Southwest Changes Course With New Rewards Program

The Extra Mile
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Southwest 737 jet approaching runway (Photo: iStockPhoto/Lowell Sannes)
Editor's Note: This story was originally published on January 13, 2011. To see the most recent SmarterTravel articles on related topics, please click on any of the following links: JetBlue, Southwest, The Extra Mile, Tim Winship, Virgin America.

When Southwest's newly announced loyalty program comes online on March 1, it will fundamentally change the airline's marketing focus, and the way it's perceived by the traveling public.

For some, the new Rapid Rewards will be the long longed-for replacement for a program that hasn't kept pace with the airline's growth from a scrappy discounter to the country's largest carrier, as measured by annual flyers.

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For others, it will be a jarring dislocation, a repudiation of the LUV-y corporate persona that had been integral to Southwest's success, and a thumb in the eye of millions of travelers who embraced the airline's folksy ways.

Of course, Southwest would have it both ways, retaining its proven base while expanding into untapped markets. But that may be like longtime Democrats expecting to win over committed Republicans without disenfranchising their traditional constituency.

Business Travelers Are New Focus

Southwest has made no secret of its plans to ramp up profits with a vigorous pursuit of the business-travel market.

To date, that new focus has mostly been apparent in the introduction of higher-priced fares targeting business flyers: Anytime fares, with no restrictions on flight changes or refunds; and Business Select fares, featuring perks such as priority boarding and a free-drink coupon.

But such new offerings had little impact on the airline's leisure flyers.

That changes with the launch of Rapid Rewards 2.0, when the fault lines between the airline's established leisure travel constituency and the newly sought business flyers will become glaringly apparent.

New Program Rewards Spending

The new program boasts two uncontroversial positives: award seats that aren't constrained by capacity controls or blackout dates—any seat available for sale can also be had for points; and an expiration policy that allows the validity of points to be extended indefinitely. Both features represent significant improvements over the current Rapid Rewards program.

The controversy concerns the new program's system for recognizing and rewarding Southwest customers.

Unlike the programs of most of the world's largest airlines, which dole out miles and awards based on the number of miles flown, Southwest's new program will award points on the basis of two factors: ticket price, and fare type.

Instead of the current earning regimen of one credit for every flight, regardless of length or ticket price, Rapid Rewards members will earn 12 points per $1 for Business Select tickets, 10 points per $1 for Anytime tickets, and six points per $1 for the carrier's cheapest Wanna Get Away tickets.

The new program will also have two elite tiers—A-List, earned after 25 one-way flights, and A-List Preferred, earned after 50 one-ways—that award 25 percent and 100 percent earning bonuses, respectively.

So an A-List Preferred member will earn 25,200 points after three $350 Business Select flights, enough for a $420 Wanna Get Away award ticket.

But to earn that same award ticket, a leisure traveler—traditionally Southwest's core market—would have to purchase 17 $250 Wanna Get Away tickets.

For many Southwest loyalists, that's a bitter pill to swallow, and not just because of the disparity between the two earning scenarios. It's also a downgrade from the current program, in which they'd earn a free ticket after just eight paid round-trips.

(It's worth noting that such convoluted calculations are a necessary byproduct of the new program's complexity. While the program is highly transparent in theory, it sometimes requires a calculator to bring that transparency to light.)

New Winners, Old Losers

While there's a common-sense element of fairness to the new scheme—loyalty is better measured by dollars spent than by flights or miles flown—the effect of the over-weighting for pricier tickets is a less valuable program for flyers accustomed to earning a free flight after eight cheap short-hop flights and redeeming for a pricey long-haul flight.

And it is just such flyers who unleashed their vitriol following the announcement of the new program's details.

Of the dozens of emails and blog responses I received in response to my initial review of Rapid Rewards 2.0, the following is typical of the naysayers' sentiments:

As a 20 year loyal customer of Southwest, I canceled my two Rapid Rewards credit cards and began booking Alaska Airlines instead after hearing about this fiasco. This is a terrible shift for Southwest's flyers, especially if you travel on relatively short flights. Under the current system, you get to fly anywhere in their system one way after eight flights of any length. This new system requires you to fly 10 times for a reward that only corresponds to your average ticket price.

Although a decided minority, there were also some positive comments. Among them:

Finally, an airline that awards frequent flier points based on the dollars you spend versus miles traveled. I never understood why a $200 flight across the country should be deemed by the airline as more deserving of rewards than an $800 flight on a short regional flight. After flying from DC to LA for two and a half years, I can't say I ever complained though!

Southwest's New Flight Plan

Revenue-based programs aren't new. Virgin America's Elevate program was designed along the same model, as was the second generation of JetBlue's True program. But neither developed the concept as exhaustively as Southwest has. And neither airline has the customer base, and thus the potential to influence the industry overall, that Southwest enjoys.

But Southwest is less concerned with the response of the industry than it is with the net effect on its customers, as measured in dollars on its bottom line. Will the new Rapid Rewards program spur sales of more and pricier tickets to business travelers? Will the legions of vacationers who have made Southwest one of the most consistently profitable U.S. airlines defect?

Just as there will be winners and losers under the new rewards scheme, there will customers gained and customers lost. The former will have to far outnumber the latter if the new strategy is to generate the "additional several hundred million dollars" annually Southwest has publicly targeted.

The results won't be in for at least six months after the new program's launch. Until then, Southwest can only sit back and cross its corporate fingers. After spending three years and close to $100 million on the Rapid Rewards redesign, there's no turning back from what could be a bumpy ride.

This article originally appeared on FrequentFlier.com.

 
 
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