Southwest Loyalty Program Gets First Revamp in 23 Years to Boost Traffic

Southwest Airlines Co. is overhauling its frequent-flier program to include rewards with no blackout dates and redemptions for international flights on other carriers.

The first major revamp of the Rapid Rewards loyalty plan since it began in 1987 should add “several hundred million” dollars a year in revenue, Chief Executive Officer Gary Kelly said yesterday at a briefing at Southwest’s Dallas headquarters.

Southwest, the largest low-fare airline, spent almost $100 million on the project and aims to win new customers and deepen ties to existing business travelers, who generally pay higher prices. The carrier unveiled a related website for passengers today to explain the changes, which take effect March 1.

“The new program is significantly more attractive than the old one, and will gain for Southwest customers and loyalty program members who were previously vested in the programs of competing airlines,” Tim Winship, a contributing editor for SmarterTravel.com who provides advice about frequent-flier plans, said today in an e-mail.

Rapid Rewards members now receive a credit for each flight and earn a free flight after accumulating 16 credits. The system doesn’t reward longer flights with more credits and doesn’t let passengers amass credits beyond 16.

Photographer: Joe Raedle/Getty Images

A Southwest airplane takes off from the Fort Lauderdale-Hollywood International Airport. Close

A Southwest airplane takes off from the Fort Lauderdale-Hollywood International Airport.

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Photographer: Joe Raedle/Getty Images

A Southwest airplane takes off from the Fort Lauderdale-Hollywood International Airport.

“It doesn’t encourage loyalty,” Kelly said.

The new program gives points, based on the ticket price and the fare category, that can be accumulated for larger awards. The points-per-dollar rate increases with the type of fare.

No Expiration

There is no expiration date as long as the account remains active in a 24-month period. There are no blackout dates on which redemptions are banned and no limit on awards redeemed per flight, said Ryan Green, Southwest senior director for loyalty.

“If we get our fair share of frequent fliers, the opportunity is huge,” Kelly said. “We’re very confident this is a good investment.”

Points also can be redeemed through a third-party provider for international flights and those to Hawaii, hotels and rental cars, though Southwest flies only in the 48 contiguous U.S. states. Points can be purchased under the new program to move closer to an award. Southwest is adding a second elite-flier category that includes additional benefits for those who travel most often.

Southwest doesn’t expect award redemptions under the revised program to surpass their current 7 percent to 8 percent of total revenue passenger miles, or that ongoing costs will be materially different from current levels.

‘Golden Handcuffs’

“Southwest has seen the impact from the golden handcuffs these programs create for some of their competitors,” said Robert W. Mann, president of aviation consultant R.W. Mann & Co., based in Port Washington, New York. “They need to figure out the right key to open those handcuffs. Changing the program is part of that.”

The program’s structure further differentiates Southwest from competitors, said Dave Ridley, senior vice president for marketing and revenue. It is the only major U.S. carrier that doesn’t charge to check a first and second bag or to make changes to a purchased itinerary, and it doesn’t assign seats.

“We have the very best bag policies, the very best change policies, the very best customer service,” Ridley said. “Now we have the very best frequent-flier program. It has to bring new customers to us.”

Southwest fell 15 cents, or 1.1 percent, to $13.16 at 4:15 p.m. in New York Stock Exchange composite trading.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufneror jbutters@bloomberg.net

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