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January 06, 2011

Southwest rolls out new frequent flier program

After years of development, Southwest Airlines today unveils a frequent-flier program that trades credits for points and eliminates blackout dates for travel.

Instead of customers earning one credit per flight flown on the Dallas-based carrier, they will earn points for each dollar spent on airfares.

"It has been built from scratch," Southwest CEO Gary Kelly said about the program, which begins March 1. "It gives us a wonderful tool to set ourselves apart from the industry."

Kelly said the carrier spent $100 million to create the revamped Rapid Rewards program and hopes to generate several hundred million dollars a year in new revenue as the company pursues new corporate travel customers. He also expects current frequent fliers to take more trips and use the Rapid Rewards Visa card to gain more points.

Industry experts and Wall Street analysts have criticized Southwest's frequent-flier program for not being robust. Southwest executives acknowledged that even though the airline carries the most domestic passengers, it has far fewer frequent-flier members than its competitors, about half as many as American Airlines' AAdvantage program, which counts about 60 million.

Henry Harteveldt, an analyst with Forrester Research, said it makes sense for Southwest to use a points-per-dollar system instead of a traditional points-per-mile program because of its domestic network with many shorter routes.

"They're keeping it fairly clean and simple and telling you 'Pay more, get more,' which makes good sense," Harteveldt said.

But by adding a new premium class -- A-List Preferred, which allows frequent fliers to board first, and receive free Wi-Fi and other perks -- Southwest could hurt its image as an airline where all customers are treated equally, Harteveldt said.

For years, Southwest has been promising changes to its frequent-flier program, which has been essentially unchanged since it began in 1987. Customers received a free round-trip ticket if they accumulated 16 credits within two years.

With the new program, customers will earn points based on how much they spend. For example, on its cheapest "Wanna Get Away" fares, customers will earn six points per dollar spent; on its most expensive fares, called "Business Select," they will earn 12 points per dollar.

Redemptions are also based on the type of fare. For example, a customer will use 60 points per dollar for the cheapest fare, and 120 points per dollar for the most expensive. So if a Wanna Get Away fare from Dallas Love Field to Houston Hobby costs $64, a customer would need 3,840 points. For a Business Select fare on the same route, a customer would need 19,080 points.

"You can really rack up points in this program and get places faster than other frequent-flier programs that are out there," said Ryan Green, Southwest's senior director of customer loyalty and partnerships.

Southwest has partnered with a third-party provider, Maritz, to offer additional rewards such as international flights, hotels, car rentals, gift cards and other products. Points will not expire as long as the Rewards member has earning activity in a two-year period.

-Andrea Ahles

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LAX FA

Looks a lot like Virgin America to me.

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