Southwest devalues Rapid Rewards, makes points less valuable overnight

I hate to be the bearer of bad news, and, well, there isn't any upside to call out here — it's just your run-of-the-mill, no-notice loyalty program devaluation. And, with a glut of points impacting airlines and hotel chains around the world, there will likely be more to come.

Southwest Airlines, home of the beloved Companion Pass, just erased some of the goodwill it's built up among loyalists throughout the pandemic. The value of Rapid Rewards points dropped overnight. Effective immediately, all redemptions will require 6% more points.

While some carriers have notified customers weeks or even months before an upcoming change, Southwest didn't offer up any warning. The new rates are already live — existing bookings will remain intact with previous redemption amounts, of course, but any changes will be processed at the new levels.

For example, below is a search I completed on Tuesday, from Honolulu (HNL) to Kauai (LIH), with awards starting at 5,007 points.

By early Wednesday, all awards were pricing roughly 6% higher, as you can see below.

The cash fares were completely unchanged, at $79 for Wanna Get Away, $196 for Anytime and $213 for Business Select.

This move is likely to be especially frustrating for Rapid Rewards members who converted vouchers into points in 2020. For a limited time, flyers with travel funds could convert their balance to points at a rate of roughly 1.3 cents per point, below TPG's valuation of 1.5 cents per point.

For more TPG news delivered each morning to your inbox, sign up for our daily newsletter.

While Southwest's redemption rate can vary slightly depending on the flight you choose to book, following this latest adjustment, you should expect your points to have 6% less purchasing power than they did last night.

Southwest last devalued its Rapid Rewards points in 2018, with a similar 6% drop. That redemption reduction specifically impacted Wanna Get Away fares — Anytime and Business Select redemptions actually increased in value, roughly matching the rate of Southwest's lowest-category booking type.

I had a chance to discuss this latest adjustment with Jonathan Clarkson, Southwest's managing director of marketing. As Clarkson explained, this week's 6% hike isn't directly related to the pandemic — there hasn't been an adjustment in three years, so it could have happened around this time either way.

Still, Clarkson noted that customers have been earning points at similar rates throughout the pandemic, even though air travel has declined. As a result, it's safe to conclude that there are currently an abundance of outstanding Rapid Rewards points — a devaluation decreases purchasing power, and the airline's liability.

We'll be digging into the implications a bit more later today, but for now, I'd hold off on transferring points into Southwest, including from Chase Ultimate Rewards — with a reduced redemption rate, direct Southwest bookings or transfers to other partners could make more sense, instead.

Buying Southwest points will become even less appealing as well. The carrier is maintaining its current purchase price of 2.75 cents per point, though it's possible we could continue to see limited-time discounts or partner transfer bonuses from time to time.

Ultimately, Southwest Rapid Rewards remains more flexible than many other programs. The airline offers last-seat availability, customers can easily cancel and rebook awards when rates drop, and Companion Pass members always get to bring someone along for just the cost of taxes and fees — even on redemption flights.

There are also a growing number of routes to book. Southwest continues to build up its U.S. footprint throughout the pandemic, with a seemingly endless domestic and regional expansion.

That said, this devaluation really stinks, especially for customers with a large balance of Rapid Rewards points, and anyone who opted to take the airline up on its (seemingly generous) points conversion offer last year.

The good news, if you could call it that, is that we shouldn't expect any other imminent changes at Rapid Rewards. According to Clarkson, "the things that people know and love about the program are going to stay the same." Everything except the redemption rate, that is.