Southwest Airlines 2008 Annual Report Download - page 25

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improve the airport experience for all of Southwest’s
Customers by including (i) a business focused area
with padded seats, tables with power outlets, power
stations with stools, and a flat screen television for
news programming; and (ii) a family area with
smaller tables and chairs, “kid friendly”
programming on a flat screen television, and power
stations for charging electrical devices. In addition,
during 2008, Southwest introduced priority security
lane access for its Business Select and Rapid Reward
A-List Customers at select airports.
Rapid Rewards Frequent Flyer Program
Southwest’s frequent flyer program, Rapid
Rewards, is based on trips flown rather than mileage.
Rapid Rewards Customers earn a credit for each
one-way trip flown or two credits for each roundtrip
flown. Rapid Rewards Customers can also earn
credits by using the services of non-airline partners,
which include car rental agencies, hotels, and credit
card partners, including Southwest Airlines Rapid
Rewards Visa Card®. During 2008, Southwest
introduced a new dining program for Rapid Rewards
Members that enables them to earn Rapid Rewards
credits when dining at more than 9,000 restaurants,
bars, and clubs across the United States and Canada.
Rapid Rewards offers different types of travel
award opportunities (“Award Tickets”). Rapid
Rewards Members who accumulate 16 credits within
24 consecutive months are awarded a Standard
Award, which is valid for one free roundtrip award to
any destination available on Southwest. Rapid
Rewards Members who fly at least 32 qualifying
one-way flights within a 12-month period also
receive reserved boarding privileges for an entire
year. When these Customers purchase travel at least
36 hours prior to flight time, they receive the best
boarding pass number available (generally, an “A”
boarding pass). Customers on this “A-List” are also
automatically checked in for their flight in advance of
departure. Southwest also offers a “Freedom Award,”
which allows Rapid Rewards Members the
opportunity to convert two Standard Awards into a
Freedom Award, which is free of seat restrictions
except for a limited number of “Black-out” dates
around major holidays. Southwest also offers a Rapid
Rewards Companion Pass, which is granted for
accumulating 100 credits within a consecutive
twelve-month period. The Companion Pass offers
unlimited free roundtrip travel, to any destination
available on Southwest, for a designated companion
of the qualifying Rapid Rewards Member. For the
designated companion to use this pass, the Rapid
Rewards Member must purchase a ticket or use a
Standard Award. Additionally, the Rapid Rewards
Member and designated companion must travel
together on the same flight. Standard Awards and
Companion Passes are automatically generated when
earned by the Customer rather than allowing the
Customer to bank credits indefinitely. Award Tickets
are valid for 12 months after issuance and are subject
to seat restrictions. Companion Passes have no seat
restrictions or “Black out” dates.
Southwest also sells credits to business partners,
including credit card companies, hotels, and car
rental agencies. These credits may be redeemed for
Award Tickets having the same program
characteristics as those earned by flying.
Customers redeemed approximately 2.8 million,
2.8 million, and 2.7 million, Award Tickets during
2008, 2007, and 2006, respectively. The amount of
free travel award usage as a percentage of total
Southwest revenue passengers carried was 6.4
percent in 2008, 6.2 percent in 2007, and 6.4 percent
in 2006. The number of fully earned Award Tickets
and partially earned awards outstanding at
December 31, 2008 was approximately 10.4 million,
of which approximately 78 percent were partially
earned awards. The number of fully earned Award
Tickets and partially earned awards outstanding at
December 31, 2007 was approximately 11.6 million,
of which approximately 81 percent were partially
earned awards. However, due to the expected
expiration of a portion of credits making up partial
awards, not all of them will eventually turn into
useable Award Tickets. In addition, not all Award
Tickets will be redeemed for future travel. Since the
inception of Rapid Rewards in 1987, approximately
16 percent of all fully earned Award Tickets have
expired without being used. The number of
Companion Passes outstanding at December 31, 2008
and 2007 was approximately 67,000 and 65,000,
respectively. Southwest currently estimates that an
average of three to four trips will be redeemed per
outstanding Companion Pass.
Southwest accounts for its Rapid Rewards
program obligations by recording, at the time an
award is earned, a liability for the estimated
incremental cost of the use of flight awards
Southwest expects to be redeemed. The estimated
6