Strange, but true: New Southwest points are worth more BEFORE you get the Companion Pass

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Southwest Companion Pass MeterArgument Overview

In this post, I argue the following:

  1. The redemption value of Southwest Rapid Rewards points, relative to cash, is the same with or without the Companion Pass.  This point hinges on the fact that the Companion Pass allows you to add a companion for free regardless of whether you pay with points or cash.
  2. When working towards a Companion Pass, it can be worth “paying” more for qualifying points than you should pay otherwise because those points get you closer to earning a Companion Pass.

Background

A few days ago I published “Six ways to secure a Southwest Companion Pass without flying.” In that post, I listed a number of ways one can earn the required 110,000 Southwest points needed for a Companion Pass.  That pass, once acquired is good for an unlimited number of flights for the rest of that calendar year and all of the next.

Rapid Rewards points are usually worth about 1.5 cents each towards Wanna Get Away fares (see: The new true value of Southwest points).  With the Companion Pass in-hand, you can add a companion to your award flight for free (not counting TSA fees).  Therefore, points should be worth 3 cents each when you have a companion pass, right?  Wrong.

Example

I looked up a random flight: Baltimore/Washington to Las Vegas, nonstop, and found a nonstop fare of $242:

Companion Pass SWA BWI LAS cash price

The same flight costs 16,110 in points:

Companion Pass SWA BWI LAS point price

In this example, points are worth approximately 1.5 cents each ($242 / 16,110).  Now suppose we had a Companion Pass and added a companion to the flight.  If you paid cash for the flight, the total cost of the airfare would still be $242 (since you can add a companion for free to either a paid or award flight).  And if you paid with points, the total cost would still be 16,110 points.  In other words, points are still worth about 1.5 cents each when you have a Companion Pass.

The per point value is the same with or without a Companion Pass.  Yes, with the Companion Pass you can get twice as much flight value, but that’s true regardless of whether you pay with points or with cash.

Why this matters

If you have an opportunity to acquire Southwest points, but there’s a cost (either a direct cost or an opportunity cost), you shouldn’t assume that it makes sense to pay more than 1.5 cents per point.  Here’s a simple example: suppose you plan to buy something online and can choose between earning 5 Southwest points per dollar or 10% cash back through various portals.  If you choose the 5X Southwest points, then you have essentially chosen to buy those points for 2 cents each (see: Buying points, unwittingly).  Is it worth it?  It can be, if you need extra points for a specific award, but in general you’re better off with the cash – even if you have a Companion Pass.

Why new points are more valuable before you get the pass

Points already in your account are worth the same regardless of whether you have a Companion Pass or not.  However, most newly acquired points count towards your Companion Pass eligibility.  Those points are more valuable because they help you get that valuable Companion Pass.  How much more valuable are those points?  That depends upon how much money and points you end up saving as a result of getting that pass.  The more money and points you end up saving due to the Companion Pass, the more valuable were those 110,000 qualifying points.

Suppose, for example, you have an opportunity to acquire points for 1.5 cents each in a way that would result in Companion Pass eligible points.  Once you have the Companion Pass, it wouldn’t necessarily make sense to do the deal since you wouldn’t gain anything.  The points you acquire would be worth about the amount paid, so why bother?  On the other hand, if you haven’t yet earned enough points for your Companion Pass, then it makes a lot of sense.  For 1.5 cents per point, you would get points that can be redeemed for about 1.5 cents per point value and you would get closer to obtaining your Companion Pass .

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