Ultimate Rewards To Southwest Airlines Transfers
A few days ago I shared a pretty good deal on Southwest Airlines gift cards. If you do some deal stacking it could get you up to 14.5% off upcoming Southwest flights. That got a debate started between myself and my buddy Dave about whether Ultimate Rewards to Southwest Airlines transfers ever actually make sense. Especially when offers like this gift card deal appear, which happen somewhat frequently. This is only talking about transfers from Ultimate Rewards to Rapid Rewards and does not deal with any points already in your accounts from Southwest credit card welcome offers or via normal spend / flight earnings.
Rapid Rewards Redemption Value
The value of Rapid Rewards has been on the decline over the past few years, but that is to be expected with loyalty programs. The real downside to the Rapid Rewards program has always been that their value is attached to the cash price of the ticket. They have a somewhat static value, which means no sweet spots to be had for outsized value. They do have some variance in redemption value depending on how of the fare are made up of taxes. Having said that, they usually come in around 1.3 – 1.5 cents per point when including the total cost of the fare. For this experiment let's split the difference and call it a valuation of 1.4 cents per point.
Getting 1.4 cents per Ultimate Rewards point isn't the best redemption, but it isn't the worst either. It falls a little bit below what I would call an average redemption. In the past the flexibility of the Rapids Rewards points made up the difference in lost monetary value. That isn't really the case any longer with other airlines allowing free cancellations. Southwest changing their vouchers expiration policy to having no expiration date changed it as well. They both lock value into a specific program and are good for life. There is no real difference between them now.
What About The Portal Or Pay Yourself Back?
If you have a Chase Sapphire Reserve then booking your Southwest flights through the travel portal (you need to call in to do it) offers better value for your points (1.5 cents vs 1.4). Not only that, but you would earn Rapid Rewards points on the flight this way since it is considered a “cash” booking.
The downside is that you have to deal with the travel portal which can lead to headaches if you run into issues. That is why I used to say Paying Yourself Back was the best option and then you can use that cash to book the Southwest flight. You would still get the 1.5 cents per point, earn Rapid Rewards on the flight, earn credit card rewards plus you would be able to book the flight directly with Southwest. That was the case until Chase torpedoed the redemption rates down to 1.25 cents per point.
These Gift Card Deals Change The Math
Back to our headline question, we already see that transfers to Rapid Rewards don't offer the best value for Ultimate Rewards and that there may be better options available to you already. Then when you throw in these gift card deals the math changes even more. We have seen these 10% off deals somewhat regularly at warehouse clubs and they can be recreated sometimes via Chase or Amex Offers. I want to focus on this latest deal though and how it can change the way you look at Ultimate Rewards transfers to Rapid Rewards.
I'll take a look at this deal as a straight 10% discount. I'll also look at it when paired with the Discover quarterly bonus for the 14.5% discount too. When you look at it in terms of redeeming Rapid Rewards points we should discount their values by the discount these deals can offer. Because the reduced price is the real rate now, not the flight's sticker price. Just as we saw when I could buy hotel points to cut my cost almost in half from the sticker price.
- Purchased with a 2% cash back earning card
- 1.4 cents per point discounted 11.8% (1 – (.9 x .98)) = 1.235 cents per point
- Purchased with a 5% back Discover card
- 1.4 cents per point discounted 14.5% (1 – (.9 x .95)) = 1.197 cents per point
Adding In The Earning From Cash Bookings
The discount already changes the value you are getting per Ultimate Rewards points quite a bit. We aren't done yet though, since we need to account for the fact that you would earn 6 Rapid Rewards points per dollar, at a minimum, for your flight bookings with the gift cards. This is something that you don't earn on Rapid Rewards bookings so they should be added in. That is an additional 8.4% in value (6 Rapid Rewards points x $0.014 cents per point valuation). Here is what the calculations look like when adding in the additional 8.4% in value.
- Purchased with a 2% cash back earning card
- 1.4 cents per point discounted 20.2% (11.8% + 8.4%) = 1.117 cents per point
- Purchased with a 5% back Discover card
- 1.4 cents per point discounted 22.9% (14.5% + 8.4%) = 1.079 cents per point
All of a sudden we are nearing the cash out value of Ultimate Rewards of 1 cent per point. I don't think anyone would call this a good Ultimate Rewards redemption.
Paying With A Gift Card Comes With Costs Too Though
One thing we have overlooked is the cost to carry this gift card balance. It is money tied up in a currency that can only be used one place. It won't earn interest like cash would sitting in your savings account either. If you have an immediate booking need then this can be overlooked since you will be redeeming them shortly after purchase.
We also haven't discussed missing out on travel protections you would get with booking with a credit card. In an ideal world you would use a gift card for most of the purchase and then pay the remaining portion with your Sapphire Preferred or Reserve to trigger the travel protections. If you have a travel insurance yearly premium etc. this would be something you could skip over as well. If none of these options work then you would want to include the cost of buying travel protections into your calculations. This could shift the numbers a bit.
Pay Yourself Back Is An Option Again
One option, in regards to the cost of carrying the gift card balance, is to use Pay Yourself Back to cover the cost of the gift card purchase indirectly. I understand cash is fungible once you have it, but humor me for a minute. If you used pay yourself back to “cash out” your Ultimate Rewards, and then used that money to buy the Southwest gift cards, it would allow you to still use points for the purchase. Which could, through mental gymnastics at least, make you feel better about locking up the money and losing out on interest etc. Since points don't get more valuable sitting in your account.
Even if you just wanted to use your Ultimate Rewards for a Southwest flight this could be the best option, from a total view perspective. We are going to assume you have the Sapphire Reserve / Ink+ / Ink Preferred card that offers 1.25 cents per point on Pay Yourself Back redemptions.
The calculations would be in reverse a bit though:
- Purchased gift card with a 2% cash back earning card
- $500 gift card value x (1 – 0.202) = $399 true cost / $0.0125 PYB value = 31,920 points needed or 1.566 cents per point on that $500 flight.
- Purchased gift card with a 5% back Discover card
- $500 gift card value x (1 – 0.229) = $385.50 true cost / $0.0125 PYB value = 30,840 points needed or 1.62 cents per point on that $500 flight.
Sorry for the zany math but by stacking offers this gives you a way to lock in the discounted gift card value, use points for the purchase and avoid having to use a travel portal. I should note booking the Southwest flight via the Chase Travel Portal at 1.5 cents per point, and accounting for the 8.4% return earned from the cash booking, offers the best overall return. It nets a total of 1.63 cents per point when you take both aspects into account.
Ultimate Rewards To Southwest Airlines Transfers: ToP Thoughts
Back to the question, should we use Ultimate Rewards to Southwest Airlines transfers? From a value perspective it is the worst option of the bunch to book a Southwest flight. Booking those Southwest flights via the Chase Travel Portal, or using Pay Yourself Back to purchase discounted Southwest gift cards in a round about way, offer more value. There are hoops you would need to jump through and navigate to get there with both options. Only you can answer if the effort is worth it. Much of that will depend on how skilled you are in these areas.
Remember that this does not include Rapid Rewards already in your Southwest account. It would still make sense to transfer some points over to top off that balance for a booking. Widespread transfers for every one of your flight bookings though, that is something you may want to rethink a bit.