A business never tells customers it made service worse because it believes that price trumps everything else. Instead, they try to sell you the idea that the things they dropped somehow constitute an improvement.
That’s something not many businesses can do because they have too much competition. Airlines, however, have limited competition, and Southwest Airlines has made a tough business decision to drive revenue: dropping everything that made it special, while acting like it’s giving something to consumers.
The airline literally runs commercials that show people celebrating the new assigned seating policy, without mentioning that, instead of a first-come, first-served policy, passengers will now pay for seating assignments.
Over the past few months, Southwest has dropped everything that made it different in order to drive the bottom line.
- Bags no longer fly free, and checked luggage now comes with a fee.
- As of Jan. 27, the airline will charge for seat assignments and end its open seating policy.
- Its new Basic fare tier offers the lowest price but with more restrictions (fewer perks, non-refundable, and limited change options).
- Flight credits now expire (usually six months for Basic fares, and up to a year for others). Source: Southwest Airlines
Southwest Airlines has become price-driven
Southwest Airlines’ changes are not about being flexible or giving customers more choices. Those are sidelines to its overall goal of charging more.
It’s the same model Delta Air Lines, United Airlines, and pretty much every full-cost airline uses when selling “Basic” or “Economy” fares. They list a low ticket price that does not include checked bags, carry-on bags (in some cases), and seat assignments.
For someone traveling without luggage who does not mind boarding last and sitting in a middle seat, that’s the price, but most people will end up paying more.
For my upcoming Las Vegas trip, for example, my basic fare was under $275, but my final trip came to just over $400 because I added aisle seats.
Southwest pushes the bottom line
While the old Southwest was certainly a for-profit business, it tried to drive business by being better than other airlines. In ads, it touted its lack of checked-bag fees and its overall no-added-fees policy, using the term “transfarency.”
The airline bragged about the simplicity of its pricing in its 2015 annual report.
“Southwest offers a relatively simple fare structure that features competitive, unrestricted, unlimited, everyday coach fares, as well as lower fares available on arestricted basis…All fare products include the privilege of two free checked bags (weight and size limits apply),” the airline shared in the SEC filing.
The airline’s free-checked-bag policy was a key part of the airline’s identity, with the company trademarking its “Bags fly free” slogan.
Southwest has become everything it used to mock, but those changes have driven revenue.
“We’re encouraged by the sustained outperformance of bag fee revenue and the momentum across other key revenue and cost initiatives,” CEO Robert Jordan said during its third-quarter earnings call. “…Looking to fourth quarter, we expect to deliver an all-time quarterly record revenue performance.”
Most bags no longer fly free on Southwest Airlines.
Southwest is now just another airline
“Southwest’s elimination of open seating signals a larger industry shift away from accessible air travel. Once the industry’s leader in simplicity and fairness, Southwest is now following the same playbook as everyone else — eliminating free perks and monetizing basic conveniences,” according to Audrey Kohout, co-CEO of Luggage Forward and LugLess.
That continues a troubling trend.
“For the average traveler, flying continues to get both more expensive and more complicated. We’re seeing the emergence of two polarizing tiers: premium airlines focused on their business class and budget airlines charging passengers at every turn — while the middle ground of affordable, straightforward travel disappears,” he added.
Airline fees are a significant source of revenue, according to a report from the U.S. Senate.
“In 2023, the top ten global airlines that charge ancillary fees, including five U.S. airlines — American, Delta, United, Spirit, and Southwest — collected a combined $54.1 billion in ancillary revenue,” according to “The Rise of Junk Fees in American Travel” by Sen. Richard Blumenthal (D-Conn.).
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Why Southwest Airlines may no longer be a good investment
Southwest used to put passengers first, and that drove profits for decades while creating loyal customers. Now, the airline is betting that the collapse of low-cost carrier Spirit Airlines and the struggles of its rival Frontier Airlines will leave customers with fewer cheaper choices, forcing them to fly Southwest.
I used to be a loyal Southwest customer who once took a roundtrip same-day flight (without ever leaving the airport) to maintain my loyalty status. Most recently, I booked Southwest for my upcoming Las Vegas trip because it was the only itinerary that worked for me on a short trip.
In the long run, this strategy may make Southwest more profitable and a better investment, but it strips away the airline’s moat and kills its connection with customers.
When another low-cost carrier launches or another business model emerges, Southwest Airlines no longer has the same armor protecting it and tying it to its customer base. That competition is inevitable, which makes these gains vulnerable and leaves the airline’s long-term future very much in doubt.
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