Southwest Airlines announced the biggest change in its 57-year history, but now that it’s changed this last bastion of its heritage, it’s going to have to keep changing its model. Southwest Airlines is dead.
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Southwest begins charging and assigning seats
This week, Southwest Airlines changed one of its calling cards since its founding: It will begin assigning seats in January 2025. The airline has begun to show signs of changing its longstanding open-seating policy. By allowing open seating, where passengers simply board in numbered order and sit wherever they want, and by including checked bags in the fare, Southwest was able to turn planes around more quickly because passengers spent less time searching for space in overhead bins.
The expedited boarding process allowed Southwest Airlines to dramatically reduce turnaround times and get planes back on board faster. Planes only make money when they fly, so the strategy allowed the world’s leading low-cost airline to fly more flights with the same aircraft, staff and gates.
As ancillary revenue has become the norm in the U.S. domestic market, Southwest Airlines has begun offering early check-in perks to get to the front of the line. A-List and A-List Preferred Elite passengers get preferential boarding options. In recent months, boarding seats A1-15 have been priced as high as $150, far more than what competing carriers charge for seats with more legroom, such as exit rows.
The carrier will begin assigning seats and building a revenue model for preferred seats in the new year.
What it was, what it is
Southwest Airlines began as a quirky Texas airline that competed not with other airlines but with driving. It operated between the state’s key markets of Dallas, Houston and San Antonio. Once known for its flight attendants wearing hot pants and handing out bottles of liquor to lure business travelers onto their planes, the 1990s changed the airline significantly.
As it expanded into more distant markets, the Southwest Effect lowered prices for all carriers by an average of nearly 25 percent and increased nonstop routes from airports that typically offered only connecting flights. It was also cheap. Sales often discounted short-haul flights to $29, $39, and $49 each way. Its irreverent approach kept employees happy and loyal, and customers were equally devoted.
But that time is over. Southwest Airlines, once the cheapest airline, is often more expensive than legacy airlines that have abandoned Southwest Airlines to compete with ultra-low-cost carriers and introduced Basic Economy fares to compete with them. Instead of flying to alternative airports instead of huge hubs, the airline has adopted Houston Bush Intercontinental, Chicago O’Hare, Washington Reagan National and Miami.
In recent years, its once-satisfied unions have pressed the carrier for new contracts. A few years ago, it added Hawaii, several international destinations in the Caribbean and acquired Air Trans Airways, a low-cost carrier based in Atlanta.
The all-Boeing 737 fleet, which kept costs low by using common seating, was even debated, with the company saying it would consider Airbus products given Boeing’s production delays on new 737-MAX planes.
It’s no longer the quirky airline it once was; it’s now a behemoth.
Why Southwest Will Need to Continue Transforming Itself into a Legacy Carrier
Southwest Airlines is the largest domestic carrier in the United States, which also makes it one of the largest (and most valuable in the world). But five years ago, the airline began running out of places to expand. It landed at any airport in the United States that could accommodate at least its smallest plane, a 737-700 with a capacity of about 125 passengers. It added Hawaii, perhaps reluctantly after avoiding it for 50 years. While Canada is still off the route map, there are few places to expand geographically.
The carrier then began expanding its revenue streams, charging more and more for ancillary products. Getting an early boarding pass became so important that most passengers added it to their checkout process, leaving some customers behind in the first half of the boarding process despite having paid to board as early as possible. As previously reported, even early boarding has seen its prices rise well above what some Southwest Airlines round-trip flights used to cost.
But that’s not enough either.
To remain competitive, Southwest Airlines will have to find new ways to grow. It can’t do it through airfares; it’s already way ahead of the competition. It can’t grow geographically without changing its fleet. The ancillary revenues of its old model have reached their limits, both in terms of price and cost. Now it’s time to take what made the difference and integrate it with the rest of the market.
Without a first-class section, Southwest Airlines has only two growth areas to exploit: food and checked baggage. In every other respect, the airline has become a traditional airline, and worse, it’s expensive.
The Death of Southwest Airlines
THE heart The soul of Southwest Airlines is disappearing. It took until the last decade for it to truly transform from a point-to-point LCC to a giant network carrier. As another differentiator disappears, so does the uniqueness of Southwest Airlines that was its advantage. Other carriers in the U.S. have homogenous fleets (e.g., Spirit, Alaska, JetBlue). Other carriers have proven themselves by offering nonstop options from smaller airports.
Some travelers have preferred to bypass Chicago’s O’Hare Airport, which spans five huge terminals, for a quick connection at a renovated Chicago Midway. But the airline has had to compete with domestic carriers for business traffic.
With each change, Southwest Airlines became just another airline. Seat assignment and, soon, charging for those seats was a major shift in the airline’s model, making it nearly indistinguishable from the rest.
The airline has been incredibly profitable for decades, it won’t go bankrupt. But it has been able to charge higher prices while other carriers have lowered theirs because of these inclusions. Passengers are annoyed by low prices, but love low fares. These unique differences were reasons to choose Southwest, respecting their customer was reason enough. But with the latest cash grab, the last piece of its soul has been erased, and make no mistake, this was the main reason travelers chose Southwest.
When all carriers are the same (yes, bags still fly free on Southwest Airlines, but that won’t be the case forever), there are only two ways to compete: schedules and prices.
Conclusion
Southwest Airlines spent decades building its moat, isolating itself from the competition, and differentiating itself. That’s no longer the case, and while it doesn’t want to go bankrupt, the Southwest Airlines that sparked the low-cost fix no longer exists. When consumers realize they’re getting the same experience as on the larger airlines but could do so at a lower cost by flying them instead of Southwest, the company will face its biggest challenge yet.
What do you think?
