The three largest U.S. airlines pursue a curious strategy. “Basic economy” endeavors to earn more money by offering a worse product. In most businesses the goal is to offer a better product at a lower price. Not so in the U.S. airline industry, which is protected by competition by locking up gates at congested airports, through foreign ownership restrictions, and because of the high regulatory hurdles involved in starting a new carrier.
The hope of basic economy is that the product will seem so bad that many customers won’t buy it, spending more money to avoid the fare’s restrictions that typically include boarding last (forced to gate check your carry on bag), no ability to pay for seat assignments at booking, no upgrades, and reduced mileage-earning. United takes this several steps further, banning full-sized carry on bags outright and refusing to allow basic economy passengers without checked bags to check in online, forcing long waits in line at the airport check-in desk.
- Initially the idea was to offer basic economy fares, giving customers less when fares are matching what Spirit and Frontier offer
- Then they realized that business travelers would avoid the fares, and basic economy was a useful way to segregate business and leisure travelers (given the demise of advance purchase and Saturday stay restrictions on the lowest fares)
Even JetBlue and to some extent Alaska have picked up on the strategy. There’s a herd mentality in the airline industry in part enforced by Wall Street. An airline claims a strategy is successful, and investors pressure competitors not to leave money on the table.
Southwest though has a long history of profits and margins that have eluded much of the industry, and they haven’t gone down the same fees and restrictions rabbit hole. They are the largest domestic airline in the country. They do not have change fees or checked bag fees (for up to 2 bags per passenger). They don’t have seat fees, without assigned seats, but they do charge to be at the front of the boarding queue which means earlier dibs at seat selection.
While I didn’t expect a shift in Southwest’s model any time soon last month it was revealed that Southwest was surveying names for a new fare type which could have been Basic Economy.
Now Southwest’s CEO has made it unequivocably clear in an address to employees that they will not adopt a basic economy fare.
In a weekly address Kelly provides to employees updating them on the carrier’s news, the CEO said: “I’m on the record many times saying that Southwest—at least as long as I’m around—will never do basic economy, so I’m on the record with that.”
…Kelly said that basic economy “is a fare category that our competitors use to try to compete with us, and it’s just not a very good product.”
…“You know, the one thing that the article got right was the last line, and I’ll just quote it to you, ‘The passion of loyalty of Southwest Customers makes the very idea of a Southwest basic economy so difficult to conceive,’ ” he said. “And I couldn’t agree more.”
This is good to know – especially because there was nothing mealy mouthed about it the way executives usually speak (‘nothing to announce at this time’). And yet when fellow Dallas-based airline CEO Doug Parker talks about Gary Kelly’s Southwest he says “go fly the cattle car.”