Southwest’s Move to the Center
December 8, 2008 – 1:05 pmTed Reed over at the Street has a nice piece on Southwest’s evolution from a LCC to a mainstream player. And, he makes many good points, so check it out.
Most importantly, Reed examines on Southwest’s “no fee” strategy:
Despite all the changes, Southwest is today locked into a defiant effort to differentiate itself through a heavily promoted advertising campaign, focused on its “no hidden fees” strategy. This strategy is fraught with risk. The primary one is that while airline passengers seem to enjoy complaining about fees, evidence is scant that they book away from airlines who charge them.
Gary Kelly, Southwest’s CEO, is standing behind the strategy for now but said, “Time will tell if that translates into more money and more customers for Southwest Airlines. And it has to. If it doesn’t, we probably will have to change that.”
Southwest’s primary “no fee” advantage has been around for a long time. It is the ability to change flights and cancel flights without any penalty. You do need to pay the increase in fare but you don’t lose $150 on non-refundable tickets as you do with almost every other airline. Add in the baggage fee and other fees and Southwest is much better of the consumer. Now, there is a huge education barrier. Most of the general public doesn’t follow the industry close enough to change purchasing behavior. And, for business travelers, the frequent flier and business perks still are not enough to compete with traditional programs.
