Deceptive Deals: 40% Bonus on Rapid Rewards Points

Southwest Airlines sent me an email yesterday offering a bonus of 10-40% on purchases of Rapid Rewards points through their partner, I’m telling you up front that this is a very bad deal. Buying points is usually a bad idea unless (1) the price is amazingly low or (2) you only need a few thousand to top off your existing balance for an award. Southwest’s promotion fits neither criterion.

There is a third possibility. I can see an argument for paying a high price for United or other airline miles because award tickets on those carriers often have more flexible refund policies, especially if you have elite status. But Southwest allows fee-free refunds on both cash bookings and points bookings, so there is no logistical advantage to booking on points. It’s just about price.

Southwest Deceptive Deal

You need to buy 30,000 points or more to get the largest bonus. Buy fewer than 4,000 points and you won’t get any bonus at all. When I think of topping off an account, I think of somewhere between 0-4,000 points, so this promotion doesn’t help in that respect.

What’s left is price. Rapid Rewards offers a fixed value for its points depending on the kind of fare you want to book. The best deal is for Wanna Get Away fares, for which it takes 60 points per dollar, making them worth about 1.67 cents per point. (This is being devalued next year, to 70 points per dollar, or 1.43 cents per point.) Other fare types require even more points and are a worse deal, so I wouldn’t book them unless all the Wanna Get Away fares are gone.

Got that? 1.67 cents per point is the maximum value. If you have to pay more than that, you shouldn’t buy points unless you’re topping off an existing balance. (Update: Unless you have a companion pass. See the comments.)

Normally Southwest Airlines sells points for $27.50 per 1,000, or 2.75 cents per point.

Bad Deal!

If you hit the smallest bonus threshold, you can buy 4,000 points and get a 10% bonus. 4,400 points cost $110, or 2.5 cents per point

Bad Deal!

Let’s assume you pig out and buy enough for the largest bonus. 30,000 points receive a 40% bonus, or 12,000 points. A total of 42,000 points costs $825, or 1.96 cents per point.

Bad Deal!

Even if you maximize the value of this promotion, you are still buying points at a cost of 1.96 cents each and redeeming them at a maximum of 1.67 cents. You are losing about 15% on your purchase. And I don’t know why anyone would buy $825 worth of Rapid Rewards points. This is supposed to be a discount carrier. I have never seen an $825 Wanna Get Away fare, and I look at some pricey markets to visit family over holidays.

Please don’t buy any points if you were targeted for this promotion. Like I said, a top up should be on the order of a few thousand points. You probably won’t get a bonus, and if you do it will be a small one. You will get a better price by transferring Ultimate Rewards points. I hate to do this because I value them at 2 cents each, but it’s still better than paying 2.75 to 2.5 cents through this sale.

National Car Rental Rolls Out New Premier Selection
No Fees for Online Debit Loads to Bluebird
  • RNP

    good post, thank you

  • Cogswell

    If you have the SW companion pass then miles are worth 3.33 cents on Wanna Get Away fares. You would come out ahead on all of the above scenarios.

    • Scottrick

      It would still make more sense to transfer points from Ultimate Rewards with all but the largest bonus.

      • Cogswell

        Assuming you have an adequate supply of Ultimate Rewards points…

  • OCMB

    This is a good idea for someone booking a family trip or any trip with multiple people that may or may not travel. This will give you the flexibility to cancel and retain the ticket value in points rather than travel funds in the cancelled travelers name. I do this often although I have so many points I wouldn’t need to buy anytime soon.

    • Scottrick

      Valid point, but see my reply to Jason.

  • Jason

    OCMB is correct – buying fares on points is great for flexibility because it doesn’t restrict the refunded amount to a time frame (1 year) or the person traveling.

    Also, the 1.67 cent value is not accurate because Southwest also eats some of the taxes, giving at least 1.9 cents per point typically (in my findings), sometimes more if you have multiple legs.

    In summary, you are buying points for basically what they are worth, but give the flexibility of a fully refundable (to points, anyway) ticket. Downside is that you don’t earn the ~10% rebate on a paid ticket back to points. Not really such a bad deal depending on the situation.

    • Scottrick

      That 10% rebate in the form of additional points on paid tickets would seem to make up for the additional tax benefit.

      I’ll agree with you and OCMB that it can help to get credit back without the 1 year expiration or the restriction to an individual traveler. However, I think the majority of people would find a chance to use their credit before they year is up. Furthermore, the value of Rapid Rewards points will go down in about six months, so I’d prefer not to keep my credit in that form.

  • Scott

    @Cogswell, that is simply not true. You would come out ahead buying the ticket and applying the companion pass. The points are never worth more than 1.67c plus the tax benefit minus the lost rebate.

    • Cogswell

      I understand that buying the ticket and applying the companion pass is better than going for this miles purchase offer.
      However, I don’t agree that the points are never worth more than 1.67. Without the companion pass they are worth that on Wanna Get Away fares, but with it they are worth double, otherwise so are saying that the companion pass would have no value.