Southwest Airlines Drops Internet Miles

April 19, 2005
For years, Southwest Airlines has richly rewarded Internet-savvy travelers with extra frequent-flier awards for booking online, a bonus that was among the most generous in the industry.

For years, Southwest Airlines has richly rewarded Internet-savvy travelers with extra frequent-flier awards for booking online, a bonus that was among the most generous in the industry.

That opulent benefit quietly came to an end this month, when Southwest executives let their Internet bonus program expire. Airline spokeswoman Linda Rutherford explained Monday that the program's goal had been achieved: Today more than 60 percent of Southwest's revenues are booked through its Internet site.

"The promotion was designed to incentivize travelers to go online," she said. "It's clear the education phase is over and we no longer need to offer those incentives."

But some frequent flier experts say Dallas-based Southwest -- the nation's largest discount airline -- risks losing some customers without the valued perks.

"At the end of the day, Southwest's frequent-flier program isn't one of the best; in fact it's got a lot of warts," said Tim Winship, a travel analyst who publishes the online newsletter "Without the online bonuses, those warts are going to be a lot more prominent."

Unlike most airlines, Southwest's loyalty program, dubbed "Rapid Rewards," awards travelers with credits rather than miles. Fliers receive two credits for each round-trip flight purchased, and can book a free flight for 16 credits.

Under the original Internet promotion, which debuted about eight years ago, buyers received double credits for booking online. That meant a free flight could be earned after just four round-trip purchases.

Last year, the airline reduced the online bonus to one credit for every two earned, meaning six online purchases would be necessary to earn a free trip. Even after the change, it allowed passengers to rack up free tickets faster than at most other airlines, Winship said.

"It was a pretty generous bonus credit," he said.

Southwest was willing to give away the free tickets to entice customers to the Internet site because online sales saved big money.

It costs the airline about $1 to process an online purchase, Rutherford said. In the past -- before Southwest canceled commissions to travel agents -- the airline paid more than $6 to sell tickets through agents.

Selling tickets on the phone costs the airline "somewhere between those two," she said.

But with 63 percent of the airline's ticket revenue now coming from its online service, the perks just aren't needed, she said. So effective April 1, all travelers must buy eight round-trip flights to grab the free ticket, regardless of how they book their fare.

Winship argues that many aspects of Southwest's program suffer in comparison to other airlines. It has fewer affinity partners, like credit cards or hotels, which help customers accumulate points. And fewer destinations are available for rewards, while larger carriers can give away free tickets to popular overseas cities.

Because its airlines don't have first-class cabins, Southwest frequent fliers can't use their awards to upgrade to the bigger seats and personal service other airlines offer at the front of the airplane, he said.

And unlike many other airlines, where passengers can accumulate frequent-flier miles for years, Southwest's travel credits expire after one year.

"With the bonus going away, you're going to get some people who are going to look at American and United and Delta and say, what can they do for me that Southwest can't?" Winship said.

Rutherford said Southwest hasn't heard many complaints since the bonus was dropped. She said most travelers fly the airline because of its low fares, not its awards program.

"It is still an enormously generous program, compared to what some of our competitors are doing," she said.

Southwest is the only large airline that has been consistently profitable since 2000. Last week, it posted a $76 million profit for the first quarter. The major hub airlines, which report their results this week, are expected to lose as much as $2 billion for the quarter.

Southwest shares rose 6 cents Monday to close at $14.86 per share.