ursine1

https://www.point-hoarders.com/


What could be the reason for a campaign that promotes using your points, vs banking them? Is there a real cost to WN for carrying an inventory of customer's unused points? If there is, why do they not just have a hard expiration (vs the stealth 24-month one)?

edlin303

I am not an accountant, but I am pretty sure any sort of liability like points, miles, or even outstanding GCs, need to be tracked as a liability. The more outstanding, the more risk they have because in a worst case scenario if _every_ seat for 3 months were booked with points(not cash paying customers) they would have a cashflow issue. Not that that would happen, but accountants usually need to account for worst case scenarios.

It's in their best interest to have people burn points regularly, preferably on otherwise unsold seats.

joshua362

Odd indeed. I think its a poke at the other airlines and how hard to use and how many miles it takes to use them. Although it takes a while for this come out in the spot. Had to laugh about the 5 digit comment as I exceed 7 currently.

Or is a new FASB coming into effect soon? But then again, they are free to sneakily devalue at anytime a couple of % points...

Chalk it up to stupid marketing. Anyone with a substantial balance knows the in's and out's, its the time, travel fatigue, personal commitments and costs once arrived that stops leisure frequent travel - I don't think you need prodding.

I agree its odd.

kenban

Points have to be carried as a liability. So there are accounting reasons why an airline would want customers to use the miles.

Personally, I view this more as a marketing campaign. Basically a dig against the airlines. Which as why they point out that other airlines require 25k or more to book a domestic flight.

jeffandnicole

That's not true whatsoever regarding knowing the ins and outs. Just last month someone posted a question wondering why they lost their points after a significant amount of downtime, and what could be done if anything to get them back.

An ad like this is trying to prevent stuff like that. "Hey, you got some points, remember? Time to use them!" is trying to get thru to those infrequent travelers that happen to have points that maybe they're not even aware of.

While there's a few hundred people on here that know a lot about points and such, Southwest sees thousands of travelers every day; many of them infrequent travelers. Not everyone is on the up-and-up about points and how to use them.

Tanic

If only they were "Transfarent" about why you shouldn't hoard points... but I didn't hear any mention of that:

"The best reason not to hoard is that we secretly devalue your points on an ongoing basis, and you probably will never know."

ursine1

I agree that the campaign is an attempt at reminding infrequent travelers to use their points. But it never once mentions the expiration. I think if the aim is to educate infrequent travelers, one thing they could do is just stop advertising that "Point don't expire," and instead make it clear that they do, in fact, expire after 2 years without point earning activity. If infrequent travelers don't know the ins-and-outs of point use, it's partially because Southwest purposely makes untruthful advertising claims. Starting by fixing those issues -- instead of spending a lot of money on a flashy campaign -- would be a better idea.

HPN-HRL

IIRC, toomanybooks brought up the topic here (a few weeks ago?) of a new FASB for points accounting, to be implemented by the end of this year.

Big4Flyer

The accounting standard you're referring to is the new revenue recognition standard, which delays the recognition of revenue for frequent flier and other loyalty program points until those points are redeemed.

As an example for a flight that costs $1000 and awards 5,000 miles valued at $.02 each, previously $1000 could be recognized as revenue by the airline when the service is performed and the passenger is delivered. Under the new standard, $910 would be recognized up front ($1000 x $1000/1100) with the remaining $90 being recognized when the awards are redeemed or expired.

ursine1

Ahhh... now it makes sense.

sdsearch

Because they fear the harsh backlash and customer drain. Every other USA-based mainstream airline program has soft expiration of some sort (and in fact, at Delta there's no expiration at all). See the wikipost atop this thread:
So if they changed and no one followed, they'd be at a big competitive disadvantage.

However, that doesn't explain why they're at 24 months, when two of their major (and one of their minor) competitors are at 18 months (AA, UA, and VX).

Still, after watching that linked video, it doesn't seem to me like they're concerned with points hoarding as much as they realized that "hoard" rhymes with "board" (the end line is "don't hoard; get on board") and basically it's just another promo to get you to fly.

It seems to be a trend of taking terms you'd think only FlyerTalkers and such would know and making a general public campaign out of it. It reminds me of the CreditKarma ad that, while it doesn't mention the term in the ad itself, is titled "hard inquiry" if you look it up on YouTube.

Also, remember, if Southwest gets people hooked on flying Southwest as they drain their points, and they do drain their points, those same people may then start paying to fly Southwest, and ding, ding, ding. Versus if they just sit on their points, no ding.

Me, I guess I'm a points hoarder, but only because Southwest is not first choice airline to most destinations (I have lifetime Platinum status at AA, so I get extra legroom seats reserved in advance for free on AA as well as AS). And though I don't earn Southwest points very fast (I've never had their credit card, for example) -- I earn mostly from occasional hotel promos -- I still haven't paid for a Southwest flight for a decade or so, because all the Southwest flights I did take over that time I was able to do with either credits->awards (no longer possible) or points.

Anyway, I agree with Southwest that it doesn't pay to hoard Southwest points "unnaturally", given that there's never a better or worse flight to use Southwest points on, they're basically always the same relationship between points and cash fares (as long as Wanna-Get-Away fares are available, anyway). It's at other airlines, where the relationship between miles and cash costs varies tremendously from flight to flight, that for some people hoarding may make a lot of sense if for most of the flights they take miles redemption would be at a poor value. (For example, at AA I hardly ever use miles for domestic flights, "hoarding" them for international longhaul business class flights, often on partner airlines.)

joshua362

If this example is remotely indicative of what has to happen next year, god bless us for the future of any FF programs!

Public Corporations aren't going to defer 9% of their reported revenue willingly. There has to be some backlash with expirations, devaluations and other means to limit the liability.

I'm sure the best & brightest minds are already working on it inside of being deployed to IT.

pinniped

Is there an accounting difference here specifically for WN (as opposed to AA, UA, and DL) in that their points are effectively "worth" a fairly well-defined amount?

I've always heard that other airlines carry their miles as a liability at a tiny fraction of what we (Flyertalkers) value them when used properly. The reason is that legacy carriers have a ton of expiration and other "breakage", plus they can capacity-control and effectively nudge the award-users to seats less likely to sell to begin with, presumably giving them another rationale for counting the cost of that seat at a pretty low value.

Since WN fliers have an easier time earning/burning quickly at a rather predictable valuation, I'm guessing the accountants can't deploy quite the same tricky games they can with regular miles. Thus the flier with 500,000 points in his account becomes a lot more expensive...

Big4Flyer

That's essentially correct. Historically there have been two options for accounting for frequent flyer programs, the residual method, and the incremental cost method. The residual method is more or less in line with the new revenue recognition standard (with some nuanced modifications), while the incremental cost method (currently used by WN) will be eliminated as an option.

Most airlines, including DL, UA (not sure about AA, but probably them as well) have been using the residual method, which allocates revenue between the two unique services delivered. It effectively separates the price paid for a ticket into a purchase of a flight and frequent flier miles. The flight revenue is recognized upon delivery of the service (date of flight) and defers the frequent flier revenue portion until the miles are redeemed or expired.

Southwest currently uses the residual method to account for Rapid Rewards miles sold through their Chase cobrand arrangement, but uses the incremental cost method to account for miles earned through flying. Under the incremental method the only liability that is incurred is for the incremental cost of providing the flight when the customer redeems the miles (this includes direct costs such as additional fuel, food, but not indirect costs such as overhead or opportunity costs of taking a seat that could have been sold). As you would expect, this liability is substantially less than what would be recognized under the residual method. I believe WN's current liability under the incremental cost method is only around $50M, which is relatively immaterial.

So for all Rapid Rewards miles earned by flying, WN has an incentive to encourage use of the miles before the new standard kicks in and they have to make an adjustment to increase their liability associated with the rewards program. Other carriers have already been using the residual method, so no large adjustment would be necessary.

pinniped

This begs the obvious question: is the incentive to encourage use now strong enough to trigger some kind of redemption-side promotion this year?

They've gradually been devaluing points. Perhaps a temporary reversal encourages people to burn now rather than hold for later?