Most legacy airline points programs are variable value. In other words, 25,000 miles might get me a cheap round-trip to Atlanta worth $250 or (if I’m lucky and work hard) a weekend in Alaska valued at $750+ or even more. That’s part of the fun.
When Southwest revised it’s program a while back, they moved to a fixed value program. Take a look at this screen shot from their web site.
So, 60 points are worth $1 therefore a single Southwest point is worth $.01667 (where’s that repeating symbol from math class). Simple, right? Well, I’ve been spending more and more time with Southwest lately and when I do quick calculations, I’m often seeing values of $.018 or so.
This sort of stuff bugs me and I can’t help but want to figure out just how their calculations work. This might seem like a small detail but it might influence how I value hotel stays and car rentals that I often credit to Southwest and Ultimate Rewards that I generally reserve for Hyatt and United. Additionally, I spend a lot of time with variable value programs where valuations are so much more vague, that it’s nice to have a few firm value anchors to compare against… Southwest should be one and yet the numbers vary when it seems they shouldn’t.
I’m going to confine this analysis to Wanna Get Away fares since that’s what most of us are trying to use whether we’re paying for flights with cash or points.
Here’s a break down of two Wanna Get Away Fares and 3 different calculations of value.
|Simple Value Saved Analysis|
|Paid Fare Cost||$236.10||$414.70|
|Award Cost (pts)||12,959||22,560|
|Award Cost ($)||$5||$10|
|Cash Saved on Award||$231.10||$404.70|
|A – Value per Point||$0.01783||$0.01794|
|Fare Break Down Analysis|
|Base Fare + Excise||$216||$376|
|B – Value per Point||$0.01667||$0.01667|
|Discounting for Earnings on Paid Flights (Assuming no A-List bonus)|
|Points Used + Unearned on Award||14,255||24,815|
|C – Value per Point||$0.01621||$0.01631|
Shown here is a fare breakdown. The difference between A and B is the Segment Fee and Passenger Facility Charge. On a paid fare, you pay those but on an award fare, Southwest pays them without charging you additional points. These tend not to vary too much explain but explain the difference between A and B.
Are they worth $.016 or $.018 then?
Calculation A is what’s been bugging me. I’m simply dividing the amount of cash I save by the points required and keep seeing around $.018/point. That’s a perfectly reasonable approach but just wasn’t yielding the expected $.01667 (60 pts / $). Based on this, I’d argue that Southwest points are really worth $.018.
There’s a third calculation though… When you fly on a paid fare, you earn more points. To fully evaluate the value of a point, you should really discount by the earnings you’re giving up. Most people familiar with points will agree with that principle. If we do that, Southwest points are only worth about $.016 each. That said, most attempts to value points do not consider this. There are several reasons why this isn’t done but the simplest is that the earnings side varies, sometimes a lot. Even in a simple program like Southwest’s, you have to consider that an A-List member earns another 25% bonus and an A-List preferred member earns a 100% bonus. And then there are elite qualification considerations such as that award tickets don’t help with requalification and/or may not allow you to fully leverage elite benefits. Toss in a route specific bonus or other factor and discounting by earnings lost simply becomes too complex.
For those reasons, I think calculation A above (simple money saved divided by points used) is appropriate for point valuations but do remember to consider what you’ve giving up on an award booking, particularly if elite status of some form applies.
So, based on the information above, I’ll use $.018 as my Southwest value. Incidentally, this is among the highest airline point values.