’t Matter
On the other hand, I started this post by explaining why Southwest is such a great airline. I could come up with similar arguments for why Delta is a great airline. (It is! I just don’t like SkyMiles.)
When you have a great airline, an airline that is markedly better than the competition, does the loyalty program still matter as a marketing tool? Maybe those dollars would be better allocated to lowering fares, improving service quality further, or rewarding shareholders and employees for creating such a great company. It remains to be seen if Southwest made the right call here, but I expect their planes will continue to be full, with or without a generous loyalty program.