Couldn’t Agree More

When the story first came out about the full-service airlines planning to charge for checked baggage – and more for each additional bag – I remember commenting that this was playing directly into the hands of Southwest Airlines, and any other discount carrier who decided to enact a similar “free luggage” policy. Even assuming that the profits made on the bag fees would cover the cost of passengers who were sufficiently irritated by the policy to change airlines – which I think we have reason to doubt – this still would not change the fact that many customers would jump ship to Southwest, increasing that airline’s profitability and cash position, and giving them a bigger club with which to beat on their full-service rivals. I didn’t make a big deal out of it at the time – it’s elementary business development theory and nothing that any first-year business school student couldn’t tell you without pausing to think. But now it seems like the President of Southwest agrees with me…

A few weeks back, the President of Southwest Airlines, Gary Kelly, was interviewed on CNBC regarding the new, increased baggage fees being charged by some of the major airlines. Kelly was pleased, to say the least, commenting that he hoped the competition would start charging $100 per bag, and more for the second one, and quipping that Southwest would be grateful for any customers the full-service airlines wanted to send him – implying that there would be quite a few of them. It’s a rather unkind remark, especially when you consider that Southwest recorded a profit of $116 million last year, during a period when most of their competition was in the red (and some of it was begging for Federal bail-out money). My question is: how come nobody else thought of an idea this simple?

Granted that Southwest has been one of the more profitable carriers for a while now, and therefore was in the best position to avoid following the industry trend toward new fees, it still seems amazing that no other company was able to figure out that baggage fees would end up being wildly unpopular, or to work out that taking the position of being the “only” airline not to charge them would be good for business. Certainly, there was no great difficulty in predicting that these new fee programs would spread industry-wide; even bloggers without any industry connections were able to work that out. Nor was it any great leap that these charges would generate widespread outrage; consumer advocates were practically foaming at the mouth as soon as these charges appeared. The only logical answer is that all of the companies in question believed that the bonanza of revenue to be gained with new fees would make up for the loss in business – which remains to be seen…

It’s bad science to claim that Southwest’s excellent year lies entirely in their refusal to charge baggage fees; there might well have been other factors involved. However, when you consider the implications of that refusal, a different picture emerges. If we consider that Southwest was moved to make this decision based on a superior understanding of what their key customer base actually wants – and of what actions might draw customers away from the competition – then this move is more than just an opportunistic move away from their industry’s mainstream, but rather the natural result of superior strategy and forward planning. It should be interesting to see what happens going forward; if the full-service carriers continue to annoy their customers to little financial benefit; if Southwest continues to give people service they want at prices that appeal to them; if the American public (or at least that part of it that travels by airplane) continues to vote with their feet…