With the news of the new sign up bonus for Chase’s Southwest cards, people are understandably rushing to earn a new companion pass. The new cards all offer 30,000 Rapid Rewards points and a companion pass good through the end of 2019 after $4000 of spending in three months. Can’t get it if you’re over 5/24 or have earned a signup bonus from any of the three Southwest cards in the last 24 months. This probably is the closest I’ve gotten to consider actually getting the companion pass, but I’ve decided it just doesn’t provide enough (or any?) value for my family. Frankly, I just rarely fly Southwest. I thought it might be useful to look at the value of the Southwest companion pass depending on your situation.
Companion pass quick review
Most people know this by this point, but the Southwest companion pass gives a designated companion the chance to fly with you on any flight with seats for just taxes and fees ($5.60). Effectively, you cut your airfare costs in half. This also works when you pay for your flights with points. This is a GREAT deal for a lot of families. But I’d put the value for my family at close to $0. We just don’t fly Southwest often enough (read: ever) to make the companion pass worth it.
But maybe it’s valuable for your family. I’d like to posit a simple way to determine the value of a Southwest companion pass for your family. Specifically, let’s look at whether these new sign up bonuses are worth it for you.
Note: I’m just talking about rough back of the envelope calculations here. I’m sure Frequent Miler or Sam or almost anyone else could come up with a better formula. My main goal is to at least give families a framework to decide whether the hype is real for them when it comes to these new sign up bonuses (and it very well may be!)
Step 1: Make a demand schedule
If you’re not familiar with the concept of a demand schedule, take a look at this oldie but goodie from Milenomics. TL;DR decide how many times you plan to fly with your family in 2019. Then, determine how many of those frequencies are covered by Southwest.
Write that number down.
Step 2: Figure out how much your Southwest flights will cost you in 2019
The next step to determining how much value you get is to set a price for your Southwest flights. In generally, I ballpark $200 RT for domestic flights that cross one timezone or less and $300 for cross country flights. Honestly, you don’t need to get too into the weeds, for the purposes of this exercise I’m setting the average Southwest RT flight at $250.
So, just take your number from Step 1 and multiply by $250 – that’s the amount of money you’ll save with the companion pass on flights (remember, this is just back of the envelope!) Or, if you have a better sense of what your actual flights will cost, use that. Remember, the goal is to realistically determine whether these sign up bonuses are good for your family.
Step 3: Determine the value of the points you earn
We should also include the value of the 34,000 Southwest points you’ll have when you’re done meeting the sign up bonus. I honestly have no idea what the value is, so I’ll go with the experts. Frequent Miler says the reasonable redemption value is about 1.5 cents per point, so let’s go with that.
34,000 points X 1.5 cents per point = $510.00
Step 4: Determine your opportunity cost
The simplest way I see to determine opportunity cost in this scenario is to compare what you gain to what you lose by not applying for another credit card. Since we’re talking about Chase, let’s use good old faithful Chase Sapphire Preferred. It makes the math simple since it’s worth 50,000 Ultimate Rewards points after $4000 in spend in 3 months, so we’re close to apples to apples here.
The 54,000 points you earn by meeting the sign up bonus would net you a minimum of $675 of value since you can redeem them for flights so let’s set your opportunity cost at $675.
Step 5: Decide the value of the Southwest companion pass for your family
To be quite honest, I came into this thinking the Southwest companion pass is overrated for more families than one might think. But…if the value of the Southwest points you earn is $510 you really only need to save $165 on a flight to come out ahead of the Chase Sapphire Preferred. Bottom line, one flight costing $165 or more using the Southwest Companion Pass would get more monetary value than using your sign up bonus spending on the Chase Sapphire Preferred.
So these new sign up bonuses and the companion pass maybe deserve more credit than I give them. But of course, if you don’t fly Southwest already, they aren’t as valuable to you.
Step 6: Count the hidden costs
While the new Southwest card bonuses might get you more in monetary value than the Chase Sapphire Preferred, there are a few more costs to consider. Is this card worth a shot against your 5/24 or 6/24 (Barclays) status? If so, would you rather have the CSP longterm? Is this going to push you to take more trips and cost you more money in other ways (like hotels)? That particular hidden cost affects me all the time with all the cards I sign up for.
Finally, don’t forget the cost of possibly being biased towards a certain airline. These back of the envelope calculations assume Southwest prices equal that of other carriers, but if they don’t, then it’s not as simple as comparing $510 to $675.
These Southwest companion pass offers are pretty good for a lot of families, especially if you have a lot of Southwest travel planned this year. Please don’t read this article as an attempt to dissuade you if you’re in that situation. But if you’re a more edge case, I do think it’s valuable to determine how much a Southwest companion pass would actually be worth to you.
And I just wanted to create a loose framework to think about these new sign up bonuses in a place where you know nobody’s trying to sell you on the card. Also, with this card or any card, I think it’s probably a valuable exercise to determine how much value you can get out of a bonus, even if you know the new sign up bonuses are no brainers for you. At the very least, you’ll get to brag to your friends exactly how much money you saved and they will hate you for it. 🙂
So – brag to ME – are you signing up for the Southwest cards with these new companion pass bonuses and how much value are you going to get out of them?
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