Earlier this week we reported that Southwest had changed the value of their points when redeemed for flights. They slightly reduced the value of points applied to Wanna Getaway Fares, but greatly increased the value of points applied to Anytime and Business Select fares as follows:
- Wanna Getaway Fares increased from 70 points per dollar to 78 points per dollar
- Anytime Fares dropped from 100 points per dollar to 78 points per dollar
- Business Select Fares dropped from 120 points per dollar to 78 points per dollar
It never made sense to me before that points were worth less for more expensive fares. If they are going to tie point values to flight prices, they might as well do so consistently across the board. And so they have.
Our own Stephen Pepper, took this new 78 points per dollar price and asserted that points are now worth 1.28 cents per point (100 cents / 78 points = 1.28). Sorry Stephen, but that’s not right. Points are worth more than 1.28 cents each. The actual point value depends on the flight price and the route. Let me explain…
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. The result is that the value you get from Southwest points is higher than the value that can be calculated directly from the known 78 points per dollar.
Let’s look at an example. I found a Southwest flight from Houston to Mexico city with a Wanna Get Away cash price of $102.97 and a point price of 3,588 points plus $34.17 in fees. This means that those 3,588 points are worth $102.97 – $34.17 = $68.60. And that gives us a per point value of $68.60 / 3,588 = 1.91 cents per point!
How is this possible? Let’s look at the fare breakdown. As you can see below, the base fare is only $46. 3,588 points divided by $46 gives us the magical 78 points per dollar. When paying with points, Southwest charges cash for the U.S. 9/11 Security Fee ($5.60) and the Mexico Tourism Tax ($28.57), but does not charge the US Transportation Tax or the US Passenger Facility Charge. These are thrown in free when you pay with points. And this is why points are worth more than they seem.
The best point value is found on flights with low fares and high taxes
Even though Southwest now charges a fixed 78 points per dollar on base fares, the per point value you can get from awards is smaller with higher fares. This is because the taxes that are thrown in for free are a smaller percentage of these higher fares.
Here’s an example of the same flight as above, but with the much higher Business Select Fare of $290.97. As you can see in the Fare Breakdown, the taxes and fees are exactly the same as with the much cheaper Wanna Getaway fare shown above. As a result, I calculate the per point value of this $290.97 fare at 1.41. That’s still better than Stephen’s 1.28, but obviously not nearly as good as the 1.91 cents per point shown above.
When flying to/from different countries, different taxes apply. The higher the taxes (the ones not charged on award tickets), the more value you’ll get from points.
Further advantage to Wanna Get Away point awards…
Due to the factors shown above, Wanna Get Away fares lead to better point values because the base fares are much lower. There is another side to the story, though. On paid tickets, you earn points. And Business Select and Anytime fares earn more points than Wanna Get Away fares do:
- Wanna Get Away: Earn 6 points per dollar on paid fares
- Anytime: Earn 10 points per dollar on paid fares
- Business Select: Earn 12 points per dollar on paid fares
Points are arguably worth a bit less on Anytime and Business Select fares because you give up more point earnings by booking an award. An argument could be made that one should include the loss of earned points when calculating point values. Let’s look at the two fares above, for example.
If we paid $102.97 for the Wanna Get Away fare to Mexico, we would earn 6 points per dollar on the base $46 fare. In other words, if we book this with points, we give up earning 46 x 6 = 276 points. If we paid $290.97 for the Business Select fare, we would earn 12 points per dollar on the base $234 fare. If we book this with points, we give up 234 x 12 = 2,808 points. An argument could be made that the real award prices for the Wanna Get Away and Business Select fares are 276 and 2,808 points more than shown since you’d be giving up these earned points.
With the above in mind, we can re-calculate the points per dollar as follows:
Adjusted Wanna Get Away Point Value (Mexico City example)
- Price: $102.97
- Base Price: $46
- Points “lost” by booking award instead of paid fare: 46 x 6 = 276
- Point Price: 3,588 points plus $34.17 in fees
- Adjusted Point Price: 3,588 + 276 = 3,864 points + $34.17
- Adjusted point value = ($102.97 – $34.17) / 3,864 = 1.78 cents per point (vs un-adjusted 1.91)
Adjusted Business Select Point Value (Mexico City example)
- Price: $290.97
- Base Price: $234
- Points “lost” by booking award instead of paid fare: 234 x 12 = 2,808
- Point Price: 18,252 points plus $34.17 in fees
- Adjusted Point Price: 18,252 + 2,808 = 21,060 points + $34.17
- Adjusted point value = ($290.97 – $34.17) / 21,060 = 1.22 cents per point (vs un-adjusted 1.41)
Reasonable Redemption Values
For the purpose of estimating signup bonuses, we maintain a page of Reasonable Redemption Values (RRVs) for points and miles. These are meant to be the values at which it is reasonable to expect to get that much value or better per point. We do not include lost point earnings in any of these calculations due to the complexity. In many cases, point earnings are based on a traveler’s elite status, current promotions, etc. So, for Southwest Reasonable Redemption Values we do not use the adjusted point values described above.
Most airline RRVs were last calculated based on statistics showing that average airfares in the US were $361 roundtrip (you can read about the methodology here). So, I found a round-trip Southwest flight that cost nearly the same ($366) and calculated the cost per point: 1.51. Rounding down slightly, we get to a new Southwest RRV of 1.5 (previously 1.6 prior to the devaluation in Wanna Get Away awards)
Even though the value of Southwest points for Wanna Get Away fares has gone down, the actual per point value is better than it seems. On average, you can expect an un-adjusted value of about 1.5 cents per point. Keep in mind, though, that points are worth more when applied to very cheap fares (where taxes make up a significant portion of the fare), and less for very expensive fares.