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Messing with success

Southwest Airlines could be risking its winning, no-frills formula by letting high-paying fliers board first.

November 19, 2007

Once it seemed that every airline wanted to be just like Southwest Airlines. Now it's Southwest that wants to be more like all the rest.

Southwest became a major airline on the wings of a daring business model. In 1971, air travel was a luxury business, but Southwest's founders went bargain basement. They cut overhead by flying only one model of plane, operating out of cheaper, second-tier airports and minimizing the time their planes spent languishing in airports (by doing away with logistical headaches such as assigned seating and complicated meal service).

Then they set about running their no-frills business well, focusing on keeping promises to customers and employees, who repaid the company with steadfast loyalty. So what if flying on Southwest meant having to stand in boarding lines for an hour to avoid a middle seat? At least you knew what to expect: dependable, basic service. In the notoriously flighty airline industry, there's value in consistency. Not to mention a certain camaraderie in the herd thing.

The formula has delivered for the company. Over the last 36 years, as most major American carriers have entered or come close to bankruptcy (American, United, Delta, Northwest), Southwest has maintained profitability. Its executives have been lionized in the media and on Wall Street. This year, it's on track to surpass American Airlines as the world's largest airline. One has to ask why, at this moment, it is changing its strategy.

Here's the problem Southwest faces: With fuel costs rising steeply and so many other carriers (such as JetBlue and AirTran) emulating its low-cost model, Southwest can no longer streamline its way to competitive advantage. To stay on top, it needs more revenue. So it's setting its sights on business travelers, who typically pay more for a ticket but who also demand flights from mainstream airports, easier boarding and more generous loyalty programs. The airline is expanding service to major airports, offering more benefits to frequent fliers and doing away with the cattle calls at airport gates. It's also now selling "business select" fares, which will allow fliers to pay more to board early.

Southwest is essentially betting that road warriors will be willing to pay for what they used to get for free. Company brass believe the new strategy will deliver $100 million each year. They insist it won't alienate meat-and-potatoes passengers. They've usually been right in the past, and they may be right this time too. But they're also muddying a strategy whose very clarity -- keep it simple, and execute it well -- has been the source of its success. Will offering a little more convenience boarding a Thanksgiving flight be worth all that?

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