Southwest sent out an email blast today to let its members know that it would be reducing the value of its points for their best use, “Wanna Get Away” or discount advance purchase fares.
There’s at least some notice given — bookings made March 31 onward will cost 70 points per dollar, rather than the current 60 points per dollar.
Southwest is a ‘revenue-based’ program with the number of points earned being derived from the price of your tickets, and the number of points it takes to redeem for a given flight depending on the price of that flight.
With this change each point will become worth 1.42 cents apiece. That’s a 15% hit to the value of Southwest points.
The Points Guy says “I wouldn’t call this a massive devaluation” — I disagree.
Yes, it’s “only” 15% and other airlines have done worse things to their award charts. And Southwest points remain hugely flexible since there’s no cancel and redeposit fee if your plans change.
However, there are two reasons that this is a very big deal.
- The new Southwest program (“Rapid Rewards 2.0″) is only 2.5 years old.
- There’s fundamentally no reason that a revenue-based program ever has to devalue at all.
We think of mileage programs increasing the cost of awards for one of several reasons.
- There are too many miles chasing too few award seats. They need to increase the price to balance supply and demand. But a revenue-based program has access to all of the seats on the plane, and those seats are paid for with fixed-value points.
- The price of tickets goes up. In this case, award pricing just keeps up with price inflation. But a revenue-based program like Southwest’s has this built in — more expensive tickets simply cost more points already.
- The economics of the program changes. Seats are costing the airlines more (such as a shift to more partner awards), or more rewards are being claimed at the rule-buster level and so the program increases the price of those. But the costs to Rapid Rewards are pretty constant since each point had a fixed value, and Southwest isn’t offering alliance partner redemption.
- Sticking it to your customers. They’ve built up a stash of points, and you can reduce your costs if you arbitrarily decide their points are worth less. And you hope they don’t notice enough to move the needle on their business.
I’ve offered explanations for why each of the first three reasons do not make sense in Southwest’s case.
A revenue-based program does not ‘need’ to devalue, but Southwest proves that one can. And in doing so they simply declare the value of their currency to be lower.
That brings to mind one of the greatest YouTube videos of all time which explains the federal reserve inflating the U.S. currency.
So why do they call it the quantitative easing? Why don’t they just call it the printing money?
Because the printing money is the last refuge of failed economic empires and banana republics, and the Fed doesn’t want to admit this is their only idea.
Southwest Rapid Rewards proves that even fixed value currencies can be devalued — they just declare that your points are no longer worth as much.
And in so doing, they categorize themselves with failed empires and banana republics. For shame.
- You can join the 30,000+ people who see these deals and analysis every day — sign up to receive posts by email (just one e-mail per day) or subscribe to the RSS feed. It’s free. Don’t miss out!