Southwest Airlines is the most consistently profitable U.S. airline, but it significantly lags behind its major competitors on credit card revenue. It wants to close the gap, and it’s moving aggressively to win new customers.
This has become apparent in the past couple of months, as the airline offered an usually lucrative promotion for new customers who signed up for its co-branded credit card with JP Morgan Chase. Customers approved for it by Feb. 11 could receive a companion pass — it entitles the passenger to bring a guest on board for free — for the remainder of the year.
It could be a costly promotion for Southwest, depending on how many customers apply and how often they use the pass. But long-term, Southwest may earn major revenue from these new cardholders.
Card relationships are highly profitable for big airlines. In the first half of last year, Stifel analyst Joseph DiNardi estimated American Airlines generated about about $1.15 billion from its relationships with two banks, which pay American for each point they give customers. In the same period, Southwest earned about half that amount from its relationship with Chase.
There are some reasons Southwest can’t match American. The best programs are aspirational, and American can dangle free business-class flights to Europe, Asia, or Hawaii in front of customers who dream of a once-in-a-lifetime vacation.
Southwest doesn’t have premium cabins, or a global network, but it has one product many passengers covet: the companion pass. It makes sense the airline is using it to try to win new credit card customers.
Best of SKift
Is Southwest’s New Credit Card Companion Pass Offer Too Good to Be True? Consumers generally don’t apply for a card because they want to travel between Chicago and Omaha, so Southwest has had more trouble generating revenue from its relationship with JP Morgan Chase than United Airlines, which can get people to Europe, Asia, and Australia in premium cabins. But Southwest has the companion pass, and recently it leveraged it to its advantage.
Spirit Airlines Gets Boost From Dynamic Pricing on Carry-Ons to Bottled Water: Spirit Airlines hit a snag financially about three years ago after then-American Airlines President Scott Kirby took aggressive action against it. But the discounter’s fortunes have been improving. Last week, it told investors it is earning more money from ancillary fees than in recent years.
Travel Megatrends 2019: Low-Cost Carriers Lose Some Luster: Passengers love deals and they’ll put up with a lot for cheap fares to Sydney or Tokyo, or even London. But no one has come up with a sustainable business model that allows airlines to generate significant margins on eight- to 15-hour flights. In this story, I explain some of the issues with the long-haul, low-cost model. (Related: I spoke about this topic last week on Cheddar, the live streaming financial news network.)
Virgin Australia Appoints Tourism Veteran as New CEO: Virgin Australia is an airline I don’t understand. This is a scale business, and Virgin Australia doesn’t have it. Will the new CEO make some changes? Perhaps he could focus on the medium-haul and short-haul business, and retire the airlines’s five Boeing 777s. Skift contributor Allan Leibowitz has details on this change at the top.
Expedia and United Agree to Stand Down — For Now: United and Expedia are in a contractual dispute, though neither company has detailed exactly what’s happening. Expedia’s contract with United apparently ends in October, and at one point, United threatened to cut off its access earlier. Both companies now say that won’t happen. But after October, it’s not clear the companies will maintain relations. Skift’s Dennis Schaal has details.
Airbnb Hires Aviation Industry Veteran to Lead New Transportation Division: Founding Virgin America CEO Fred Reid has resurfaced, taking a job at Airbnb. He’ll be the platform’s first global head of transportation, my colleague Deanna Ting reports. Reid has bounced around the industry after he was forced to leave Virgin America more than a decade ago because the airline ran afoul of regulators.
TUI and Thomas Cook Face Up to Bleak 2019: Europe’s big two tour operators, Thomas Cook and TUI, are both expecting a rough year, writes Patrick Whyte, Skift’s man in Europe. (Related: TUI Group Turns Toward Online Bookings as It Revamps Its Business)
Sabre’s Bottom Line Got a Lift From U.S. Tax Cuts: The recent U.S. tax law change benefited travel distribution giant Sabre, Skift Travel Tech Editor Sean O’Neill writes. Because it saved a considerable chunk of money, Sabre had the flexibility to acquire the tech vendor Farelogix late last year.
Best of the Rest
Delta’s Brand Reaps the Benefits of the A220’s Customer-Friendly Experience: Delta started flying the Airbus A220 last week, and the rollout was nearly flawless. “It’s hard to imagine one of the other big carriers in the U.S. being able to pull this off the same way,” writes Brett Snyder of Cranky Flier.
Ryanair CEO Michael O’Leary Could Get a Giant Payday Despite Airline’s Current Woes: O’Leary recently was kicked upstairs to a new gig as CEO of the Ryanair Group, and soon he no longer will have day-to-day control of the low-cost airline. But he has a sweet incentive package. Bloomberg notes: “O’Leary had been awarded 10 million share options that will let him pocket 99 million euros ($112 million) if the company doubles profit over the next five years, or the share price almost doubles to 21 euros.”
Southwest Mulls New Fees to Generate Revenue Without Alienating Passengers: Southwest has far fewer fees than its competitors. Soon, the airline plans to expand its ancillary menu. Southwest executives won’t discuss what they’re planning, but Bloomberg tried to predict what the airline might charge for in the future.
Skift Senior Aviation Business Editor Brian Sumers [email@example.com] curates the Skift Airline Innovation Report. Skift emails the newsletter every Wednesday. Have a story idea? Or a juicy news tip? Want to share a memo? Send him an email or tweet him.