Approximately 60k Southwest Points just posted via a gift card deal and I’m now around 44k short of the Southwest Companion Pass. I’ve been struggling with whether to push forward to the companion pass. With those having posted, it’s time for some deep analysis on whether it’s worth it for us… And by writing it up, my wife won’t have to bear the excruciatingly detailed breakdown of hard value and intangibles. Enter at your own risk.
How I Picked Up 60k Points for ~$275
In short, I purchased around $4000 in Sears gift cards earning 15 Southwest points per dollar. We used a good amount of those gift cards to purchase a new bed and dryer, which we’d been planning on doing for some time (and it made Mrs. Points rather happy). This amounted to around a 25% rebate. I have or am about to sell off the remaining gift cards at about an 89% overall return via Topcashback and PlasticJungle (mix of Amazon credit and cash back). Net net cost was approximately $275 for ~60k Southwest points which value at $1000 (60pts/$ of wanna get away fares). That’s right in my target range of purchasing points for 33% of their value or less, across the whole transaction. In retrospect, I very much wish I’d bought more!
My original plan was to get within 50k of the 110k points required for the companion pass, with my fingers crossed that the 50k Southwest Business card from Chase would be around for my next churn since those points have been counting toward the companion pass as well. Unfortunately, it was removed from the market and the best offer is a 25k offer. I knew this risk in advance and am ok if I were to stop here.
How Much Should I Invest in Finishing the Companion Pass?
I’ve been mulling this over a lot. Too much in fact. As usual, in such cases I pull out some math to see if I can find some guidance. Please note that this is highly specific to my case and any analysis of the marginal value of points is highly contextual. Consider this an illustration of how one considers certain point transactions such as purchases and program transfers.
Were I to pick up the Southwest Companion Pass (CP) now, I’d be able to bring a companion along on any Southwest trip I take until the end of next year (12/31/2013), including award trips. Let’s create a set of assumptions that I can use to value what I’d get out of investing some more to pick up the companion pass. After that, I’ll review whether I can find a means that makes it worthwhile for us to push a bit harder.
Let’s suppose that 3 trips we’d have taken on another carrier are moved to Southwest. That carrier, for us, would likely be Delta and we’d have paid an average of 30k for those awards. I value Delta skymiles (not from Platinum/Diamond accounts) at $.012 each while I value Southwest points at $.016666 each. Using those values then, we’d be shooting for 3 round-trips on Southwest at 21,600 points per passenger round-trip. That’s reasonably achievable.
Were I to simply use Southwest points I have (or could get other ways), that would be 129,600 points for 2 people taking 3 round-trips @ 21,600 each. That would have a value of $2,160. If I have a companion pass though, I’d save half those points (64,800) or $1,080 in value.
We need 44,000 more Southwest Companion Pass Qualifying Points (CPQP), which are also redeemable, to pick up the CP. One way to look at this is that 44k CPQP earned also saves 64.8k Southwest points (and a point saved is a point earned). Put another way, it’s a bit like saying that each CPQP earned equals 2.47 redeemable Southwest points. With a value of $.016666/point, I should then apply a marginal value to each CPQP of $.041 (44k CPQP = $1,804). This is a break-even point within this transaction. Anything more than this is likely a poor deal (unless I use my companion pass much more effectively) and below may be a good deal. I’ll be looking for ways to come in well below this number.
I’ll also quickly acknowledge that there are pros/cons to any carrier. I’ll miss my Delta upgrades and priority security. I’ll not visit the club as often. On the other hand, this is a compelling value and we’ll save the Skymiles for another day and Southwest has some non-stop routes that are pretty useful to us (e.g. New Orleans to Chicago) and it’s a way for me to burn our Airtran credits efficiently which have expiration issues and I really love having one-way awards in my toolbox which Southwest allows while I hate using my AA and United miles on one-ways domestically. In short, it’s a good fit for our short domestic travels.
Finding My Cheapest Option for Getting 44k Southwest Companion Pass Qualifying Points
I believe that you should generally only “buy points” when the cash cost is 1/3rd of the value or less. It’s a rule I bend occasionally but I almost never go much over 40%. I also believe that point conversions (e.g. a hotel to an airline or a future opportunity lost) are already points denominated and there’s no need to adjust that (beyond the intrinsic difference in point values). In the analysis above, I suggested that for me there’s a $.041 value to each CPQP up to the 44k I need but only if I can reach the full 44k.
Chase Southwest Credit Card
I’ve had the old (Rapid Reward 1.0) Southwest personal card from Chase but not the newer RR 2.0 card, nor have I ever had a business card. The 50k business card was a no brainer but doesn’t exist any longer. The 25k card option on first purchase has an annual fee of $69.
$207 cost = $69 annual fee / 33.3% = Cash cost adjusted for discount points purchase target.
$416.66 cost = 25k opportunity cost on business card since 50k offers have been so common for so long.
$623.65 total cost for 25k CPQP or $.025/CPQP.
That’s not a bad deal in my situation and it only works if I can find a way to get the other 19k CPQP.
That said, I have 3 personal Chase cards and 1 business already. Adding another isn’t a lay-up and I’m not especially excited about this option or doing another churn sooner than I was hoping.
Choice Hotels Transfer
I’ve got around 72k here. 5k transfers to 1k US Air and I’ll play it safe by holding back 6k in hope that the US Air Grand Slam comes back. I can thus transfer 66k Choice to 19.8k Southwest.
$396 cost = 66k Choice valued at $.006 each (no discounting since this is a points to points transfer).
$396/19.8k CPQP = $.02 in cost per CPQP.
This looks like a good option that’s just a few mouse clicks away. For what it’s worth, I bought these at $.0039 each which was one of my worst points purchases (at ~2/3rds of point value) but I had a feeling they’d be useful for a Southwest play. I expected to use them to help a couple of friends meet their CP goals but then discovered I couldn’t transfer across name mismatches.
Wyndham Hotels Transfer
After holding back for US Air Grand Slam transfers, I have 20k to work with here. Not much but 8000 transfers to 2400 Southwest.
$112 cost = 16k Wyndham valued at $.007 each (again, no discounting necessary).
$112/4800 CPQP = $.02333 in cost per CPQP.
Another good option though small. All my Wyndham points came at a very nice discount via Daily Getaways. I really do like having these.
Chase UR to Hyatt to Southwest
I cringe just thinking about this but let’s work it out… I can transfer Chase UR on a 1:1 basis to Hyatt. There’s a lot to like about that at Hyatt are pretty high value. From Hyatt, I can transfer 5000 points to 2,400 Southwest points. I do have quite a lot of Chase UR so this is really a valuation question. I generally value Chase UR at $.016 but it’s not difficult to argue $.018 based on United, Southwest, and Hyatt transfers. For the sake of argument, let’s say they’re worth $.018.
$90 cost = 5000 Chase UR @ $.018 each.
$90 / 2,400 CPQP = $.0375/CPQP.
Well, it’s under my threshold of $.041. It also has the benefit of being a good top-off candidate and I’ve got great and growing balances in Chase UR already.
Marriott to Southwest
I’ve got a good number of Marriott points but they also aren’t growing and I really like maintaining a diverse points portfolio. I could replenish via transfers from Chase UR but I consider those pretty lossy. There’s an option of converting 70k Marriott to 25k Southwest. I’d value it like this:
$700 cost = 70k Marriott valued at $.01 each.
$700/25000 CPQP = $.028/CPQP
Chase UR + Marriott to Southwest
There’s another Marriott option which is 125k Marriott for 50k Southwest. I have 71k Marriott at the moment and I could transfer 54k UR to Marriott to bring the account up.
$710 cost = 71k Marriott valued at $.01 each.
$972 cost = 49k Chase UR valued at $.018 each.
$1682 cost (I can already tell this isn’t a good idea)
– $100 excess value = I end up with 6k too many Southwest points which have a redeemable value of $.01666 each so deduct this to get back to my 44k goal.
$1582 net cost.
Interesting. If I could merge my wife’s Marriott this would make real sense but using those Chase UR really messes this up.
This is a big enough set of movements that I’m going to wait a few days and probably mull over whether there are shopping options or dining for miles or car rentals or anything else I can do to get just a bit closer. That said, I think I have a plan.
1. 66k Choice to 19.8k Southwest. Cost: $396 worth of points.
2. 70k Marriott to 25k Southwest. Cost: $700 worth of points.
Average cost in points value is $.025/CPQP which is well below my $.041/CPQP par marginal value and there’s no cash involved and no credit check. I still wish I could get that 50k Southwest business card but such is life.
Quick double check
When doing this much math valuing complex transfers, it’s worth a quick double-check. Spending 136k hotel points is not insignificant when I’ve been trying to build these up! Here’s my anticipated net effect:
1) Saved: ~180k Delta Skymiles saved by shifting 3 trips for two people to Southwest.
2) Used: 20k Southwest net. Will use 64,800 Southwest points but I’ll have picked up 44,800 of them via these hotel transfers so my net is a use of 20k.
3) Used: 66k Choice points.
4) Used: 70k Marriott points.
From a straight up value perspective, I’d argue that I’m saving $2,180 in Delta skymiles value (more if you consider I’d be burning my higher value diamond/platinum account miles) and using $1,429 in southwest and hotel points. Points transactions are usually lossy so one that increases value by 52.5% is a very good move. Without doing the math, I can also tell that doing even just 2 trips with the companion pass is at least break-even so there’s not much downside. Before wrapping up, it’s also worth considering the…
I’ll use half of my Marriott points. I have lots of Chase UR that transfer at 1:1 so I won’t totally lose this option but I don’t like UR:Marriott transfers as I consider them pretty lossy. All my excess Choice points will be gone and I have no means of replenishing them reasonably. I won’t feel too bad about that though. Using up some Southwest points (or Airtran credits) will actually be a good thing as I’ll likely solve my Airtran credit expiration issues. There will also be a LOT of upside to using Southwest/Airtran credits for additional trips with the companion pass. It increases the overall flexibility of our points portfolio since I’ll have a good domestic one-way option available to our house aside from BA miles used on AA.
A lot of people get down on Delta skymiles, often for good reason, but my earning rate has dropped a bit considering that I’m not flying that many more paid trips this year (I’m already around 95k MQM) and Amex MR transfer bonuses to Delta haven’t taken place in a while. Slowing down our use of them is a good thing since we rely on them so much for trips to Minneapolis and elsewhere. I also just had great luck booking an award on Virgin Australia so it’s definitely worth remembering that Skymiles can be worth a LOT more than $.012 while Southwest points will never be worth much more than $.01666.