The popular narrative seems to be that United, Delta, and American ‘eliminating change fees’ hurts Southwest Airlines. Southwest hasn’t had change fees, and this takes away one of Southwest’s advantages. Typical is former Spirit Airlines CEO Ben Baldanza who writes “Southwest Airlines Loses Another Competitive Advantage.”
There are four reasons why Southwest will have a continuing and growing advantage over United, Delta, and American – even as those airlines drop change fees on ‘most fares’.
- Legacy airline lowest fares aren’t changeable at all. Southwest doesn’t charge change fees on any fares, while the lowest fares at United, American and Delta are Basic Economy fares that can’t be changed at all, at any price. The legacy airlines have gotten coverage for the decision to eliminate change fees on ‘most’ domestic fares, but this doesn’t apply to the lowest fares – and you can change those free at Southwest.
There’s simply confusion and misunderstanding over what has changed at Southwest’s competitors. They won’t charge change fees on their higher fares, widening the gap in benefits between the lowest fares and higher fares. Price conscious consumers get a much better deal at Southwest and that isn’t changing.
- Southwest still has a better coach product, with free checked bags and an inch of additional legroom compared to the legacies.
Baldanza argues free checked bags aren’t an advantage for customers who don’t check bags, they’re a disadvantage because those customers are subsidizing those who check bags. That’s not true.
The marginal cost of checking a bag is virtually zero once the airline has the option to check bags – there’s no subsidy involved. And that’s something all the airlines offer. As long as Southwest’s fares aren’t higher than those of airlines that charge for a first checked bag, where’s the subsidy?
- Southwest is going to have a bigger cost advantage against American and United going forwrd. Baldanza says that “for narrow body service within the U.S., Southwest’s cost advantage to the big three U.S. airlines has largely gone away.”
In fact Southwest’s cost advantage will be increasing because it’s been successful in getting senior employees to leave through buy outs, not furloughing anyone, while American is furloughing over 19,000 of its junior employees and United over 16,000.
Both American and United are going to have higher labor costs on each trip than before, with each flight at the top of the seniority pay scale. Southwest’s labor costs will shift towards lower average seniority, so their trip cost will be lower.
- The fare environment favors Southwest. By bundling changes with non-basic economy fares, United, American and Delta need their fares to be higher. They’re giving up $600 million in fees, that only works if average fares go up, not down.
With airlines operating only about half their normal flights, and fleets still grounded and waiting to come back online, we’re likely to see more airline capacity than passengers for awhile. Seats to fill will mean low fares, not the higher fares needed, and Southwest is better-positioned to compete with a better low fare product and lower costs.
The legacy airlines are going to have higher costs, and are going to need higher fares, while Southwest’s basic fare structure still offers better value – no change fees even at the lowest fares, and no checked bag fees.
Other airlines still have their advantages over Southwest, from premium cabins to lounges, but those are the same as before. What’s different in the new environment is a growing advantage for Southwest, not a net loss to the carrier compared to the legacies.