Of course, the hijinks and the attitude were also an effective smoke screen for the inconveniences customers had to endure to get those fares: no reserved seats, sometimes out-of-the-way airports, cramped quarters.
The airline also did a very effective jobs of managing intangibles that gave it a distinct, if unheralded advantage: it hedged its exposure to the energy market which allowed it to keep fuel costs in check at a time of rising prices; it only flew one kind of airplane which reduced maintenance and training expenses; and it initially flew only to and from southern US markets with better than average weather which limited delays.
But then a funny thing happened: all those tactical initiatives added up to a strategic advantage. From the industry upstart, the unruly adolescent, Southwest evolved to become The Man. It is rarely, if ever, the low cost alternative on most of its routes and industry consolidation has reduced the need for that old competitive edge. The downward pressure that Southwest's entrepreneurial efforts effected are no longer present. But rather than mourn their passing, it will be more interesting to see who or what emerges to create the next disruption. JL
Bill McGee reports in USA Today:
Implicit in the Southwest marketing paradigm has always been the acknowledgement that no-frills service — a lack of meals, inflight entertainment, airport lounges, even assigned seats — is offset by airfare savings. It seems consumers will need to revisit this.
There were times in the recent past when industry analysts and journalists automatically added the words "America's low-fare leader" after the Southwest Airlines' name. Now it's safe to say those days are over -- perhaps permanently.
Recently there has been coast-to-coast grumbling that Southwest's pricing isn't as low as it once was. So we conducted an apples-to-apples fare comparison on a variety of domestic routes, and what we found was rather shocking.
The vaunted "Southwest effect" no longer seems to be valid.
In 1993 the U.S. Department of Transportation studied how the entry of a low-cost carrier into a market can lower overall fares and spur demand for air travel, dubbing this the "Southwest effect." But for years now, aviation analysts have questioned if the airline that enplaned 115 million passengers in 2013 is still the low-fare leader.
In August 2013 the Massachusetts Institute of Technology issued a lengthy analysis of this issue that stated: "Recent work has suggested that the Southwest effect has started to weaken, and no longer provides the same degree of downward pressure on fares in city-pair markets in which mergers of other carriers have occurred." That study prompted USA TODAY reporter Charisse Jones to suggest that the phenomenon should now be called the "JetBlue effect" instead.
In 2011 I interviewed Southwest CEO Gary Kelly and quoted the many analysts who asserted his carrier was not as low fare as it once was; he didn't deny it and acknowledged, "Our cost advantage has narrowed."
The reasons include the end of Southwest's fuel hedging strategy, an increasingly complex merger with AirTran and the rapid consolidation of the domestic airline industry. This seems to be yet another reason why the spate of recent mergers has harmed consumers.
Analysis is one thing but empirical evidence is another, and the DOT's quarterly Domestic Airline Consumer Airfare Report is a good source.
Southwest legend holds the airline was launched on a cocktail napkin with a three-city route map that focused on Dallas-Houston and Dallas-San Antonio. So here's how the most recent average one-way fares for those two routes — reflecting the third quarter of 2013 — stack up against five years ago:
Dallas-Houston/Southwest average fare:
3Q 2008: $123
3Q 2013: $170
Dallas-San Antonio/Southwest average fare:
3Q 2008: $118
3Q 2013: $159
Now before critics start yelling "fuel prices!" and "inflation!" let's compare these fares in an apples-to-apples fashion. The average domestic fare for the exact same periods rose from $362 in 2008 to $390 in 2013, so the percentage of increase on both these routes on Southwest is more than four times higher:
Fare increase:
Domestic average: +8%
Dallas-Houston/Southwest: +38%
Dallas-San Antonio/Southwest: +35%
Putting it to the test
We decided to compare Southwest's fares ourselves, so we examined the Dallas-Houston route and seven others and searched for the lowest prices on 10 identical itineraries in real time. We included a mix of both leisure and business trips and our sample included city-pairs dominated by both low-cost and legacy carriers. The results were quite surprising.
As the chart below shows, Southwest was not the sole provider of the lowest fare on any of these 10 routes. Instead it shared the lowest fare 40% of the time, and was beaten 60% of the time. Overall, Southwest's fares ranged from 17% to 145% higher than its competitors.
Southwest's performance was not helped by varying the length of the booking windows. On the short-notice bookings of just one to three days in advance — traditionally bread-and-butter opportunities for the airline synonymous with discretionary travel — we repeatedly found Southwest's lowest "Wanna Get Away" fares were completely sold out and unavailable. In fact, we even saw this as far as seven days prior to departure.
What's staggering is that Southwest was beat in so many ways. In the East, West, North, and South. On short-haul routes and long-haul routes. Against low-fare carriers and against legacy network carriers.
We found that Southwest's fares were regularly beaten — often by a wide margin — by low-cost carriers such as Frontier, JetBlue and Spirit. But we didn't expect to see Southwest routinely matched or even bested by the likes of American, Delta, United and US Airways. Implicit in the Southwest marketing paradigm for decades has always been the acknowledgement that no-frills service — a lack of meals, inflight entertainment, airport lounges, even assigned seats — is offset by airfare savings. It seems consumers will need to revisit this.
Some key facts
The art of finding the lowest airfare is complex. So it's important to consider the following:
• Southwest remains the only U.S. airline that doesn't charge for the first two checked bags (JetBlue doesn't charge for the first checked bag). In fact, rival carriers impose fees for many services Southwest allows for free, including change fees. So this must be considered when comparing bottom-line prices, since baggage fees alone can make the difference on many routes.
• Southwest has always resisted participating in major travel distribution networks, including the leading online travel agency sites; the carrier is all about driving customers to its own website. The airline states on its site: "Our legendary low fares can only be found at southwest.com. You'll never find Southwest flights for sale on other travel sites. This allows us to keep our fares as low as possible by cutting out online travel agency fees." There was a time when visiting Southwest's branded site was a must when searching for the lowest price; now that seems to be in flux.
• Southwest routinely offers deep discounts via targeted or nationwide sales; one such sale expired just prior to our testing. Booking during these periods can yield real savings, so it can pay to check on their availability.
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