Southwest Airlines doesn’t charge for checked bags, doesn’t charge change fees, doesn’t charge for carry on bags either.
It also carries more domestic passengers than any other airline. Its stock has the highest price-earnings multiple of US airlines.
While the past two months have been rough for airline stocks broadly, as Southwest’s major airline competitors actively make the travel experience worse with less legrooms and more restrictive fares, Southwest’s stock is also the only one that’s up year to date.
United says their new restrictive Basic Economy fares are costing them business. They think the bleeding will stop though since they can count on American to play the greater fool and stop offering more value on competing routes once they too roll out Basic Economy fares across their route network this month.
Southwest along with Alaska and JetBlue continue to offer greater value to customers at the same price as United and American. United and American have internalized that the key to success is copying their competitors and avoiding providing customers with more value at all costs.
While conventional wisdom is that the markets are pushing United and American in this direction, the markets are relatively rewarding Southwest for its business model and punishing American and United for theirs.
United hadn’t planned to offer such a restrictive Basic Economy product, by the way, when new President Scott Kirby delayed its launch to make it more like the draconian American Airlines product he had planned when he was President of that airline. He’s re-banking United’s hubs like he did at American too. And he plans to add more seats to United’s aircraft the way he did at American.
In some sense the market is judging the long-term value of Southwest Airlines versus Scott Kirby. At a minimum the facts on the ground ought to challenge the wisdom that an airline can enhance its value by trying to charge customers more while providing them with less.