rsteinmetz70112

Do you mean $0.0167 for $1.00? That amounts to a 1.67% rebate, increased to 2.34% for A-List Preferred. Not unreasonable to offer your best customers a small rebate.

You could double it again to 4 points per dollar or 4.68% by using the Southwest Credit Card but Chase pays for that by "purchasing" points from Southwest as some cost so it comes out of Chase's pocket.

nsx

I meant selling points to Chase for 1 cent and letting customers redeem those points for 1.67 cents (now 1.43 cents) of travel. Southwest gets 1 cent from Chase in lieu of 1.67 or 1.43 cents from the customer.

littlewinglet

I doubt Chase paid 1 cent per point, and same can be said about every airline with a credit card. The thinking is that you're giving away empty seats. Now with planes mostly full, and the CP given out left and right, the economics definitely have changed.

rsteinmetz70112

DO you know if Chase actually paid $0.01 cents per point? Some discount is justified as I'd imagine that many points go unused.

luckypierre

Is that penny number correct? The number I have heard is around 3/10s of a cent for Chase purchases from SWA, but a super brief google search for a supporting Chase financial couldn't confirm it.

texashoser

Whether it's 3/10 of a cent or a penny really doesn't matter. Southwest, like other airlines, has little incentive these days to be generous with frequent flier awards. Consolidation of airlines and flights have left flights full. Where else are folks going to go? From crappy to crappy?

I suppose with fuel coming down and airlines being able to take advantage of that now, there will be some room to try and lure some folks with some decent sales every now and then, but...

FWIW, WN customer relations has no information on specifics. I didn't expect them to know which routes and fare buckets would be affected, but was curious if they knew whether a customer would be informed if a particular WGA fare was at a premium or what the points per dollar would be rather than just seeing the same route for the same cash price but one was costing twice as more in points, for example.

AT and BS fare redemption ratios are not going to change. At least for now.

nsx

Nobody knows. It's a trade secret. My personal guess is 0.9 cents. I doubt it's more than 1.1 cents.

I read somewhere that Amex bought a ton of Delta miles at 0.5 cents when Delta was in financial trouble. I don't think 0.3 cents could be correct.

nsx

I just redeemed 20k points for a $300 flight for which I would have paid cash (for a family member). Southwest lost $300 of revenue. When I redeem for a $50 flight that costs Southwest $50. With revenue based redemption the loss of revenue is easy to see. Redemption displaces other buyers exactly the same as would a purchase at the cash price.

littlewinglet

But you won't know whether you displaced anyone until you board the plane and see it packed or half empty. Only they know how much potential revenue they lose, and what will happen is flights where they perceive a good chance of selling out will have higher point ratios, while still keeping cash price competitive.

rsteinmetz70112

While it cost Southwest some revenue, the cost to provide the service may have been far less than what they would have charged you.

You could also say those flights were pre-paid and Southwest was only giving you some of the money back you had already paid Southwest or Chase depending on where the points came from. Assuming Southwest paid Chase $0.01/point for every point you used for the $300 ticket Southwest had collected $200.00 sometime ago and had been using that money.

However if Southwest were not offering a Frequent Flier program or Chase were not offering a Southwest Credit Card you might not have taken any flights on Southwest may have taken another airline.

toomanybooks

And the loss from the CP. I know there are many trips we would not have taken, but for having the CP, because it became so cheap. I have friends who think the same way.

Sure, hope this helps you and others.

Let's just say I am intimately familiar with the GCs offered at OfficeMax/Staples/Office Depot. Amazon, WN, Shell, Albertson's (my grocery), Disney, Chipotle, etc. Sometimes even ebay or Paypal. 5x UR points for all that spending with an Ink card. Plus I buy lots of $200 Amex/MC/Visa GCs. Valuing the URs at around 1.6 cents (YMMV), minus the $6.95 fee, leaves around 4.5% of value. I find it hard to exceed that on any other card, so I always carry a pocketful of these for Costco, Sam's Club, utilities, car repair, general spend, beer store, whatever.

And Ink gives 5x for cell phones and home phones/internet. A lot there.

I also managed my M-I-L's finances for several years until she passed away last year and I reaped those points. This is a very good angle with parents who don't care about this stuff. Pay for their expenditures and get reimbursed.

Plus I have a very small part-time ebay/mail order business (mid-five-figures annually) with an inventory supplier who takes these GCs for payment. In fact, the URs pretty much make it worthwhile. Without them, I might not even bother.

Have done some MS (maybe $10K annually), but am kinda chicken-s about pushing it into the tens of thousands a month like some people do. And to scalp $20-25 by running to Wal-Mart just isn't too appealing to me. Would REALLY be a problem for me/wife to get cut off from Amazon (especially, wife would kill me), Paypal, Chase, Amex, etc., so I don't push it. Probably should a bit.

Another thing that just occurred. All this spend with Chase I think makes me a more-valued customer to them, odd as it sounds as I extract value. Don't have bank account or mortgage with them. Cannot put my finger on it, but they seem to treat me better than they did 5 years ago. So that's worth something as well.

Yeah, very few understand the difference between WN-style and UA-style FF programs. UA/DL/AA can dump distressed inventory while hanging onto the good stuff for cash only. WN cannot. We are finding out that WN apparently didn't understand totally.

ursine1

Chase is Southwest's largest marketing partner; I highly doubt they are paying anywhere near 1 cent per point. The partnership terms are dictated by (no doubt) complicated co-marketing contract(s), so the actual per-point costs are offset by significant advertising & marketing trade agreements. The per-point cost may even be variable, and further subject to things like performance requirements, and/or promotional programs. (Meaning that they may pay less for the 50k signup bonus than they do for "regular" points.)

I'm familiar with the terms of similar agreements (although not the one between Chase and Southwest) and I'd be shocked if Chase was paying, on average, anything more than half a cent per point. IMHO.

nsx

If so, I am shocked that Southwest ever thought such a deal would improve their long-run revenue.

This is exactly the same bet Southwest makes every time it decides to offer a discount fare or block out that fare on a flight. It's a balance of the probability of a current or later sale at a higher fare against the present buyer at the discount fare. This is Revenue Management 101.

Within the WGA category, Rapid Rewards 2.0 treats points as cash. RR 2.0 will turn away a 7000 point redemption if and only if Southwest decides not to offer a $100+taxes fare on that flight. The latter will happen if and only if Southwest estimates that it can make more than $100 on the seat by holding out for a higher price. Given this logic, redemption of 7000 points has an expected cost to Southwest of $100.

Only in the very lowest fare bucket is there the possibility that the expected cost of a points redemption could be less than the cash fare. When an airline offers its lowest fare bucket that's a signal that the flight is not expected to sell out. Southwest would prefer that every redemption come from the lowest fare bucket. Not coincidentally, this is how other airlines operate their capacity controls.

I expect to see 70 points per dollar continue for the very lowest fares, but that even one step up in fare will bring an increase in the number of points per dollar.

mile ho

This. will. be. their. metric.

rsteinmetz70112

Cranky has weighed in on the devaluation

One point he makes is that some routes get more reward fliers than others, and Southwest doesn't like that. But I would expect that. People traveling for business often use rewards for leisure trips and therefore leisure destinations would get far more rewards tickets. I don't think that is necessarily bad. Outstanding points represent a liability and it wouldn't seem to matter where they are used. There is not business requirement that every flight have a minimum number of cash passengers.