Southwest Airlines 2015 Annual Report Download - page 14

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based on the fare and fare class purchased, with higher fare products (e.g., Business Select) earning
more points than lower fare products (e.g., Wanna Get Away). Each fare class is associated with a
points earning multiplier, and points for flights are calculated by multiplying the fare for the flight by
the fare class multiplier. Likewise, the amount of points required to be redeemed for a flight is based
on the fare and fare class purchased. Under the program (i) Members are able to redeem their points for
every available seat, every day, on every flight, with no blackout dates; and (ii) points do not expire so
long as the Member has points-earning activity during the most recent 24 months.
Under the program, Members continue to accumulate points until the time they decide to redeem them.
As a result, the program provides Members significant flexibility and options for earning and
redeeming rewards. For example, Members can earn more points (and/or achieve tiered status such as
A-List and Companion Pass faster) by purchasing higher fare tickets. Members also have significant
flexibility in redeeming points, such as the opportunity to book in advance to take advantage of a lower
fare (including many fare sales) ticket by redeeming fewer points or by being able to redeem more
points and book at the last minute if seats are still available for sale. Members can also earn points
through qualifying purchases with Rapid Rewards Partners (which include, for example, car rental
agencies, hotels, restaurants, and retailers), as well as by using Southwest’s co-branded Chase®Visa
credit card. In addition, holders of Southwest’s co-branded Chase Visa credit card are able to redeem
their points for items other than travel on Southwest, such as international flights on other airlines,
cruises, hotel stays, rental cars, gift cards, event tickets, and more. In addition to earning points for
revenue flights and qualifying purchases with Rapid Rewards Partners, Members also have the ability
to purchase, gift, and transfer points, as well as the ability to donate points to selected charities.
Southwest’s Rapid Rewards frequent flyer program features tier and Companion Pass programs for the
most active Members, including “A-List” and “A-List Preferred” status. Both A-List and A-List
Preferred Members enjoy benefits such as “Fly By®” priority check-in and security lane access, where
available, as well as dedicated phone lines, standby priority, and an earnings bonus on eligible revenue
flights (25 percent for A-List and 100 percent for A-List Preferred). In addition, A-List Preferred
Members enjoy free inflight WiFi on equipped flights. Members who attain A-List or A-List Preferred
status receive priority 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). Members who fly 100 qualifying one-way flights or earn 110,000 qualifying
points in a calendar year automatically receive a Companion Pass, which provides for unlimited free
travel for one year to any destination available on Southwest for a designated companion of the
qualifying Member. The Member and designated companion must travel together on the same flight.
Southwest’s Rapid Rewards frequent flyer program has been designed to drive more revenue by
(i) bringing in new Customers, including new Members, as well as new holders of Southwest’s co-
branded Chase Visa credit card; (ii) increasing business from existing Customers; and
(iii) strengthening the Company’s Rapid Rewards hotel, rental car, credit card, and retail partnerships.
The program continues to exceed the Company’s expectations with respect to the number of Members
added, the amount spent per Member on airfare, the number of flights taken by Members, the number
of Southwest’s co-branded Chase Visa credit card holders added, the number of points sold to business
partners, and the number of frequent flyer points purchased by Members. During 2015, the Company
entered into an amended co-branded credit card agreement with Chase Bank USA, N.A. Additional
information regarding this amended co-branded credit card agreement, including the effect of the
resulting change in accounting methodology, is provided below under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and in Note 1 to the Consolidated
Financial Statements.
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