Southwest Airlines Devalues Rapid Reward Points and Why Other Airlines Will Follow

Earlier today, Southwest Airlines sent out at email to their Rapid Reward members alerting them of a change to reward flight bookings (flights booked with points).  Currently, you can redeem 60 Rapid Reward Points for $1 of Southwest Airlines flights.  Starting March 31, 2014, it will take 70 Rapid Reward Points for $1 of Southwest Airlines flights.

Simple math to the rescue:

• $1 / 60 Rapid Reward Points = 0.0167 cents per Rapid Reward Point
• $1 / 70 Rapid Reward Points = 0.0143 cents per Rapid Reward Point
• 0.0143 / 0.0167 = 15% more Rapid Reward Points needed

Even though it sucks that Southwest will require more Rapid Reward Points in the future, I still love Southwest’s route map, flexibility (no change fees or cancellation fees), free checked bags, and because they are a Chase Ultimate Rewards transfer partner.

If you look at Southwest Airlines, American Airlines, United Airlines, US Airways, and Delta’s financial statements, a huge portion of their revenue comes from “Ancillary Fees” and usually frequent flyer programs are the biggest component of that category.  All of the above airlines sell millions (and billions) of frequent flyer miles to banks to entice customers (like you and me) to sign up for their co-branded credit cards.

• 1 million Southwest Airlines Rapid Reward Points / 50,000 Credit Card Sign Up Bonus = 20 credit cards.  
• 1 billion Southwest Airlines Rapid Reward Points / 50,000 Credit Card Sign Up Bonus = 20,000 credit cards.  

I read somewhere that American Airlines sold more than 200 billion AA miles in 2012.  That’s billion with a ‘b’!  The airlines cannot afford to keep selling miles and have them be redeemed at the same price.  Their award chart will have to change in the future.