Yesterday, Southwest Airlines announced an extension for some Companion Pass holders. They also announced easier requirements for earning the pass this year. In his coverage of the changes, Gary Leff at View from the Wing notes that the 80K-point welcome bonus on some of the Southwest credit cards is worth about $1170 in airfare, but then he goes on to say that “With a companion pass you effectively double the value of points, making the Rapid Rewards you accumulate earning this bonus worth ~$2340.” Is that true? If it is, my net worth just exploded overnight.
The fallacy of point value doubling
I’ve long been a big fan of the Southwest Companion Pass. I find it to be the best value in domestic travel. Once you have the Companion Pass, you can bring a companion with you for free (paying only the taxes, which start at just $5.60 one way domestically) every time you fly. It doesn’t matter how you booked your ticket: whether you used your own Southwest points, you paid a “cash” fare, your company bought your ticket, or a friend or family member used their own points or money to book your trip, you can add your companion to your reservation for free. That’s awesome.
It effectively means that a trip for two people costs you half price every time. That is to say that flight that ordinarily costs 10,000 points or $150 per passenger (20,000 points or $300 for 2 people) only costs you 10,000 points or $150 for two passengers if you have the Southwest Companion Pass.
While that is an incredible discount and indeed one of my favorite deals in the frequent flyer game, your 10,000 points are not suddenly worth 20,000 points or $300; rather, your companion pass entitles you to a 50% discount. That is an important distinction. It is easy to conflate the two and think of 10,000 points buying you $300 worth of airfare (the price you would have paid for two people without the pass). However, once you have the pass, that airfare is no longer worth $300 since it would not cost you $300 to buy it but rather it would cost you $150 to buy it with cash. If you choose to use points, 10K points replaces $150 cash. The points have the same cash value with the pass that they did before you had the pass.
If that idea seems abstract to you, think about it this way: the welcome bonus on the Bank of America Business Advantage Cash Rewards Mastercard is currently $500 after minimum spend (note that I am intentionally choosing a card for which we have no affiliate link at the time of writing as an example). If you have the Southwest Companion Pass, does the welcome bonus on the Bank of America business cash rewards card become “effectively doubled”, and “worth $1,000”? Clearly not. You get $500 from that bonus that you can use to buy $500 worth of groceries or $500 worth of Hyatt mattress run stays or $500 worth of Southwest Airlines flights or $500 worth of whatever it is that you want. It doesn’t buy $1,000 worth of anything.
By the same token, going with Gary’s valuation of the 80K-point welcome bonus at about $1170, let’s imagine that I have a bank account with exactly $1170 in it. Does the value of that bank account become $2340 the day I earn the Companion Pass? Yet again, the obvious answer is no.
Indeed, if the Companion Pass doubled value, I guess I could look at my entire net worth as being doubled thanks to Southwest. Unfortunately, that’s just not the way it works.
The Southwest Companion Pass is truly just an awesome coupon
It is more effective to think about the Southwest Companion Pass as a repeatable half price coupon that you can only use when flying two people. That’s still hugely valuable, but it works in the opposite direction. Rather than doubling the value of what you have, it reduces the price of what you want. In that way, it is the same as any other coupon, discount, or sale run by any other seller of anything in that it is designed to separate you from your money rather than increase the value of what you have.
The key in understanding why I argue that Gary is wrong to consider 80K points worth $2340 is that the coupon applies the same to a points fare or cash fare. Back to my previous example, either 10K points or $150 will buy you the flight for two people since the coupon works either way. If the pass were different — if it only applied to flights booked with your points and not to flights booked with cash, I would agree with Gary’s shorthand valuation. But since the coupon applies the same either way, your choice is between spending 10K points or $150 — once you have the coupon, the cost of the flight is no longer $300 for two people. By the same token, 80K points will buy you the same amount of flying that about $1170 will buy you whether or not you have the pass.
What has unquestionable but yet entirely variable and relative value is the Companion Pass itself. In a normal world, it is an incredible discount that surely can save you money — i.e. keep money / points in your account for use another day. That has certainly made it possible for me to travel more than I’d have otherwise been able to afford, so it remains one of my favorite values out there. In 2021 however, the value is highly dubious at best since most of us won’t stand to save much given the current environment. And that’s why I recently argued that even though the Southwest Companion Pass still looks good on paper, most people should give it a pass until 2022.
I picked at Gary’s point here not because I think he doesn’t understand the mathematics and semantics involved in wrapping one’s mind around the companion pass. I have no doubt that Gary fully understands all of the above and was merely using an off-the-cuff remark as shorthand to demonstrate why the Southwest companion pass and associated credit card bonuses are exciting for many people. But when I read it, I remembered back to my days as a Frequent Miler reader. It was Greg who first explained all of the above in a way that clicked for me. I couldn’t remember or find the old post where he’d done it, but I thought it was worth a reminder for those new to the game or perhaps those who are new to focusing primarily on domestic travel and who might be tempted to oversimplify and therefore overvalue one credit card bonus over another. The 80K bonuses on the Southwest cards are no doubt an incredible deal in normal times both for the airfare they can buy with or without a Companion Pass and for the progress they help you make toward the pass. I hope we’ll still see bonuses like these around the end of this year so that people can time out a 2022/2023 Companion Pass where they can take full advantage of the Companion Pass discount because when you spend less you can save more — and by that measure at least perhaps the pass can increase your net worth after all.