No, Southwest didn’t devalue its Rapid Rewards program overnight

Mar 29, 2020

This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.

Each month TPG publishes a comprehensive set of valuations for most loyalty programs. We’re constantly tweaking the metrics we use to inform the values, and we always take into account recent news or devaluations in our updates.

On the surface, Southwest seems to have changed the value of its points yesterday, March 28. But when you dig deeper, you realize that nothing’s actually changed.

An eagle-eyed TPG Lounge member posted that they were looking to use their points for an upcoming flight. When they searched a few days ago, the price was either $49 or 2,468 Rapid Rewards. Today, when they looked, the fare dropped to $45, but the cost in points climbed to 2,652 Rapid Rewards.

Related: How to redeem points with the Southwest Rapid Rewards program

If you compare the value in each case, you’ll notice what appears to be a steep decline in value.

Date of price quote Fare in dollars Fare in Rapid Rewards Value of Rapid Rewards
March 27 $49 2,468 + $5.60 1.76 cents per point
March 29 $45 2,652 + $5.60 1.49 cents per point

 

Though Southwest points have always been a variable currency (meaning that the value isn’t fixed at a certain number), this alleged overnight devaluation was concerning.

Well, there’s an explanation for this that’s not the airline’s fault. Instead, it lies squarely with the U.S. government.

Related: 7 ways the big US airlines should help customers after a bailout

To help the airlines struggling financially amid the coronavirus pandemic, the feds have suspended some of the excise taxes for tickets purchased between March 28 and Dec. 31.

Though there’s still a security fee of $5.60 per one-way trip, as well as possible airport-assessed facility surcharges, most of the other government taxes have been paused.

And there’s one other unique peculiarity to Southwest points purchases: the number of points required has always been tied to the base fare sans government imposed taxes (except the $5.60 security fee). That’s why it’s most valuable to redeem points for the cheapest tickets, where the base fare is low relative to the fixed taxes.

For more travel tips and news, sign up for TPG’s daily email newsletter

So now let’s look back at the two pricing examples from above. Last week, when the reader priced the flight, the total fare was $49, which included lots of taxes. And since the number of points required is tied to the base fare without taxes, the cost in points was just 2,468.

(Photo courtesy of Denver International Airport)

And now that most airfare taxes have been suspended for the rest of the year, the total fare of $45 is actually much closer to the base fare of the ticket. So even though the fare decreased by $4 over the course of a week, the cost in points actually increased. That’s because the base fare has increased, as there’s much less tax included in the total fare.

Bottom line

Though it appears that the value of Southwest Rapid Rewards has decreased overnight, that’s not actually the case. Instead, the government’s suspension of most excise taxes has changed the cost structure of tickets.

The cost of points tickets is tied to the base fare on Southwest, excluding most taxes. And now that the feds have lowered the tax on airfare, the prices you see on Southwest.com are actually much closer to the base fare than before.

As such, the cost of Rapid Rewards tickets has increased on paper, since the points required is tied directly to the base fare.

Featured photo by Patrick T. Fallon/The Points Guy

Delta SkyMiles® Platinum American Express Card

Earn 50,000 bonus miles and 5,000 Medallion® Qualification Miles (MQMs) after you spend $2,000 in purchases on your new card in the first three months of card membership. Plus, earn up to $100 back in statement credits for eligible purchases at U.S. restaurants in the first three months of card membership.

With Status Boost™, earn 10,000 Medallion Qualification Miles (MQMs) after you spend $25,000 in purchases on your Card in a calendar year, up to two times per year getting you closer to Medallion Status. Earn 3X Miles on Delta purchases and purchases made directly with hotels, 2X Miles at restaurants and at U.S. supermarkets and earn 1X Mile on all other eligible purchases. Terms Apply.

Apply Now
More Things to Know
  • Earn 50,000 Bonus Miles and 5,000 Medallion® Qualification Miles (MQMs) after you spend $2,000 in purchases on your new Card in your first 3 months.
  • Plus, earn up to $100 back in statement credits for eligible purchases at U.S. restaurants with your card within the first 3 months of membership.
  • Earn up to 20,000 Medallion® Qualification Miles (MQMs) with Status Boost® per year. After you spend $25,000 in purchases on your Card in a calendar year, you can earn 10,000 MQMs two times per year, getting you closer to Medallion® Status. MQMs are used to determine Medallion® Status and are different than miles you earn toward flights.
  • Earn 3X Miles on Delta purchases and purchases made directly with hotels.
  • Earn 2X Miles at restaurants worldwide, including takeout and delivery and at U.S. supermarkets.
  • Earn 1X Miles on all other eligible purchases.
  • Receive a Domestic Main Cabin round-trip companion certificate each year upon renewal of your Card. *Payment of the government imposed taxes and fees of no more than $75 for roundtrip domestic flights (for itineraries with up to four flight segments) is required. Baggage charges and other restrictions apply. See terms and conditions for details.
  • Enjoy your first checked bag free on Delta flights.
  • Fee Credit for Global Entry or TSA Pre✓®.
  • Enjoy an exclusive rate of $39 per person per visit to enter the Delta Sky Club® for you and up to two guests when traveling on a Delta flight.
  • No Foreign Transaction Fees.
  • $250 Annual Fee.
  • Terms Apply.
  • See Rates & Fees
Regular APR
15.74%-24.74% Variable
Annual Fee
$250
Balance Transfer Fee
N/A
Recommended Credit
Excellent/Good
Terms and restrictions apply. See rates & fees.

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.