Has Southwest Airlines become the "Frills" Carrier?

I just found this article in the Dallas Morning News and wanted to share it with you. It's a bit long but its a good summary of the battle between the low fare and traditional airlines in their quest to keep fares low while stripping out what used to be basic expected services. Although this article is about Southwest Airlines, the same market conditions are happening in Canada as well.

"Southwest plumps its image as other airlines cut amenities"

08:21 AM CST on Monday, March 5, 2007
By SUZANNE MARTA / The Dallas Morning News

After decades of being known by air travelers for serving peanuts and little else, has Southwest Airlines Co. become the frills carrier?

The Dallas-based discounter hasn't added amenities. But legacy carriers are taking freebies away, cutting costs by eliminating pillows, selling snacks and even experimenting with charging for soft drinks.

Southwest pokes fun at its traditional rivals in national television ads. In one spot, a customer is asked to insert coins to use an overhead bin, open a window shade and even recline his seat. In another, a flight attendant ticks off a list of charges for such basics as visiting the restroom and pushing the call button.

The tongue-in-cheek ads signal Southwest's desire to shed its cattle-call reputation, industry analysts say, as it faces heightened competition across the airline industry, including from rival low-cost carriers.

"A lot of what they're talking about are things people think about Southwest," said Stuart Klaskin, a consultant with KCC Aviation Consulting in Coral Gables, Fla. "Southwest is trying to divert the conversation away from its no-frills reputation."

Southwest hasn't changed its commitment to a low-cost operation, said Kevin Krone, the airline's vice president of marketing, sales and distribution.

Yet the ads demonstrate how the landscape has changed.

"We wanted to get the word out that we're not like other airlines," he said. "We're offering all these things that other airlines aren't."

The industry has changed so much in the last few years that customers are no longer sure what to expect when they fly.

Even as carriers cut back on perks in coach class, they're promoting frills for premium-cabin customers. And some low-cost carriers, including Frontier Airlines Inc. and JetBlue Airways Corp., offer satellite television, an amenity you won't find on traditional carriers, even in first class.

Over the years, Southwest pitched itself as a low-cost airline with no frills but quick and efficient service. Unlike its traditional competitors, Southwest didn't offer meals. Refreshments consisted of a small bag of peanuts and a drink.

But even though its largest rivals have slashed many amenities, "people still really think of Southwest as the ultra no-frills airline," Mr. Klaskin said.

Cheap frills

And frills, even small ones, may be resonating louder with customers than they used to.

"Ultimately, when pricing is equal, those things can sometimes sway a customer from one carrier to another," Mr. Klaskin said.

Competition is intensifying in the airline industry. Restructuring efforts during the last five years by carriers both in and outside of bankruptcy proceedings have turned all major airlines into "low-cost" carriers, dulling Southwest's operational cost edge.

And heightened competition from other low-fare competitors has pushed Southwest to enter hotly contested markets, such as Denver and Philadelphia, where it faces entrenched rivals on their home turf.

"Everyone has to fight for every passenger," Mr. Krone said.

Although Southwest has enjoyed a powerful brand image for low fares, its cattle-call reputation – which is largely connected to its open-seating policy – has been hard to shake when wooing new customers.

The carrier still lacks what many consider to be the chief in-flight amenity – a seat assignment.

Southwest officials have energetically defended the carrier's open-seating policy, saying that some very enthusiastic customers like it better than assigned seats. Even so, the carrier has considered trying different seating and boarding preferences.

Some industry consultants say it's only a matter of time before Southwest must change its service offerings as it competes more directly with other discounters.

Other carriers are pushing perks in their marketing. Fort Worth-based American Airlines Inc., which last month announced a major push for New York customers, has touted investments in its premium cabin seating and its Admirals Club lounges.

Continental, the only major U.S. carrier that still has complimentary in-flight meal service in coach, has emphasized its cabin comforts and frequent-flier perks – a strategy that analysts say has helped the airline keep a more positive reputation among customers.

Southwest's low-cost rivals are also calling attention to their richer in-flight experience, including satellite entertainment.

At the same time, analysts say the unbundling of extras aboard a flight will probably continue as airlines try to eke out more revenue.

"There seems to be this mentality in the industry to really squeeze the customer for every penny," said Tim Sieber, an airline consultant for the Boyd Group in Evergreen, Colo. "This is where Southwest can take the lead in the marketplace without having to put any cash on the barrel."

Mr. Sieber pointed to recent announcements by Miramar, Fla.-based Spirit Airlines Inc. and British Airways PLC that they would charge for checking a second piece of luggage as well as other carriers that charge for food.

"They're charging for things that were previously included in the ticket price," he said.

Mr. Sieber said that as Southwest takes the lead on fare increases, it must make clear to customers that its product matches and in some cases exceeds that of its competitors.


'Perception of value'

"Southwest needs to raise the perception of value that they provide to the customer," Mr. Sieber said.

In general, passengers book airline tickets based on airfare and flight times. But after that, amenities, service and frequent-flier programs come into play.

"I don't think people will pay more for TV or even for free pillows," Mr. Krone said. "Our point is, when you think about the fare, you have to think about all the other things you pay along the way."

Randy Petersen, publisher of Inside Flyer magazine and WebFlyer.com, said many travelers have resigned themselves to the idea of extra fees.

"People relate it to the banking experience," Mr. Petersen said. "Every little thing you want is an extra charge."

That's exactly the assumption Southwest is trying to change – at least when it comes to its own service.

"Other airlines may match our fares, but then you have all those other charges during your journey," Mr. Krone said.

"We want to make sure that our customers and other people out there flying realize that there are choices out there," he said.