Thursday, March 26, 2015

OPINION: A reality check for Southwest Airlines

Southwest Airlines’ latest ad campaign caused me to do some digging into how the airline represents itself to the flying public. What I found is an airline that is focusing on glory days that have long passed instead of figuring out how to market what it does - and what it is - today. With that, I would like to expand on my premise and offer the carrier some unsolicited advice.

The airline’s latest ad campaign, which came to my attention via the TV commercials that were all over the first round of the NCAA basketball playoffs, centers on the tag line, “We invented low fares.” Trouble is, history shows Southwest no more invented low fares than Al Gore invented the Internet.

A Southwest Airlines (NYSE:LUV) public relations representative admitted the tag line was a bit of a stretch.

Southwest Airlines 737 landing at Seattle-Tacoma International Airport (SEA)
Southwest 737 landing at Sea-Tac Airport
“When we say we invented low fares we refer to the fact that we launched the Low Fare revolution back in 1971 and have been the nation’s low fare leader ever since,” the rep said in an email responding to my query about how the airline intended to support its questionable assertion.

But the veracity of the rep’s statement is itself questionable. Southwest didn’t start serving “the nation” until 1979. From the time it started flying in 1971 until its first interstate flight on January 25, 1979, the airline’s routes were all within the state of Texas, so it could hardly have been “the nation’s low fare leader” since 1971.

Granted, it introduced a $10 “night fare” between Houston’s Hobby Airport (HOU) and Dallas’ Love Field (DAL) in 1971 and got into what has become known as the “$13 Fare War” with now-defunct Braniff in 1972. But other aviation pioneers were offering low fares well before that.

Sir Freddie Laker founded Laker Airways in 1966, the year before Air Southwest (Southwest Airlines’ original name) was even founded and five years before its first flight. Also in the '60s, Iceland's LoftleĂ°air, a forerunner of IcelandAir, was known as "The Hippie Airline" because its low fares that attracted young people traveling to and from Europe on a budget, including former president Bill Clinton and former secretary of state Hillary Clinton. Its sometime-slogan was "We are the slowest but the lowest," a reference to its rather cavalier approach to speed and punctuality, as well as its low fares.

Southwest’s influence has undeniably put downward pressure on airfares as was pointed out in a 1993 report by the Department of Transportation (DOT), “The Airline Deregulation Evolution Continues: The Southwest Effect.” Southwest’s rep cited the term and eagerly pointed out, “This isn’t our term – the Department of Transportation coined this!”

While it is true that the DOT coined the term, “The Southwest Effect,” Southwest is again stretching things a bit. The report described the boost in air travel and reduction in prices that occurred when Southwest or another airline entered a market where there was little to no competition previously. As anyone who has the most basic understanding of economics knows, that is what competition does: it results in more robust trading and tends to drive prices lower.

Further, a 2013 Massachusetts Institute of Technology analysis of ticket statistics showed that Southwest’s influence on airfares has waned while the influence of newer market entrants has increased. Between 2007 and 2012, Southwest's effect on lowering fares dropped from about $36 to $17 per one-way fare, far less than JetBlue’s (NYSE:JBLU) effect of $32 per one-way fare or the effect of Allegiant Air (NYSE:ALGT) and Spirit Airlines (NYSE:SAVE), which resulted in fares that were $29 lower and $22 lower, respectively.

“The nation’s low fare leader”?

Southwest’s fares between city pairs are often identical to, or within a few dollars of, the competition. Although Southwest could be predicted to claim that its influence forced the competition to lower their fares, a 2013 report by an Oregon State University researcher and the consulting firm Parsons Brinckerhoff for the Transportation Research Board of the National Academies suggests otherwise.

The report, "Is There Still a Southwest Effect?", found that between 2005 and 2010, Southwest raised its prices more in markets affected by mergers of major carriers than in markets where it faced direct competition from low-cost carriers, indicating that Southwest is responding to other market participants just as they are responding to Southwest.

That is not surprising; it’s just good business to ensure that you are neither priced too low nor too high when compared to the competition.

Look to the future, not the past.

When an upstart company enters the market, one of two things will happen: it will either fail or it will succeed and eventually become mainstream. Southwest clearly has not failed; it has survived and thrived.

My unsolicited advice to Southwest is this: Face the fact that you’re not a start-up or an upstart any more and accept your mantle as part of the mainstream U.S. airline industry. Stop trying to relive your glory days and instead focus on what you do today that your customers and potential customers find valuable. That will attract those travelers who want those things, while others who want different things will choose to patronize the competition and embrace what they bring to the tarmac.

Finally, understand that continuing to make unsupported (and indeed, unsupportable) statements like, “We invented low fares,” and that you are “the nation’s low fare leader” will continue to elicit challenges of, “No, you didn’t,” and “No, you aren’t.”

Visit my main page at TheTravelPro.us for more news, reviews, and personal observations on the world of upmarket travel.



Photo by Carl Dombek
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