nsx

Southwest has announced its long anticipated (and feared here on FT) overhaul of Rapid Rewards. The new program will begin on March 1, 2011.

curbcrusher and I were notified of the announcement of the new Rapid Rewards (which we on FT call RR 2.0) Wednesday morning, about 20 hours early, along with the rest of the press. We worked together to write this post. All articles on this subject were embargoed until now, giving writers like us adequate time to be as accurate as possible in our descriptions. The embargo was lifted several hours earlier than planned to an accidental release by one newspaper.

As anticipated here on FT, the new program is fare-based with banked points. It bears a striking similarity to Virgin America's Elevate and JetBlue's new TrueBlue. Go to http://newrapidrewards.com for a complete overview of Rapid Rewards 2.0. That site includes a tool that will import your 2010 account information to give you an idea how you will fare going forward.

Basics of the new program

Base earnings are 6 points per dollar of fare (not including add-on taxes) for Wanna Get Away or Ding fares, 10 points per dollar for Anytime fares, and 12 points per dollar for Business Select fares.

Redemption prices are 60 points per dollar of fare (not including tax) for Wanna Get Away or Ding fares, 100 points per dollar for Anytime fares, and 120 points per dollar for Business Select fares. All seats are available for redemption, with no blackout dates.

Starting March 1, redemption prices in points will show on the flight selection page. This will allow us to get familiar with the value of our points for travel that we typically book. If you can estimate what the cash price will be, you will know what the redemption will require.

You will not be able to combine cash and points directly for a purchase, but you will be able to buy the extra points you need and then redeem your points. Points will be sold in blocks of 1,000 for $25, with a minimum purchase of 2,000 for $50. The maximum purchase is 40,000 points.

Unused redemption travel is redeposited to your account, just like current awards. Redeeming for WannaGetAway or Ding tickets for relatives who travel infrequently is a good idea, because it avoids the problem of non-transferability of ticketless funds. If they fail to make a trip for which a cash fare was paid, the funds are locked in their name. With an award ticket, the points go back into your account regardless of who the (non-) traveler was.

Points do not expire provided there is earning activity in your account within the preceding 24 months.

Without bonuses you are earning an effective rebate of 10% on your purchases, assuming that you earn and redeem in the same fare category. If you buy Business Select and redeem Wanna Get Away or Ding, your effective rebate is 20% and Southwest loves you. If you buy Wanna Get Away or Ding and redeem Anytime, your effective rebate drops to 6% because Southwest does not love you quite as much.

Because redemption price is based on fare, it increases as fares climb due to inflation, making the program inherently stable and sustainable. Furthermore, redemption price automatically drops during fare sales, providing interesting redemption opportunities. Short-haul redemption, which is a bad deal in RR 1.0 and all legacy programs, becomes an excellent deal in RR 2.0. This is arguably the most salient advantage of the new program. Infrequent travelers who never reached 16 credits under the old program will now be able to redeem a small number of points for a cheap one-way trip.

You will be able to redeem points for travel outside the lower 48 states, including over 800 international destinations, and for items other than airline tickets. These options are called “More Rewards” within the program, and require that you have a Chase Rapid Rewards Visa. Because Southwest has to buy these items for you, the point cost of these awards will be at least 100 points per dollar of cash price.

Credit card earnings will be 1 point per dollar, or 2 points per dollar for purchases from Southwest and partners. The value here is comparable to the current program in which $19,200 of Rapid Reward Dollars earns 16 credits and a Standard Award.

Rapid Rewards Dining will earn 3 points per dollar.

One drink coupon book will be mailed to you every time you complete 10 paid one-way trips.

With the smaller denomination of the frequent flier currency, more partners (such as shopping portals) are expected to be added. There might even be some small-scale redemption opportunities in our future.

Elite Levels

Elite levels are now more competitive with legacy programs, and introduce the concept of Tier Qualifying Points (TQP), similar to legacy programs’ Elite Qualifying Miles (EQM):

A-list will now require only 25 paid one-way trips in a calendar year (vs. the current 32 in a rolling year) or 35,000 TQP within a calendar year. At this level you get all current A-list benefits plus a special phone number for Reservations, priority standby, and a 25% bonus on your flight points earnings. The 10% effective rebate becomes 12.5%.

The new A-list Preferred level will require 50 paid one-way trips or 70,000 TQP within a calendar year. At this level you get all current A-list benefits plus an extra-special phone number for Reservations, higher priority standby, free Wi-Fi when the aircraft is Wi-Fi capable, and a 100% bonus on your flight points earnings. The 10% effective rebate becomes 20%. Top elites who buy Business Select and redeem Wanna Get Away or Ding will earn an effective rebate of 40%, which is very competitive with the top elite earning rates for legacy carriers.

Priority standby will NOT include free same-day standby. You will still have to pay up to Anytime fare or higher to take an earlier flight than you booked.

The Companion Pass will continue. It carries no elite travel benefits. With the new program, you can qualify or requalify for CP based on either:
a) 100 one-way flights in a calendar year, or
b) 110k points (earned via a mix of flight points & partner points) in a calendar year

These levels are essentially equivalent to the levels under Rapid Rewards 1.0. The main change is that you can not qualify with an mix of, for example, 50 one-way flights and 55k partner points.

For people buying high fares, CP qualification via points will be easier now. For people buying fewer than 100 cheap tickets, CP qualification will get a little harder. For example, an A-List Preferred member will earn 12 points per fare dollar. Total fare purchases of $9167 for the year, $175 per week, will earn a Companion Pass. If you spend only $100 per week on fares you will earn 75k points plus any promotional bonuses. Credit card spending and other partner activity should be able to take you to 110k total points. Still, I expect the number of Companion Pass holders to drop by 25% or more due to the inability to mix point-based and flight count-based qualification.

Qualification for elite levels and for the Companion Pass will change to calendar years. Starting March 1, 2011, all of these benefits will expire at the end of a calendar year, not mid-year. There will be no mid-year expiration dates after March 1, 2011.

You will maintain your CP or A-List or A-List Preferred status for the remainder of the calendar year in which you earn it and for the entire next calendar year. The transition from the current rolling qualification system will be customer-friendly, extending all currently earned status to the end of the appropriate calendar year. Transition details are somewhat complex and will be explained below.

Transition for awards

The transition for earnings is simple: You earn credits before March 1, 2011 and points for any activity that posts on or after March 1 (regardless of the activity date!). Your credits cannot be converted to points, so they are at risk of expiring unused.

However you have a one-time option to top off your last 16-credit Standard Award at the ratio of 1200 points per credit. At that point you get a Standard Award. From then on, you can only earn points, not credits. FT member swag came up with a tip: It might be wise to delay exercising your option until you really need the Standard Award. That way it will carry a later expiration date if you don't use it immediately. For this purpose, you need some leftover RR credits, presumably as little as 0.25 credit, in your account as of March 1. If your oldest credit was earned in February 2011, you have until February 2013 to exercise your option to top off the Standard Award using points. Those whose leftover credits expire earlier will probably want to top off the Standard Award before any of the credits expire.

You cannot transfer any Standard Awards into points. Your Standard Awards will expire, but if they were issued before March 2011 they can be extended for $50 within a year of expiration. A Standard Award issued in early 2011 can therefore be reissued in early 2013 and can be used for travel until early 2014. Top-off Standard Awards, those issued using a combination of credits and points, cannot be reissued after they expire.

After the transition date, you will no longer have the option to convert two Standard Awards into one Freedom Award. Also, as of March 1, 2011, any Standard Award that expired prior to March 1, 2010 will be lost forever. Reissue those before the end of February!

Transition for A-List status

During 2011 only, you will qualify for A-List status if you meet the criterion under either the old rule or the new ones:
(a) Take 32 or more paid one-way flights within a rolling 12 months, or
(b) Take 25 or more paid one-way flights or earn 35,000 Tier Qualifying Points in calendar year 2011.

If you already have A-List status that expires on or after March 1, 2011, your status will be extended until the end of 2011. If your A-list status expires in early 2012, your status will be extended until the end of 2012. Again, there will be no mid-year expiration dates after March 1, 2011.

SWABrian reports that Southwest's staff will assign A-List Preferred membership to people who have the appropriate flight history (presumably 50 or more one-way trips) over the most recent 12 months. Apparently the (a) option mentioned above for A-List qualification during 2011 will not apply to A-List Preferred: This will reportedly be a one-time evaluation.

My comment on this: If you miss the cut for A-List Preferred but achieve 50 flights within 12 months later in 2011, I recommend that you write a polite letter to the Rapid Rewards department reciting your flight history and requesting an upgrade to A-List Preferred. I don't know if this will work, but it's worth trying.

Regardless of your 2010 flight history, when you reach 70,000 points in 2011 or 50 flights in 2011, your status will automatically be upgraded to A-List Preferred with an expiration date of December 31, 2012. This provides a strong incentive to increase your use of Southwest in 2011.

A-List qualifying points for January and February 2011 will be computed as (base fare X corresponding number of points per dollar for fare product) + (7.5 % excise tax X 12 points per dollar) = Qualifying Points.

Transition for Companion Pass

During 2011 only, you will qualify or re-qualify for Companion Pass if you meet the criterion under either the old rule or the new ones:
(a) Accrue 100 credits from any source within a rolling 12 months, or
(b) Take 100 or more paid one-way flights or earn 110,000 Companion Pass Qualifying Points in calendar year 2011. Companion Pass Qualifying Points do NOT include elite bonus points, purchased points, points earned from program enrollment, flight bonuses (whatever those are), and partner bonuses. All RR Visa points do count as CPQP's. This narrow definition of CPQP's will make it difficult to qualify for a Companion Pass based on points unless you spend close to $100,000 per year on the Rapid Rewards Visa or unless you buy close to $10,000 of Anytime tickets. WannaGetAway short-haul tickets will not get you there on points; you will have to take the full 100 flights.

With the transition rules, if you were on track to qualify under the old rules, you are still on track. Southwest will not derail your plans as we had previously understood. However you will have difficulty monitoring your progress, since the new website will not show you a credit count anymore. Southwest has committed to providing email updates of your progress toward rolling CP qualification if you subscribe to Rapid Rewards Report emails.

For the purpose of option (a), each one-way flight on or after March 1 will count as one credit, and partner points will be divided by 1200 to give an equivalent credit count for CP qualification.

For the purpose of option (b), Southwest uses Companion Pass Qualifying Points. As stated above, these are essentially Rapid Rewards credit card points, base flight points, and base partner points. Companion Pass Qualifying Points for the period prior to launch are Southwest's estimate of the points that your January and February 2011 activity would have earned if the new program had been in effect.

You will receive 2011 Companion Qualifying Points for credits earned through Partners for the time period of January 1, 2011 through February 28, 2011 at 1,200 Companion Qualifying Points per credit. Companion Qualifying Points for January and February 2011 flights will be computed as (base fare X corresponding number of points per dollar for fare product) + (7.5 % excise tax X 12 points per dollar) = Qualifying Points.

If you have a Companion Pass that expires on or after March 1, 2011, its expiration will be extended until the end of 2011 and your re-qualification period begins on 1/1/2011. If you have already re-qualified for renewal by 3/1/2011, or if your current Companion Pass expires in 2012, your status will be extended until the end of 2012, and your re-qualification period will begin on 1/1/2012.

Further Information

Southwest has a FAQ for the new program at http://www.southwest.com/newRR/faq.do

Full terms and conditions are at http://www.southwest.com/newRR/termsAndConditions.do


Commentary by nsx

The preceding sets forth the facts of Rapid Rewards 2.0 with only a few editorial comments. What follows are my opinions on the changes.

As with any overhaul, people who have learned to milk the current system will find the new system not as responsive to current earnings-maximizing usage patterns. This disruption is one of the objectives of any overhaul, much as you clean a wound to make life more difficult for harmful microbes.

The new program is much less exploitable than the old one. This also is intentional. It provides value that is much more closely linked to the value that you, the customer, provide to Southwest. Like it or not, you must agree that this is more fair.

One of FlyerTalk's most popular topics is exploiting program earning opportunities in order to achieve a high effective rebate, the ratio of redemption value to purchased ticket price. People like me have been earning effective rebates approaching 40%: purchasing 16 tickets at $50 each and earning a standard award usable in lieu of a $300 round trip. There is no way that low-fare customers merit this level of incentive.

Elimination of extraordinary effective rebate ratios makes RR 2.0 much less interesting to FlyerTalkers than programs that still offer such opportunities. However given the ever-increasing difficulty of redeeming capacity-controlled awards on legacy carriers, even FlyerTalkers (the most complexity-tolerant of all customers) may decide that they prefer a program that delivers what it promises without any drama.

I believe that Southwest has very precisely identified and attacked the crucial weakness of legacy programs: the bait and switch nature of tightly capacity controlled awards. Rapid Rewards 2.0 is a perfect fit with Southwest's brand as a no-gimmicks airline. The program may not be the most generous, but it is simple and completely free of any hidden catches. Unlike mysterious capacity controls, price-based redemption provides us an excellent ability to predict ability to redeem for free travel.

International award redemption is unlikely to be competitive with legacy programs until capacity-controlled awards become completely unavailable on those programs. Still, more redemption options are always better than fewer.

Last-minute redemption (within a week of travel date) will become much more expensive than for Rapid Rewards 1.0. This is a painful loss, and it is a serious disadvantage in some cases relative to legacy carriers' capacity controlled awards. I would have preferred an option to redeem for capacity controlled seats for last-minute travel. Perhaps this can be added later.

In summary, although the new program is significantly less rewarding than Rapid Rewards 1.0 for short-haul discount fare customers, it is financially sustainable and it is customer-friendly enough that we will learn to love it.

(Edited to correct credit card spend requirement for CP: $132k total, not $110k)
(Edited to add information from swag on conversion of points to credits)
(Edited to update the A-List transition rules for immediate Preferred status)
(Edited to update the award extension rules: March 1 rather than announcement date)
(Edited to add drink coupon info from SWABrian)
(Edited to undo erroneous credit card spending correction)
(Edited to clarify CP qualification via points)
(Edited to correct A-List Preferred prequalification and qualification)
(Edited extensively to incorporate information from forum members and to summarize the good news on CP qualification under the old rules)
(Edited to correct calculation of early 2011 Companion Qualifying Points)
(Edited to add that top-off Standard Awards cannot be reissued after they expire)
(Edited to change 1 leftover credit to 0.25 needed to preserve option for another Standard Award)
(Edited to clarify that credits cannot be transferred into points)
(Edited to add the bad news that CP Qualifying Points are more narrowly defined than originally understood)
(Edited to add earn and burn on Ding fares is the same as WGA fares)

nsx

ByrdluvsAWACO posted this at 11:53PM Central Time. He was the very first to post the news here on FT:

As reported by dallasnews.com:

Southwest Airlines revamps rewards program for frequent fliers

• Old: Free travel was limited to the cities served by Southwest. New : Points can be used to buy airline tickets and pay for other travel costs in Hawaii, Alaska and international destinations, through Maritz Travel.

• Old: Credits in the program expired 24 months after they were earned. New: Rapid Rewards points will never expire, as long as the member has some activity during the previous 24 months.

• Old: The airline automatically issued a ticket for a free flight once it was earned, whether the passenger wanted it then. New: The airline will issue the ticket when the member requests.

• Old: Passengers earned a single credit per flight, whether the trip went 182 miles from Dallas to Austin on a $49 "Wanna Get Away" ticket or 1,990 miles from Baltimore to Phoenix on a $459 "Business Select" ticket. New: The points earned go up as the price of the ticket goes up, with bonuses for full-fare tickets and elite status fliers.

• Old: Passengers got one free ticket for every 16 credits, regardless of how much they paid or the length of their flights. New: The points needed are directly tied to the price of the free ticket being acquired.

nsx

Planetrain posted this first reply to ByrdluvsAWACO's scoop:

Nice! I wonder how soon 2.0 will go into effect, I need a ticket to Hawaii stat!

I thought 24 months was plenty, but I guess this is a perk for those who rarely travel. Definitely not a bad thing.

This ought to eliminate the expiration issue people have with having to pay $50 to renew a reward.

This was expected. I think some will get upset, but it makes sense.

Again, this makes sense. It'll be interesting to see what the going points are.

I think the changes with 2.0 are enough to keep me flying Southwest. I can't wait to book some award travel to Hawaii!

mustang93

awesome news !

dmdflyer

It makes sense, but I am not sure it is good for everyone. Let's see the new redemption options.

simonaut

I wondering if they will let us exchange our already earn reward tickets (I have 8 of them now..) into points so I can use them on an international trip....

KelseyR

This is a really, really fantastic synopsis. I'm glad it's out in the public now! My only addition is that the extension of any existing awards may only be made once. So, after your one-time extension, you cannot reissue the award again if it expires again. Reservations and standard award rules remain the same.

Hotels=600 points
Rental cars=600 points
Rapid Rewards Dining=3 points/$1

Groups tickets will not earn RR credit. SW Vacations will earn a flat 1500 points after completing the whole round trip (canceling the return will receive no credit). Also can't remember Teleflora, but I would venture a guess that it's 600 points as well?

The opinions expressed here are mine alone and do not reflect those of Southwest Airlines, SW's directors, board or employees.

KelseyR

No, current awards remain the same and must be redeemed the same way.

The opinions expressed here are mine alone and do not reflect those of Southwest Airlines, SW's directors, board or employees.

KelseyR

Oh! Also! Points are earned and redeemed on the advertised fare. SW's advertised fare=base fare+excise tax.

If you combine fare types, (WGA+BS for example) you will earn the points on the excise taxes at the higher multiplier (12x in this case). And for redemption, you must redeem points on the lower multiplier for excise taxes (60x in this case). It's a matter of minute points, but I'm sure it will come into question sooner or later.

Also, 40,000 points can be purchased at a time in one transaction. You are permitted to make multiple transactions (from what I recall).

The opinions expressed here are mine alone and do not reflect those of Southwest Airlines, SW's directors, board or employees.

toomanybooks

A few thoughts:

Trying to get my mind around this at 2:00 am, so please forgive errors. Thanks for the good synopsis.

Whole thing strikes me as convoluted. It will be interesting to start trying to play points-earning games the way our AA, DL, and UA friends get to.

So for WGA fares, a WN point is worth 1.67 US cents. Pretty straightforward. Also easy to devalue, but at least it will be transparent when it happens.

Most of my initial thoughts are about the CP, which I see as the most important WN benefit, and one I get primarily through CC spend. I don't care much about A-List.

I guess the 71 RR credits I have earned toward my 5/31/11 CP renewal will possibly turn out to have been semi-wasted; I could have done nothing along those lines and still been grandfathered for 7 months. Well, I guess I can cram through a CP renewal with Starwood transfers in the next 7-8 weeks and get another year of CP.

All the more reason to earn with something like the Starwood Amex and transfer only as needed at the last minute. Learned my lesson, WN Visa card. At least the points-earning on WN Visa is apparently a little better than it was: $110,000 regular spend for Companion Pass instead of $120,000 (assuming you take no flights). Just hope they don't add some requirement like you have to have a bunch of paid flights to keep the CP (or does that exist and I missed it?).

In that WN slideshow, only WN Visa and Diners are mentioned as CC partners. They just announced Starwood a few weeks ago, so I wonder about that.

There are going to be 2 levels of WN Visa, the Premier version of which will give 1500 TQP per $10,000 spend. I want to know more about that. Is that a bonus? The OP says the CP comes with 110,000 points, TQP or otherwise. Both look to be Signature Visa cards.

I want to look closer at the value existing Awards will have going forward. Might be worth stockpiling a stack of them through Starwood transfer, if you take long Award flights, since those will cost more to get.

pshuang

Should the range of effective rebates (without elite bonuses) be from 5% to 20%? The summary currently says the low end of that range is 6%.

My math:

High end: $1,000 in spend on BusinessSelect fares (multiplier=12) yields 12,000 points. If redeemed on WGA fares (divisor=60), 12,000 points can purchase $200 in WGA fares. => 20% effective rebate.

Low end: $1,000 in spend on WGA fares (multiplier=6) yields 6,000 points. If redeemed on BusinessSelect fares (divisor=120), 6,000 points can purchase $50 in BusinessSelect fares. => 5% effective rebate.

Or put another way, the spread between best earning rate and worst earning rate (sans elite bonuses) is 2x. The spread between best redemption rate and worse redemption rate is also 2x. Therefore there should be a 4x difference total between best effective rebate rate and worst effective rebate rate.

Overall, I can see RR 2.0 as being beneficial for me. Over the last couple of years, as I've looked at ramping up my earnings in RR 1.0 by taking advantage of all opportunities and promotions, I'm finding I'm earning RR awards faster than I am redeeming them, and thus the expiration on awards (and the $50 extension option) is a little painful. I will very much like the ability to keep all points alive with any account activity.

nsx

No it's correct. You re-qualify for a CP during its period of validity, not after.

It was hard to write: It should be hard to read.

nsx

True, but I just can't imagine anyone paying 20% more points for (just BS boarding priority and a drink, no points earned) when EBCI is only $10.

tusphotog

I'm still trying to digest this and figure out if this is a good deal or not.

I wonder if it's worth re-issuing awards that haven't expired. I've got something like 14 awards in my account.

I'm a bit bummed about my 55 CP credits not counting towards the next companion pass with a 2012 expiration date. Do these credits expire on 3/1 or right now? If they expire 3/1 can we hit the 100 credits and get a CP that expires in 2012?

I really like the A-list preferred deal, since I've been averaging 65-70 WN flights per A-list qualification period. The free-Wifi will be really nice (assuming they actually get more than 60 planes wired). I assume that the A-list rankings will now go from credits/year to A-list preferred/A-list. I wonder if I'll see my A16-20 numbers slip after 3/1. I really like that my A-list status which renews on 1/21/11, will apparently be good until December 2012.

I also like that it won't kill me to use a free ticket Intra-CA or AZ-CA.

Probably my biggest dislike so far is the calendar year qualification period. I guess I'll need to make a bunch of TUS-ABQ-ELP-ABQ-TUS runs in December to top off CP status. Guess I'll need to keep flying both AS and WN equally now and not totally jump to AS from June to October like I did this year. I don't like that you don't get segment credit for flights with connections. I get two segments flying SEA-PDX-LAX on AS/QX. On WN, I apparently still only get 1 segment for A-list for a PDX-SJC-LAX trip.

Are you a lawyer?

nsx

If you can manage to reach 100 credits before 3/1, your CP will indeed last until the end of 2012. That's a stretch worth making, IMHO.