Will Southwest Move To a Revenue-Based Frequent Flyer Program?

Tim Winship says that Southwest is likely to move towards a revenue-based frequent flyer program a la JetBlue (he gives he example of Virgin America).

I don’t follow Southwest enough to evaluate the claim, but imagine it’s credible.

For Southwest, this makes some sense. I prefer segment and mileage-based programs because they provide more opportunity to benefit disproportionately; my hobby. But a low cost carrier with a low reward frequent traveler program makes some sense, although on the whole I think there are real unexploited opportunities to leverage these programs profitable as major carriers have done (while the ‘legacy’ airlines on the whole haven’t been particularly profitable, their frequent flyer programs have been). Selling miles is profitable, and Southwest doesn’t have nearly as extensive array of partners as major mileage-based programs. Those programs also offer far greater opportunity for mileage sales — one mile per dollar offers from credit cards or other merchants are far easier to implement and more attractive than some fraction of a credit for larger volumes of activity.

What I especially dislike in these sorts of programs is the tendency for revenue-based earning to be coupled with price-based burning.  And the value of points on the spending side thus tends to be much lower.  I value frequent fliyer miles predominantly for their aspirational value, I can redeem points for the kinds of trips I would otherwise only dream of taking.  I don’t view these programs as a substitute for cash back rewards.  Turning mileage into cash back with restrictions on the ability to spend points only for travel doesn’t make them more attractive, it undermines the value proposition that makes them so attractive to so many millions of people.

Of course, since Southwest doesn’t offer these types of rewards to begin with, the likely affect is to make the program marginally less attractive for the types of people who read this blog but on the whole the consequences will probably be pretty marginal. 

If major carriers went in this direction I think they’d be killing the golden goose. The Global Traveller reports that Emirates is moving to a revenue-based program. But even there it’s fixed-earning based on geographic zones rather than points based on price of ticket, there’s simply more of a differntiation between earning rates for different fare classes. Moving to straight revenue would be a mistake…

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community Milepoint.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. We’ve discussed Rapid Rewards 2.0 for well over a year on the Southwest forum of FlyerTalk. Your comments on the unattractiveness of price-based redemption are spot-on. Here’s what I wrote in July 2008 about that at http://www.flyertalk.com/forum/southwest-rapid-rewards/840975-official-rapid-rewards-2-0-speculation-thread.html#post9978725

    4. The idea of tying the redemption point requirements to the dollar cost of the award trip is double-edged. On the plus side, it makes perfect sense that a trip that is more expensive in dollars should be more expensive in points. However, redemption by dollar value puts Southwest’s program at a serious disadvantage relative to other airlines’ programs, especially for elite members who typically see better capacity-controlled award availability. Redeeming miles for aspirational trips whose cash price is out of reach is one of the major attractions of frequent flier programs. A discrepancy between cash price and miles “price” makes the frequent flier game worth playing, without costing the airline revenue because the member would not have bought that seat at the cash price.

    5. Tying the redemption point requirements to the dollar cost of the award trip creates a problem when you want to adjust your travel date at the last minute. This has always been easy to do with Southwest awards. I’d hate to lose this advantage.

    6. With banked points closely linked to the dollar price of trips you can redeem for, it becomes harder for Congress and the IRS to ignore the program for tax purposes. The program described looks more similar to a cash rebate than to a traditional frequent flyer program. I hope Southwest has carefully considered this aspect!

    7. I hope that Southwest retains fixed redemption levels for capacity controlled seats as a redemption option. Price-based redemption as an additional opportunity would be seen as an enhancement rather than a take-away.

    Postscript: The strength of price-based redemption is the complete absence of capacity controls. Most FTers would regard the ability this as a poor trade, because the newly available redemption opportunities are too expensive to seriously consider. I agree with you, Gary, that dollar-based earnings are fine but dollar-based redemption makes a program unattractive and downright boring.

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