Southwest Changes Game With New Loyalty Program

Southwest is now the country's largest airline, in terms of annually flown customers, and perhaps its most popular—a notable achievement in an industry that consistently ranks among the lowest in terms of customer satisfaction.

The chink in the airline's armor has long been its loyalty scheme, Rapid Rewards.

Compared to the programs of the airlines against which Southwest competes, Rapid Rewards is notably anemic (limited options to earn points, and even fewer options to redeem them) and stingy (points that expire after two years, and cannot be extended). Hardly desirable characteristics for a program whose goal is to gain and retain customers' loyalty.

Southwest customers deserved better.

Southwest, for its part, had its sights set on both more customers and higher-paying customers.

With the launch of an altogether new Rapid Rewards, both parties will get what they wanted.

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Rapid Rewards 2.0

After several years of work and almost $100 million in costs, Southwest this week finally announced details of the much-anticipated replacement for Rapid Rewards.

According to the airline's president and CEO, Gary Kelly, the new program will eventually generate an extra "several hundred million dollars a year in revenue" for Southwest.

And according to Rapid Rewards chief, Ryan Green, the new program, when it debuts on March 1, will be "the single biggest new product launch in our company's history."

Only the name will remain the same.

Earning Points

Replacing credits as the program's currency will be points, awarded according to the price and type of ticket purchased, as follows:

  • For Business Select fares, members earn 12 points per $1.
  • For Anytime fares, members earn 10 points per $1.
  • For Wanna Get Away fares, members earn six points per $1.

So a $350 Business Select ticket would be worth 4,200 points (350 x 12); a $300 Anytime ticket would be worth 3,000 points (300 x 10); and a $250 Wanna Get Away ticket would be worth 1,500 points (250 x 6).

The Rapid Rewards credit card will award one point per $1 for most charges, and two points per $1 spent on Southwest and Rapid Rewards partner purchases.

And members will earn 600 points per stay at Rapid Rewards hotel partners.

Redeeming Points

Just as points are earned according to the type and dollar value of the ticket, awards are priced according to the type of ticket and its market price.

  • Business Select award tickets cost 120 points per $1.
  • Anytime award tickets cost 100 points per $1.
  • Wanna Get Away award tickets cost 60 points per $1.

So, for example, a Business Select ticket priced at $350 on Southwest's website can be had for 42,000 points (350 x 120), while a Wanna Get Away ticket priced at $250 would cost just 15,000 points (250 x 60).

There are no blackout dates or capacity controls on awards.

In addition to Southwest flights, points may be redeemed for international flights on other airlines, hotel stays, car rentals, and gift cards. The non-Southwest awards will be fulfilled by a third party, Maritz. Prices haven't yet been announced, but during the press preview it was intimated that they would be close to the Business Select level, so in the neighborhood of 120 points for every $1 in award value.

Elite Perks

The new program will add a second elite tier, A-List Preferred, awarded after 50 one-way flights, and reduce the number of flights required for entry-level A-List status from 32 to 25 one-ways.

  • A-List perks: priority boarding, check-in, and standby; dedicated phone line; a 25 percent earning bonus
  • A-List Preferred perks: A-List perks, plus free in-flight Wi-Fi and a 100 percent earning bonus

Value

Assuming the paid and award tickets are the same fare type and price, the program's core value proposition amounts to: Buy 10, get one free.

There are two potential points of leverage that can deliver a better return.

The first is to redeem points for cheaper tickets within the same fare category. For example, if you earn points for $350 Business Select tickets, but redeem for a $250 Business Select ticket, you'd have enough points for the award after 7.1 paid flights.

The second is to earn points for pricier fare types (Anytime, Business Select) but redeem points for the lower-priced fare types (Wanna Get Away).

And if you combine the two tactics—earn for costlier fare types at higher prices and redeem for cheaper fare types at lower prices—you could earn more than enough points for a $250 Wanna Get Away award ticket after just four $350 Business Select flights.

Of course, the leverage can work against you as well. Reverse those tactics, and you'll find yourself flying more, and paying more, to earn less.

Transparency

When the program launches later this year, Southwest's booking application will show the number of points earned for every flight and fare type, alongside the ticket prices; and that screen can be toggled to display the number of points required to purchase the same seats.

And because there are no restrictions on booking with points, the points are truly equivalent to cash—there's no hassle factor to deal with.

That's transparency!

The Bottom Line

Rapid Rewards 2.0 won't be the first revenue-based loyalty scheme, but it will be the most robust and nuanced such program of its kind.

More important to travelers, the program will offer solid value, a refreshing level of transparency, and a consumer-friendly expiration policy.

The new program will be more attractive to business flyers than the old one, but it won't overcome Southwest's fundamental liability in increasing its share of the business-travel market: no first-class seats to offer as elite upgrades.

Elite upgrades are a problem Southwest will have to grapple with forever, or at least until it reconfigures its B737s with first-class cabins. For now, at least it has upgraded its loyalty program.

Reader Reality Check

I've already heard from Southwest customers who think that Rapid Rewards 2.0 is a major improvement, and from others who think it's a step in the wrong direction.

What's your take on the new program?

This article originally appeared on FrequentFlier.com.

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