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One of the things we really do not like is the airline devaluation. It is always a disappointment since it takes away some of the value we have with the miles/points in the program. But, it could be that another airline devaluation is coming in March or early April – a Southwest devaluation?
Is a Big Southwest Devaluation Coming?
Let me say first of all, I am not saying anything that is going to make Southwest executives say “oh, that is a good idea!” These are all things they certainly already have thought through and I am just trying to lay out why I think a devaluation may be coming. Normally, we may have some kind of advance notice and while I think we will have notice, if it is in March or April, I do not think it will be a huge notice.
Points to Think About
We had the good news last week that Southwest would continue to allow hotel transfers to count for the Companion Pass – until March 31, 2017. That was most likely due to the large outcry of people who had been about to/already had transferred to Southwest and were finding out that by the time the points would get there, they would not count.
While I still think that was a wonderful gesture by Southwest to extend it to March 31, I do think it may have come at a cost. When the Marriott/SPG merger first came about, I and most other bloggers had written about the outstanding value to be had in transferring 90,000 SPG Starpoints to Marriott and then to Southwest to get the Southwest Companion Pass, 120,000 Southwest points, and 7 nights in a Category 1 – 5 Marriott hotel. I know that many people were holding off to do that transfer until January 1 so that they could have the Southwest Companion Pass for all of 2017 and 2018.
Huge Amount of New Companion Pass Holders – and Blocks of Points!
This is going to create a huge number of new Companion Pass holders, just judging by the sample of readers I have that told me they were doing this. But more than Companion Pass holders, it also will mean that huge amounts of 120,000 point blocks will be dropped into these accounts as well. Southwest has a revenue-based redemption program so we can figure that, on average, it will be about $1,800 in ticket value (plus the Companion Pass) that Southwest will be issuing with these transfers. I do not know what they get from Marriott for this but I know it is not close to that!
Compensating for All of these Points and Passes
Southwest will have to make a move somewhere to deal with the loss of all these Companion Passes. Many people may say that this is giving Southwest more loyal customers. No, sorry, it is not. Flying for free on airlines is not a demonstration of our loyalty. We are not directly giving Southwest any money, in fact, this is worse than using credit card bonuses to get the Companion Pass because Southwest benefits more from their co-branded credit cards than partner transfers. Hey, I am all for flying free also but let’s not pretend that having 120,000 Southwest points and a free companion on every flight is us showing Southwest loyalty! 🙂
New Year, New Devaluation?
Right now, it is around 1.5 cents per point. They can afford to take that down to 1.3 or even a little less. At first I would have thought they would never do that because you can use Ultimate Reward points at 1.5 cents per point redemption (with the Reserve) or 1.25 cents per point (with the Sapphire). But, if you want to book Southwest tickets directly through Chase, you actually have to call them. And, sometimes, the best prices on Southwest are not available through Chase. So, Southwest really does not have to fear the Ultimate Reward push in value.
Also, remember that these new Companion Pass holders will be sitting on 120,000 Southwest points! Southwest can do what it wants with those in terms of redemption value!
So, Is a Southwest Devaluation Coming?
I wouldn’t have been surprised if they had a devaluation sometime this year anyway and maybe this decision to re-allow hotel points to count towards the Pass may have just hastened that devaluation. Again, something has to give because this could potentially be a ton of value in redemptions that Southwest is making room for at a time when Southwest is expanding more and more (so they are more viable for many more customers thinking of making these point moves).
For argument’s sake, let’s say that 1,000 people do the SPG/Marriott transfer for the Southwest Companion Pass. That means that Southwest will be depositing 120 million points into those accounts. At current redemption value, that is about $1.8 million in travel (double when you consider that each of those people would have the Companion Pass). If Southwest were to bring it down to 1.3 cents per point, that would cut that redemption value down to $1.56 million – a savings of 1/4 million dollars. Not a big amount but something.
What Should You Do?
So, what should you do? To be honest, I think it would be smart to wait a little while longer if you are considering making the transfer to Southwest and if you do not need to use the Pass just yet. Southwest would have to make some announcement in advance of making a devaluation and the closer you can wait until the March 31 deadline, the more certainty you would have as to whether they will be making such a devaluation around then.
Of course, I could be way off but I certainly do think that we will see some kind of change to make up for the points and passes. In the meantime, like you should be doing anyway, do not transfer Ultimate Reward points to Southwest unless you need them. This way you will not have points that become worth less in the event of a devaluation.
What do you think? Could we be facing a Southwest devaluation in the next few months?
Editorial Note - Opinions expressed here are author's alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.
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