More value from Southwest points

For a long time I’ve told people that Southwest points are worth 1.67 cents per point towards “Wanna Get Away” fares.  I was wrong.  Southwest points are actually worth more than 1.67 cents each.

Before I explain, let’s look at why I thought the points were worth a fixed value of 1.67 cents each towards Wanna Get Away fares.  This chart is on Southwest’s website:

In Southwest’s example, they show that you can use 6000 points to pay for a $100 fare.  Now, if we calculate the dollars per point, we get: $100 / 6000 = 1.67 cents per point.  Since Southwest charges a fixed rate of 60 points per dollar, the ratio will always be the same regardless of the fare and so points should have a value of 1.67 cents per point for all fares.  Simple.

There’s more to the story

A few days ago, I learned about my error from this blog comment dialog:

JL100: Southwest worth 1.8 cents/dollar on wanna get away fares

Frequent Miler:  Southwest points are worth 1.67 cents on wanna getaway fares.

JL100: I just checked a sample of three Southwest fares and the points were worth 1.8, 1.88 and 1.9 cents compared to fare amounts. Perhaps 1.67 is a minimum?

Frequent Miler: You’re right! I just did a search and found 1.95 cents value. That’s very weird because Southwest supposedly has a fixed value for their points. I’ll have to investigate more!

So, I investigated…

What I found

Just like commenter JL100, I ran a number of flight searches on Southwest’s website and I found that I was getting more than 1.67 cents value from every single flight.  After some digging, I figured out why:

• Southwest calculates required points by adding the Base Fare and Excise Tax and then multiplying the result by 60. 
• The above formula does not account for Government Segment Fees, Passenger Facility Charges, or Security Fees.  Security Fees are charged to those who pay with points, but Segment Fees and Passenger Facility Charges are not.

In other words, when you pay with points, Southwest pays some of the taxes for you even though they are not included in the calculation for the number of points needed.  As a result, the value you get per point will always be higher than 1.67 cents as long as the combination of Segment Fees and Facility Charges are more than the Security Fee.  Since these taxes are based on the number of segments you fly, you will get more value (when calculated as cents per point) on low cost trips with multiple segments.

An Example

I priced a flight from Detroit to Baltimore.  The cash price came to $168.80 and the fare breakdown looked like this:

When I priced the same flight for points, the total came to 8,820 points and $5 for the Security Fee.  The fare breakdown looked like this:

By using points, I would save $163.80 ($168.80 – $5).  So, the value of the points would be: $163.80 / 8,820 = 1.86 cents per point.

Other calculations

You can argue that one wouldn’t really get 1.86 cents per point value in the example above because when you pay with points you do not earn points for the flight.  That’s true, but it doesn’t change the fact that whatever formula you use for valuing point redemptions, you will find a higher value than one would otherwise assume.

Companion pass

Southwest has the most generous companion pass benefit in the industry.  In any calendar year in which you accumulate 110,000 Southwest points from Southwest and from partners, you’ll get a companion pass that can be used as many times as you want for the rest of that year and all the next year.  Whether you reach that milestone by flying, or by shopping through the Rapid Rewards portal, or by signing up for lots of credit cards, the good news here is that the points you accumulate along the way are worth even more than you thought!

As an aside…  some people say that once they have a companion pass, their points become worth twice as much.  That’s both right and wrong at once.  Yes, the points will get you twice as much travel as they would before, but so will cash!  So, I think it is better to think of the Companion Pass as a way to make travel cheaper (with cash or with points) rather than to think of your points as being worth more.

Bottom Line

Southwest points are worth more than 1.67 cents per point towards Wanna Get Away fares.  And, incidentally, it means that using points for Anytime fares is not as bad of a deal as it appeared (since you’ll get slightly more than 1 cent per point value).  Business Select fares will still be a bad deal, though, as they’ll still calculate to less than 1 cent per point value.

We’re not talking about big numbers here, but its great to see a case where we can get more value from points than we previously thought!

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