Monday, September 23, 2013

Southwest Rapid Rewards Point Value Drop

Southwest Airlines is devaluing Rapid Rewards points.  The new value is 1.43 cents per point; the old value was 1.67 cents per point for Wanna Get Away fare.  0.24 cents per point adds up over time, 2,500 extra points for a $250 fare or removing about $120 in value from a 50,000 point balance.  Southwest is at the forefront of pricing awards based on the underlying ticket cost (dollar ticket price x points per dollar = award cost), not a flat rate region to region pricing (North America to Europe = 60,000 points regardless of ticket prices). United and Delta are likely to follow in the next few years, so I am intently interested in how the new program model works in real life.  It doesn’t seem to be working well.
Southwest 737 at GEG
Point inflation should be expected in flat rate region award chart models to reflect higher ticket prices over time.  Since point per dollar awards already account for rising ticket prices, points inflation should not be expected.  A point should have a fixed dollar exchange rate in these models.  Breaking that exchange rate peg will devalue the currency in the eyes of its holders and they will be less likely to hold large amounts in the future.  It’s just like monetary policy with real currencies.  This inflation hurts, but my balance is less than 30,000 points, so I’ll be ok.  I have a much larger United balance that I need to start burning through because any inflation there will bite much harder.

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