Combating the recent announcements from major airlines regarding the elimination of most change fees, Southwest Airlines’ CEO, Gary Kelly, released a video message explaining why those changes won’t benefit other airlines. Citing Southwest’s competitive structure and advantages, the airline executive believes his airline still has the advantage.
Southwest’s CEO believes eliminating change fees will be more problematic for major airlines
Gary Kelly released a video message on Friday, highlighting why he believes other airlines will not benefit from the elimination of change fees. Here’s what he said:
“Remember, they began charging fees in the first place because they couldn’t match our low fares. To try to get closer, they reduced their published fares, knowing they could get money from hidden fees. It was a gimmick. Now that advantage is being taken away, now they’re going to have to match our fares, and our cost structure is lower, our fares are lower. It will be difficult for them to replace this change fee revenue while still trying to match Southwest fares and make a profit.”
He went further to state that airlines would be letting go of billions of dollars in revenue, without ensuring that airlines will get increased revenue from bookings.
Is he right?
Every airline CEO will, undoubtedly, support their own business and highlight the strengths of the carrier. However, Gary Kelly does have a point – to an extent. For one, the airline does operate on a low-cost structure. Southwest only uses one type of aircraft, the iconic Boeing 737, and outfits all of its planes in an all-economy configuration. Passengers can also pay for add-on features like early check-in to get priority boarding.
As for full-service competitors, all of those carriers that have no eliminated change fees have been charging no change fees since the start of the crisis for a selection of new bookings and existing ones. So, carriers have already waved hundreds of dollars in change fees for each passenger thus far and would have continued to through the foreseeable future on passengers traveling in the domestic US and, depending on the airline, some short-haul international service.
However, the big three US carriers are still charging change fees on international long-haul services. Some are also still charging change fees for short-haul international services, as well. So, where the carriers are losing out some domestic fees, the airlines will be able to get some change fees from international bookings – which will likely remain more in a state of flux through the next few years than domestic bookings. However, Mr. Kelly is right that airlines have no guarantee that they will make up the lost revenue from change fees in new bookings. Mr. Kelly himself has stated the airline needs business to double to at least break even this year, a prospect which seems highly unlikely.
There’s another variable here: baggage fees. Time and time again, these fees have proven to be a lucrative windfall for airlines, turning billions of dollars of profit for airlines.
Southwest still has a competitive advantage
Every airline still maintains a competitive advantage in the air market. Southwest continues to offer free bags, a mix of point-to-point and connecting itineraries that shortens the travel experience, and low fares for customers (though not always the lowest, depending on the route and itinerary).
The larger US airlines remain competitive due to their long-haul international networks and partnerships, which Southwest does not offer. Moreover, for business travelers, there are also better options for transcontinental flying since Southwest has no premium cabin.
Do you think Gary Kelly is right? Let us know in the comments!