Southwest Is Mostly Mum on New Rapid Rewards Program

As one of the world’s largest and most successful airlines, Southwest is constantly under the microscope, its every move subject to endless analysis and speculation by the media, analysts, and the traveling public.

In the interest of reality-checking some of that speculation, my own included, yesterday I spoke by phone with Southwest’s director of customer loyalty, Ryan Green, about the airline’s Rapid Rewards program, and the recent buzz regarding that program’s future.

Rapid Rewards—What We Know, What We Don’t

We know that Southwest is working on a new version of its Rapid Rewards program. That has been confirmed publicly by the airline’s top managers.

It has also been disclosed that the new program will be launched some time next year.

One school of thought—and this is nothing more than educated guesswork—has it that the new program will be revenue-based. In other words, points would be awarded on the basis of dollars spent on tickets or charged to a credit card, rather than on the basis of flights taken or miles flown. (My own thinking ran something like this: Southwest is planning a major overhaul; the only real alternative to its current approach is a revenue-based scheme; therefore that is Southwest’s likely direction. The fact that Virgin America adopted that model, as did JetBlue with its just-relaunced TrueBlue, lends some credence to that line of thinking.)

And based on remarks recently made by Southwest chief Gary Kelly, I and other industry-watchers further speculated that the new program would be encumbered with fees.

Why Change a Good Thing?

Rapid Rewards—introduced in 1987 under its original name, Company Club—was the first loyalty program operated by a major low-cost carrier, and it established a blueprint adopted by many other discount carriers.

Since then, though, Green pointed out that Southwest has grown from a small short-haul operator into a behemoth with a national route network. And the airline has expanded its sales focus to include business travelers as well as vacationers.

While Southwest has made what Green described as a “toe-dip” into gaining and retaining the loyalty of its most profitable customers with its A-List elite perks, he acknowledged that the program was never designed for hard-core business flyers, a notably prickly and particular group.

And, Green intimated, incremental changes aren’t sufficient to bridge the gap between the current program and Southwest’s new priorities.

Monetizing Loyalty

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Green was especially adamant about one point: The speculation (including mine) that the new program would be a fee-for-all is simply false.

So where will the additional program-related revenue, mentioned by Gary Kelly, come from? Two places, according to Green. First, a better, more engaging program will naturally motivate more members to purchase more tickets.

And second, Southwest plans to add more partners to the program, all of whom will be buying Rapid Rewards points whenever members use their services or buy their products.

For context, American boasts more than 1,000 partners in its AAdvantage program, and generates around $1 billion annually from the sale of miles to those credit card issuers, hotels, rental car companies, retailers, and so on.

Green said that Southwest didn’t plan to match the scale of American’s industry-leading partner roster, but would add a significant number of new partners.

Rapid Rewards 2.0

Green confirmed that he and his team had considered a revenue-based model for the new program, among other options, and that a decision has in fact been made. But he would not disclose whether the new Rapid Rewards would be revenue based, mileage based, or some hybrid of the two.

Southwest partisans will be heartened to learn that Green sees award seat availability as a “key value driver” of Rapid Rewards, suggesting that whatever the successor program’s overall structure, redeeming awards will be a relatively straightforward affair.

He projected a mid-2010 launch date for the new program, noting that the program touched every aspect of the airline’s operations, from reservations to accounting to sales to its website.

And the new program will retain its current name, which Green feels accurately reflects its goal and its character.

The State of Travel Rewards Programs

Related to the issue of award availability, Green expressed concern that, as a group, the airlines were issuing more frequent flyer miles than they could realistically hope to make good on if program members elected to cash in their earnings. Long term, he warned, that disconnect “will catch up with the industry” and airlines with irrationally exuberant programs will be forced to “pay the piper” by raising award prices and further reducing award seats. Affected program members will disengage from such programs, taking their loyalty—and their spending—elsewhere.

While he didn’t say as much, it would seem that Green’s goal is to have a sustainable Rapid Rewards in place by the time the bubble bursts—a landing place for disaffected members of mismanaged programs. It wouldn’t be the first time Southwest has benefited from the missteps of other airlines.