Why Yesterday’s Southwest Announcement Will Probably Lead to a Huge Devaluation

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southwest devaluation 2015

Southwest Devaluation 2015 – Probably Bad News

Southwest is a company that either brings out great love or great hatred in people. Admittedly I am not a huge fan of the airline. There is something about the cattle call that they call a “boarding process” which rubs me the wrong way.

Of course, their companion pass is quite generous and they are the largest airline at LAS, so I do fly with Southwest from time to time. Unfortunately flying with them with points may soon be more expensive. Yesterday, the company made an announcement that was so vague in its details that it can only mean one thing. This is going to be bad.

What They Said

We created Rapid Rewards® because we think you deserve to actually feel rewarded. And, from time to time we must make some updates to our program. 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. And don’t forget that when fares go on sale, so do the points needed for redeeming for a reward flight on those fares.

southwest devaluation 2015

What That Means

Um…Isn’t this how the system currently works? Right now the number of points needed is based on the cost of the fare. Isn’t the fare based on the “destination, time, day of travel, demand, fare class, and other factors”? Why, yes it is.

Looking at this objectively, there are only two reasons I can think of as to why Southwest would make this announcement without all of the details. Lets take a look:

  1. They haven’t decided exactly what the changes are – This could possibly be the case. Even if it is true, they have decided that a new pricing scheme is going to be implemented which is bad.
  2. The changes are so drastic that they don’t feel we can handle the news all at once – I firmly believe this is the case. After seeing the backlash Delta has received, I think they are going to roll out the details slowly.

On The Plus Side?

Their announcement also tries to spin a positive message by emphasizing the pluses of the program including: unlimited award seats, no blackout dates, no change fees, etc. This is another sign the changes will be bad. When they go out of their way to emphasize the good, the bad must be really bad.

Plus with dynamic pricing, while there may be unlimited award seats and no blackouts, they can make a flight so expensive that it wouldn’t make sense to purchase the ticket with points. So those “benefits” may not truly be benefits.

Revenue Based

southwest devaluation 2015
Will they change how you earn points or simply how much award tickets cost?

Southwest is already a fully revenue based system. Theoretically since points earned and points spent are based on airfare costs, they should never have to change their pricing. Of course last year they lowered the value of Rapid Rewards points by about 15% and now who knows what is going to happen.

Conclusion

I certainly hope I am wrong, but the way this announcement was made, I am bracing for the worst. Between this move and Delta’s many changes, it could be that airline loyalty is quickly becoming a thing of the past.

What do you think? Let me know in the comments.


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7 COMMENTS

  1. I hope you’re wrong about it being bad. I don’t mind flying Southwest at all (don’t get me wront – I like a first class or economy plus seat as much as the next guy), and the Companion Pass is a great value. I agree that the lack of details is disconcerting. And the one quote (“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”) is very silly, given that it describes their current system. Just tell us what the new devaluation is going to be, so quickly on the heels of the 1.67 to 1.42 (think that’s what it was) last year. I still find that most redemptions were in the 1.6-1.7 range over the past year (obviously better factoring in the CP), but it sounds like that’s unfortunately coming down.

  2. I can’t see why the need for this. Their points are already not worth that much, with the main benefit being the ability to buy cancellable tickets.

    I’d expect that if their customers are paying attention, that further devaluation would hurt their credit card business. I’d already have a hard time transferring to them unless I was pretty sure I might cancel or if I needed two bags.

  3. Stopped reading as soon as I saw “cattle call.” Are people seriously STILL saying that? Have you been on a Southwest flight lately? The “cattle call” line is MUCH more orderly than the gate lice that are hovering and then eventually pushing their way into a boarding process on the legacies.

    Yes, there are occasionally problems with the Southwest boarding process, but in general it is much more orderly (and efficient!) process that what you will find on other airlines, at least for the people that aren’t flying in first class on a legacy.

    • That simply has not been my experience. I generally find the legacy airlines have a pretty orderly line. With that said, have you ever flown SWA out of LAS? The gate areas are so small that you are standing shoulder to shoulder with people and they often make you wait 10-15 minutes after asking people to line up before starting the boarding process.

      At least with legacy carriers you have a seat assignment so you can wait off of the plane if you want. If you don’t board in your order or early with SWA then you end up with a middle seat.

      Like I said in the opening paragraph, some people love them (you) and some people don’t (me). There isn’t a right or wrong answer. Thanks for commenting Dave.

  4. Or you could save yourself, and your readers, from a lot of. angst, doom-predicting and wasted keyboarding by simply relaxing and waiting to find out what these changes really mean. It’s not like your future-telling is going to make any difference in what will happen anyway.
    But I guess predictions and hand-wringing are requisite staples of all these blogs.

  5. This is a more in-depth response to the point-margin yield management that has been in place for airfares for years, but now applied to the FFP systems. I will say that it does make sense, at least in part for the airlines, as it will allow them to capacity-control free seats to flights where the loads may be lighter, or there is excess capacity. For some people, this will be an advantage, especially for the short-haul flyer on Southwest. (I.E. those of us in the California/Nevada/Arizona corridors) as there are often good short-haul fares year round, and especially on mid-week & Saturday flying.

    How successful it is will be a huge determining factor to see if other carriers follow suit as quickly & as in-depth as Southwest’s program is being setup to do. If it is successful, I would expect every other carrier using a points-per-dollar system to follow. The increase in these systems is designed to protect the ever-important yield per dollar margin that airlines are chasing.

    FFPs & loyalty programs are rapidly changing, especially as more people take advantage of credit cards & other ways of boosting points & mileage accrual. Airlines are still seeking out the holy grail of high yields – the walk-up frequent flyer – and are now starting to do more catering to those passengers (as Delta is finding out, they make up a huge part of profits.) It is that top tier, the top 10% of their FFP players who make up 40% or more of profits at the airline, and the airlines want to keep that portion of the group VERY happy (Thus why there are some staggering improvements in the Economy Plus/Comfort cabins on many carriers.)

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