Southwest Airlines Will Have An Advantage Over Legacy Carriers Even As They ‘Eliminate Change Fees’

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’.

  1. 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.

  2. 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?

  3. 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.

  4. 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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Pre-pandemic, Southwest fares were always higher than “regular” main cabin fares at all the major airlines, at least in the New York area, so not sure this analysis holds up in that case. With Delta, you get competitive fares, capacity limits in economy, free bags with a credit card, better mileage program and now no change fees, I think that is superior to Southwest…

  2. Southwest is clearly the most successful of the four major US airlines, yet American and United always copy Delta. They never copy Southwest.

  3. @Gary — Great analysis! I agree completely with you.

    Speaking just for myself, I used to be a dedicated Southwest customer, though I never flew enough to make the A-list, let alone get the Companion Pass, and so — living in the SF Bay Area — it was easy to switch over to Virgin America when they started. More business trips meant I began to rack up the miles, earn top-tier status, and even fly to the UK on points in Upper Class on several occasions. With the Alaska takeover, my mileage and (MVP Gold) status meant my mikes accumulated and, with Alaska’s unique set of partners, we’ve been able to fly to Europe, Asia, and across the US on points.

    HOWEVER, with my “semi-retirement,” not to mention Covid, I’m flying a lot less these days, and Southwest is once again increasingly attractive.

  4. One potential drag on Southwest is Early Bird Boarding fees. Pre-Pandemic I would regularly pay for Early Bird Boarding. Now with much lower passenger loads there is no need to pay extra for EBB. Once the loads pick up past a certain point this will change but for now I suspect Southwest’s EB revenue is down significantly. This may balance with the legacies seat selection fees on BE fares so perhaps it is not a significant factor?

  5. @Gary The legacies do have a major change policy advantage over WN, though it isn’t well-publicized. WN has no same-day change policy for “Wanna Get Away” fares. This requires a much larger fare buy-up than the small fee the legacies charge. The fee is even waived for most elites.

  6. Don’t forget market awareness. Everyone knows about southwests policy at this stage. The others have a rep for nickel and diming. Most people’s first thought will be “what’s the catch?”

  7. I Will only fly southwest has always felt like a safe airline with no hidden fees and free bags.Thank you Southwest.

  8. Southwest biggest advantage right now are the low fares from recurring sales (think $39-49 within California) and the empty middle seat policy. The legacy product is inferior so WN should have better loads.
    That said a major factor that was hindering advance purchase of tickets was the onerous $200 cancellation fee. With those fees gone, people will definitely consider advance bookings on the big 3 as the value provided (particularly for elites and card holders) is better than WN.

  9. I think this ignores that the majors are repositioning basic economy.

    Go forward it will look something like this:

    Basic Economy = Spirit, Frontier, Sun Country, Foreign ULCC fare
    Regular Economy = Southwest, other majors Fare

    With this in mind, Southwest does not really have much of advantage.

  10. Like what @Anthony said, out of the San Francisco Bay Area, Southwest is rarely the cheapest, even if you exclude Spirit, unless you’re looking at secondary airports. They come out ahead of you need to check bags and maybe if you want to avoid basic economy, but lose most of the time otherwise.

  11. True. For example,

    SFO-LAX r/t 10/17-10/20:
    — Alaska, $49 (Economy, *not* Basic) to $79 (First Class), each way.
    — Southwest, $49 (Wanna Get Away) to $265 (Business Select), each way (same seats/service).

    SFO-SJD r/t 10/17-10/24:
    — Alaska, $169 + $183 (Economy, not Basic) to $440 + $447 (First) — nonstops.
    — Southwest, $231 + $438 (Wanna Get Away) to $482 + $522 (Business Select) — 1 stop.
    (Departing from OAK is same price, also 1 stop).

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