A year ago Southwest devalued their points, a mere 2.5 years into their revenue-based Rapid Rewards program.
Now they’re about to do it again — but so far it’s a secret how they plan to do it.
News went out yesterday:
This is what we know.
[F]rom 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.
From time to time? They just reduced the value of their points in March 2014.
And now instead of a fixed value per point, we get variable value — some factors feeding into that have been outlined, but not a range of values or even examples.
At best we know that many flights..will stay at the current redemption rate. So not every flight gets more expensive.
The current program model isn’t even a true fixed value, there are tiers of value. The best per-point value of 1.43 cents a point towards airfare only applies when the cheapest fare buckets on a flight are available. As fare goes up, the value per point towards that value goes down. They’ve already set it up so that full flights at popular times to popular destinations require more points, no change is required to implement that.
Fundamentally though there’s no legitimate reason to devalue a revenue-based program. And here they’re doing it for a second time.
The argument usually made for these types of programs is that consumers can get any seat by essentially using points as currency.
Traditional programs devalue for reasons not faced by revenue-based programs:
- Too many miles chasing too few award seats. They need to increase the price to balance supply and demand when they print lots of miles but planes are full. 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. The argument is that miles prices should rise as the market value of what they’re buying rises. Not necessarily compelling, but inapplicable to a revenue-based program where built-in is the feature that more expensive tickets require more points.
- 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 doesn’t offer alliance partner redemptions that cost the program more.
Thus all that is left is that they have a currency they choose to devalue, like a politically-motivated central bank looking to monetize its debt.
A revenue-based program does not ‘need’ to devalue, but Southwest proves that one can. This should be a cautionary tale to those inclined to like revenue-based redemptions. Like Lucy, Charlie Brown and the football revenue-based programs will still cause you to accumulate points and then pull the rug out from under the value of those points.
Fortunately Southwest doesn’t charge cancel/redeposit fees so if you wish you can make a bunch of bookings with any balances you may have (locking in use at current value) and cancel if you choose not to use your awards.
I close with 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.
By simply declaring that their points will be valued differently, they categorize themselves with failed empires and banana republics. But here it’s a step even worse, because they haven’t even told us what the value will be.
(HT: Mommy Points)
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