The new true (temporary) value of Southwest points, diminished by COVID-19 and CARES

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A couple of years ago, Greg wrote a post called The new true value of Southwest points. How to get up to 1.9 cents per point in value. I was re-examining that post in preparation for what I planned to be an entirely different post today, until I realized something: the COVID-19 pandemic has indirectly (and I expect temporarily) decreased the value of Southwest Rapid Rewards points. I do not mean that in the sense that flights have been canceled and most of us have been making an effort to stay home and stay safe (obviously also true), but rather that the CARES act’s removal of some taxes has actually decreased the value of Southwest points to some extent. To be clear, this post is not meant as a critique or even as a commentary on CARES, nor am I advocating near-term travel. I just found it very interesting to see how the value of points has changed unexpectedly.

Note: After publishing this post, it was brought to my attention that Gary at View from the Wing had noted this coming devaluation upon the introduction of the CARES act. See his post here.

Hyatt Ziva Los Cabos
Heading to the Hyatt Ziva Los Cabos? Southwest points are worth a bit less toward the flight today than they were a few months ago.

The fluctuating value of Southwest points: International fares

Greg’s post on the new true value of Southwest points pegged our Reasonable Redemption Value at 1.5c per point while showing how to get up to 1.9c per point from Rapid Rewards.

The precursor to that post was that Southwest had recently changed the value of their points. Since that time in 2018, Southwest flights have cost 78 points per dollar on the base fare. That rate is consistent whether buying a wanna get away, anytime, or business select fare. In other words, if you could find a flight with a base fare (before taxes) of $100, it would cost 7,800 points. Stephen had used that figure to calculate the value of Southwest points at 1.28c each (since 7,800 points buys $100 of airfare). However, Greg showed that the math isn’t quite that simple.

It’s worth reading that entire post, but the gist of it is that pre-pandemic, Southwest points were worth significantly more when buying flights to certain international destinations because Southwest charged less in taxes when using points than they do when you use cash. The specific example Greg gave was this one, where a flight to Mexico City had cost $102.97, of which $56.97 was taxes and fees.

Note that Southwest no longer flies to Mexico City, but they still fly to a number of destinations in Mexico.

When paying with points for the same flight, Southwest did not charge the US Transportation tax or US Passenger Facility Charge. Due to the very cheap fare, those taxes (a total of $22.80) made up a very significant portion of the total price of $102.97. Using points saved you the cost of those taxes and increased the value of points accordingly. In that example, the flight could have been booked for 3,588 points plus $34.17, so the points (3,588) were saving you $68.80 ($102.97 – $34.17), yielding a value of 1.91c each.

  • $102.97 (full cash fare) – $34.17 (taxes paid on award) = $68.80 (savings when booking an award ticket)
  • $68.80 / 3,588 points = 1.91c per point

However, the situation has changed. The US has suspended several flight taxes until January of 2021 as part of the CARES act, which means that Southwest points for flights to Mexico (and other international destinations) are worth less today since the (now) $18.90 tax on an international segment is currently suspended.

For example, take this flight from Los Angeles to Los Cabos, Mexico. You’ll see that the cash fare (on the right side) no longer includes a US transportation tax, but rather just the US 9/11 security fee, Mexico Tourism Tax, and US Passenger Facility Charge.

Using points for a flight to Mexico now only saves you the US Passenger Facility Charge ($4.50) in terms of additional taxes & fees saved. Again, this is a temporary situation as I expect the additional taxes will return in 2021.

In this new example to Los Cabos, using 6,474 points saves you $87.50 (since you still pay $29.32 in taxes on an award ticket). That yields a value of 1.35c per point, which is significantly less than Greg had previously calculated because you are no longer saving ~$18 in taxes (since nobody is paying that tax until 2021).

  • $116.82 (cash fare) – $29.32 (taxes paid on award) = $87.50 (savings when using points)
  • $87.50 / 6,474 points = 1.35c per point

The fluctuating value of Southwest points: domestic fares

Because of the CARES act suspension of some taxes on international flights, the best value for Southwest points is once again to be found on domestic itineraries. Take this itinerary from St. Louis to Albany as a side-by-side comparison:

The base fare is $76.38 or 5,958 points (which works out to 78 points per dollar, as we would expect). Since you will still pay $5.60 in taxes if you use points, here is the math to determine the value of Southwest points in this instance:

  • $90.98 – $5.60 = $85.38 in savings when using points
  • $85.38 / 5,958 points = 1.43c per point

However, the math isn’t quite that simple for every flight. In the above example, notice that the paid fare includes a $9.00 US Passenger Facility Charge. You do not pay that  fee on an award ticket.

The US Passenger facility charge is $4.50 per segment up to 2 segments each way (i.e. up to $9 each way). Therefore, direct flights will yield lower value in terms of cents per point.

Take an example with a single segment (nonstop flight) from New York (LaGuardia) to Atlanta:

That same flight could alternatively be booked with 5,763 points and $5.60.

Thus the value of Southwest points in this instance is:

  • $83.98 – $5.60 = $78.38 saved when using points
  • $78.38 / 5,763 = 1.36c per point

Given the fact that this is a single-segment itinerary, the value is essentially the same as the Mexico flight since the base fares are similar and you’re only saving $4.50 (US Passenger Facility Charge) by using points in either instance.

However, since the US Passenger Facility charge is added per segment (up to two segments), adding an additional segment beyond Atlanta, if you can find such an itinerary for the same price, will yield slightly better value for Southwest points.

For example, here is the cash price for an itinerary from New York LaGuardia to Orlando (which incidentally connects in Atlanta):

In this case, the cash price is actually a buck cheaper. The points price is also cheaper at just 5,334 points and $5.60.

This time, the value per point is a bit different:

  • $82.98 – $5.60 = $77.38 saved when using points
  • $77.38 / 5,334 points = 1.45c per point

The key then in getting the most value out of points is still essentially the same thing that Greg proved two years ago: fares where the taxes that become “free” make up the highest percentage of the base fare yield the highest per-point value. Unfortunately, I think the only taxes that are free on an award ticket for travel until 2021 will be $4.50 per segment up to $9.00 each way. The key in finding the opportunities for the greatest value per point is finding really cheap flights where $4.50 or $9.00 make up the highest possible percentage of the fare.

In the previous post about the new true value of Southwest points, Greg showed that while the actual value for Southwest points would vary a bit, he figured our Reasonable Redemption Value at 1.5c each based on a domestic round trip that cost $366, where he had calculated the cost per point at 1.51c. I found a flight costing the same ($365.96), but the value per point was now lower:

  • $365.96 – $11.20 = $354.76 saved by using points
  • $354.76 / 26,268 points cost = 1.35c per point

In my example above, that flight had 2 segments in each direction, so using points saved $18 total in US Passenger Facility charges round trip. If it had been a direct round trip ($9 in US Passenger Facility Charges), the value per point would have been very slightly lower.

Bottom line

Southwest points are worth a bit less today than they were two years ago; ironically, it isn’t a devaluation from Southwest but rather an alleviation of taxes in response to the COVID-19 pandemic that is to blame. To be clear, I am not making a statement on the CARES act with this post — I simply hadn’t realized the correlating affect on points until now and found it interesting. I do not propose we yet change the Reasonable Redemption Value of Southwest points because the situation with waived taxes is temporary. When the schedule opens into January 2021, I expect we will once again see Southwest points yielding similar value to what Greg showed a couple of years ago. We’ll watch that — if that isn’t the case, we will adjust our RRVs accordingly. Overall, this temporary change is unlikely to make a major difference for most Southwest Rapid Rewards members; after all, I don’t expect that most members will hunt for an indirect routing to their destination in order to eke out an additional eight hundredths of a cent per point. However, I found it interesting that (theoretically) making flights cheaper for everyone by removing some taxes reduces the value of Southwest points for the time being. I’m still happy to have a Companion Pass in my household and a decent stash of Southwest points and I am unlikely to sharpen the pencil quite this closely when booking my own trips with points, but at the same time I find it interesting to know where there are opportunities to get better value for Southwest points (and which options yield worse value) as that could help maximize opportunities as they arise.

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