Yet again, Southwest is choosing not to copy United, American and Delta. Its independent strategy has worked well for the last five decades, so why change what works?
Promising that Southwest Airlines does not plan to introduce a basic economy fare, CEO Gary Kelly blasted his competitors for treating some passengers like “second-class” customers.
At American Airlines and United Airlines, passengers who buy some cheap fares later this year will not be permitted to stow large carry-on bags.
Kelly, who has worked at Southwest for three decades, argued Thursday it’s not prudent to risk the airline’s brand’s equity to squeeze more revenue from cost-conscious consumers.
“We have a very powerful brand,” he said on Southwest’s fourth quarter earnings call. “There is huge value in offering our customers — 100 percent of them — a great product. … We strive to keep the customer experience and the product offering as simple as possible. Any time we contemplate offering a choice, we debate that heavily. Complication creates confusion and it dilutes the brand.”
American, United and Delta Air Lines view it differently. They argue they must compete on price with the three domestic ultra low cost carriers — Frontier, Spirit and Allegiant. The discounters charge extra for nearly everything, including onboard food and drink, advanced seat assignments and access to overhead bins. But their base fares are cheap, and many U.S. consumers are flying them instead of legacy airlines.
In introducing their own no-frills fares, American, Delta and United say they are merely reacting to consumer preference. They want to give passengers a choice. They can either fly on cheap fares with Spirit or Frontier, or they can buy similarly priced fares on American, Delta and United. But if they buy those cheap fares on the Big 3, they’ll forgo some extras, such as free advanced seat assignments and ability to change their tickets.
There’s also the matter of bin space. Delta continues to let passengers on its basic economy fares bring large carry-ons for overhead bins. But United and American, both of which will begin selling their fares soon, will only permit travelers to bring small personal items into the cabin. Some publications have reported American and United will charge for bin space, but that’s not true. Customers will not even have that option — they will need to pay to check all larger bags.
Southwest is not a legacy airline, but over time, it has lost some of its cost advantage over American, Delta and United. Today, it has nowhere near the cost base of airlines like Frontier and Spirit, so when Southwest competes on price with discounters but offers a far better value, its margins suffer.
But Kelly said it’s still not a good idea for Southwest to sell a no-frills fare.
“If we were to under take a ‘basic’ product, the only thing we could do is takeaway from [our regular experience,] Kelly said. “We wouldn’t let you make a change. You would board last. You couldn’t bring a carry on. That complicates the message. We have spent 45 years educating our customers about what to expect when they come to Southwest. That would be a huge mistake.”
Kelly added that Southwest’s messaging — that it treats all passengers roughly the same — helps it when it competes directly with United, American and Delta. All three have a multi-layered system that rewards the most frequent travelers with special perks. Southwest has some rewards for frequent flyers, but not as many.
“With every other competitor, they lavish attention on elite customers, and they ignore the rest,” he said. “That is our biggest opportunity. We don’t ignore anybody.”
Still, Kelly on Thursday left some wiggle room on basic economy.
“I am not saying forevermore that Southwest would never undertake something like that,” he said. “But we would have to have a darn good reason.”
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Photo Credit: Southwest, which has trademarked the made-up word "Transfarency," argues its straight-forward pricing approach is a competitive advantage. Southwest Airlines