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Earnings Report: Southwest Loses BIG With 737 MAX Fiasco — Is the Rapid Rewards Program Preparing for Devaluation?

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Earnings Report: Southwest Loses BIG With 737 MAX Fiasco — Is the Rapid Rewards Program Preparing for Devaluation?

Joseph HostetlerEarnings Report: Southwest Loses BIG With 737 MAX Fiasco — Is the Rapid Rewards Program Preparing for Devaluation?Million Mile Secrets Team

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INSIDER SECRET: You can earn 66% of the points you need to receive the Southwest Companion Pass by opening a single card. I’ll show you!

Southwest has just released its second quarter 2019 earnings report, and it’s an interesting one.

There are a few bombshell announcements in there, such as:

  • Southwest will no longer service Newark as of November 3, 2019
  • Service to Cozumel will begin in Q1 of 2020
  • Southwest will outline new destinations to Hawaii next month (including flights to Kauai and the island of Hawaii)

You may be itching to know the overall health of the company. The airline is still experiencing the pangs of the 737 MAX groundings earlier this year, which “reduced operating income an estimated $175 million in second quarter, alone,” per CEO Gary Kelly. That’s a big deal.

What does all this mean for Southwest, and for the points you’ve been frantically amassing for your free trip to Hawaii??

Southwest had some major setbacks this quarter, but there’s no need to worry about the well being of your Southwest points! (Photo by Joseph Hostetler/Million Mile Secrets)

Southwest Second Quarter Revenue and Earnings Report — Mostly Good News

Yes, the airline has probably lost hundreds of millions of dollars due to the 737 MAX debacle. Yes, there were significant expansion delays to Hawaii because of it. True, Southwest won’t meet their original goal of growing capacity by ~5% year-over-year.

But somehow, Southwest continues to thrive. Gary Kelly states:

Second quarter 2019 unit revenues grew 6.8 percent, year-over-year. We benefited from a healthy revenue environment and strong performances from our award-winning Rapid Rewards® loyalty program and ancillary boarding products.

Southwest’s profits soar despite 737 MAX issues. Q2 total operating revenues increased 2.9% year-over-year, achieving a record high of $5.9 billion. Pretty amazing, isn’t it?

That’s what happens when you’ve got hands-down the most customer friendly policies, like two free checked bags and free changes and cancellations up to 10 minutes before takeoff. They also offer the Southwest Companion Pass, which lets you bring a friend or family member for (almost) free every single time you fly Southwest. Even if you fly every single day!

You’ll receive the Companion Pass after you earn 125,000 qualifying Southwest points (within a calendar year). The easiest ways to do that are by opening a Southwest personal and a small business card:

CardSouthwest Rapid Rewards Premier Credit CardSouthwest Rapid Rewards Premier Business Credit CardSouthwest Rapid Rewards Plus Credit CardSouthwest Rapid Rewards Priority Credit CardSouthwest Rapid Rewards Performance Business Credit Card
Sign-Up Bonus PointsEarn 40,000 points after you spend $1,000 on purchases in the first 3 months your account is open.60,000 Southwest points after spending $3,000 within the first 3 monthsEarn 40,000 points after you spend $1,000 on purchases in the first 3 months your account is open.Earn 40,000 points after you spend $1,000 on purchases in the first 3 months your account is open.Earn up to 100,000 bonus points; earn 70,000 points after you spend $5,000 on purchases in the first three months of account opening. Plus, an additional 30,000 points after you spend $25,000 on purchases in the first six months.
Spending• 2X Southwest points with Southwest and Rapid Rewards hotel and car rental partner purchases
• 1X Southwest points on all other purchases
• 2X Southwest points with Southwest and Rapid Rewards hotel and car rental partner purchases
• 1X Southwest points on all other purchases
• 2X Southwest points with Southwest and Rapid Rewards hotel and car rental partner purchases
• 1X Southwest points on all other purchases
• 2X points per $1 spent on Southwest purchases and Rapid Rewards car and hotel purchases
• 1X points per $1 on all other purchases
• 3X points per $1 spent on Southwest purchases and Rapid Rewards car and hotel purchases
• 2X points per $1 on social media and search engine advertising, Internet, cable and phone services
• 1X points per $1 on all other purchases
Anniversary Points6,0006,0003,0007,5009,000
Foreign Transaction FeesNoneNone3%NoneNone
ReviewChase Southwest Premier reviewChase Southwest Premier Business reviewChase Southwest Plus reviewChase Southwest Priority reviewChase Southwest Performance Business review
The information for the Southwest Rapid Rewards Performance Business card and Southwest Rapid Rewards Premier Business cards has been collected independently by Million Mile Secrets. The card details on this page have not been reviewed or provided by the card issuer.

You can read more about the Southwest Companion Pass here.

A giving approach like Southwest’s in the airline industry will produce unconditional loyalty from millions upon millions of travelers. Most of us at MMS will always fly Southwest when given the option.

When an airline suffers, you may worry that the loyalty program will become less generous. But Kelly credits a large part of Southwest’s resilience to the Rapid Rewards loyalty program. Southwest points are in no danger of taking a hit because of recent misfortunes.

If you’re a Southwest fanatic like we are, here’s some additional reading to learn fun tips and tricks:

And subscribe to our newsletter to stay on top of travel trends and deals!

Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

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Sometimes I wonder how/why Southwest does it. But thinking about it carefully, I think they happened upon a brilliant strategy. Free cancellations is a huge perk and engenders tons of loyalty even though the flying experience on Southwest planes is pretty subpar (always full planes, older and dirtier planes with clunky space wasting seats, tons of kids, 24 hour check in rush, etc. It likely doesn’t cost much though because Southwest must overbook more than other airlines by some carefully calculated percentage to compensate. (Supposedly they said they don’t do this but then there was evidence they do?). Also, because a lot of people will make preemptive bookings on Southwest “just in case” without closely shopping price with other airlines, and then often don’t end up price shopping later, they end up fares that are less commoditized than competitors. Their aggressive moves to combat price disclosure on aggregators helps with this. They also likely save on commissions to the aggregators. They are able to get away with this because their differentiated product ensures consumers check their site first. And offering a differentiated product also makes it more difficult for consumers to directly compare their prices, meaning they will sometimes overpay and are less likely to cancel the bookings they made preemptively thanks to the cancellation policy.

It is all a brilliant strategy that makes them a winner. It is the classic “surprise and delight” strategy where you offer things that are valuable which customers really appreciate and cut expensive services. (they also do this with the friendly customer service and jocular flight attendants) It all feeds into a virtuous cycle of value creation.

Where does the companion pass fit in? They must lose money on it with many customers. Perhaps it is a small enough hit that it seems prudent to keep it around for now and write it off as part of building customer loyalty and differentiation. I wouldn’t expect it to stay around in its current form forever though.