The new true value of Southwest points

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Recently, Southwest devalued their rewards program a bit by increasing the number of points required for “Wanna Get Away” fares.  They used to charge 60 points per dollar for these fares, but now they charge 70. 

SouthwestPointsRequired

On the surface, it looks like Southwest reduced the value of their points from 1.67 cents per point to 1.43 cents per point.  However, as I’ve shown before, calculating the value of Southwest points is not as straightforward as it seems.  With each fare, there are taxes and fees that are not part of Southwest’s award calculation.  In other words, the points required for an award flight are less than you would expect based on the overall fare.  Of the taxes and fees included in a paid fare, only the TSA security fee is charged on awards.  The result is that the value you get from Southwest points is higher than the value that can be calculated directly from the awards points per dollar chart (shown above).

Southwest offers three fare levels, named “Wanna Get Away”, “Anytime”, and “Business Select”.  Each of these fare levels has a different point cost for award flights.  If you book an award seat at the Wanna Get Away level, you’ll pay 70 points per dollar.  Anytime awards cost 100 points per dollar.  And, Business Select awards cost 120 points per dollar.  If not for the taxes and fees issue I described above, this would lead to the following valuations:

  • Wanna Get Away: 1.43 cents per point
  • Anytime: 1 cent per point
  • Business Select: .83 cents per point

Observed Valuations

In order to find out the true value of points (with taxes included in the calculations), I ran dozens of flight searches and recorded the paid prices and award prices within each fare level.  For each flight and fare level, I calculated the point value as follows: (paid fare – award fees) / points.  Since results varied a bit from flight to flight, I then computed the minimum and maximum point value for each fare level.  Here were the results:

  • Wanna Get Away: Between 1.61 and 1.69 cents per point
  • Anytime: Between 1.11 and 1.13 cents per point
  • Business Select: Between .92 and .94 cents per point

Enhanced Valuations

If all you care about is the cost avoided for a particular flight by using points, then the valuations presented above should work well for you.  However, the analysis above doesn’t consider the fact that points would be earned on paid flights but not on award flights.  So, using the same data as above, I recalculated point values with a new formula that takes the loss of point-earnings into account.  Specifically, I counted the points lost by not paying for a flight as part of the overall point cost for an award.  That might seem strange, but consider this example: One flight I looked at cost $237 and would have earned 1200 points.  The alternative was to redeem 14000 points and $5 for the award.  The person who pays for the flight ends up 15,200 points richer and $232 poorer than if he or she had booked the award.  So, we can calculate the point value, in this example, as $232 / 15,200 = 1.53 cents per point.

With this enhanced valuation method, I found the following point values:

  • Wanna Get Away: Between 1.48 and 1.56 cents per point
  • Anytime: Between 1.01 and 1.03 cents per point
  • Business Select: Between .84 and .85 cents per point

Personally, I think that this second method provides more accurate estimates of Southwest point redemption values.  We can simplify a bit, by taking the average (mean) value I found (rather than the min and max):

  • Wanna Get Away: 1.53 cents per point
  • Anytime: 1.01 cents per point
  • Business Select: .84 cents per point

The irony of these results is that, with the exception of Wanna Get Away fares, we end up with almost the exact same valuations that we started with when doing straight-up calculations based on points per dollar.  That said, the best value of Southwest points is clearly to use them for Wanna Get Away fares.  For those fares, 1.53 cents per point is a better estimate of value than 1.43.

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