One interesting phenomenon of low cost giant Southwest has been its ability to trumpet low fares when in reality it has one of the highest revenue passenger miles of any airline in the US.
So, with its pending takeover of AirTran, we should examine the issues of the model and then ask the fundamental question. What is Southwest? And what of the rest?
At last week’s World Low Cost Airlines Congress, there was a lot of talk around the business model and the maturity.
There is clear divergence of the various players. On the one hand you have the purists. Clearly now there are fewer and fewer of these. Spirit, Ryanair and Tiger would seem to exemplify this model.
At the other end of the scale there are a lot of airlines who vie for the LCC mantle while in fact operating a high cost model.
Much debate during the conference centered around the different implementations. This has to do with the circumstances of the individual markets.
For example, in the Middle East and elsewhere in the region, where there are no secondary airports, this part of the model is ignored.
This leads to direct head-to-head competition between LCCs and legacy network carriers.
While price is the premier criteria, it is not the only one. Being able to offer low cost but high value seems to be a common refrain.
The value of simplification, however, cannot be underestimated. Here the bundled fare families approach appears to carry a lot of favour.
Southwest trumpets the fact that it doesn’t charge for its bags and claims to eschew ancillary revenues. However a closer look at their model shows that they have actually been quite clever in several areas.
Domestic yields are higher than international yields. So that means that Southwest proportionately has an advantage there.
It also introduced a significant bundle of services. It originally launched two levels of business bundled fares, but now has reverted back to a simpler model of three separate fare families as illustrated below.
The new fare family concept, which has evolved over time, gives it greater flexibility to price in different ways. Further Southwest does actually offer an advance boarding ancillary fee.
Frontier, whose tech supplier Datalex won at the award for Technology Foresight Award at this year’s Budgies, has a better defined option by allowing them to differentiate by product attribute rather than by pure opportunistic pricing as WN does.
The award is interesting for a number of reasons. It is probably about a year late since the technology has been in the market for at least 12 months.
But the solution of presenting fare families to the end user is well deserved.
Frontier’s website has had some interesting challenges this year as Frontier’s new parent Republic Airlines gobbled up several carriers including Midwest and Go in Hawaii.
This represented a tough call for the team to integrate some rather interesting flight routings and codeshare issues.
But the website engine has stayed true to its mission of simplifying it for the customer.
However we can be pretty sure that any semblance of veneer that Southwest is a low PRICE carrier should be put to bed.
What Southwest does, and does exceptionally well, is to be a well-oiled efficiency machine. Better than just about any airline.
It is no longer low cost, as its costs are some of the highest in the business, but it makes far better use of its resources than traditional airlines.
Yes, Southwest offers low fares, just don’t expect them to be always the lowest and always available.
So does this mean that technology has enabled the airlines to obfuscate their pricing? Yes it does.
But the new ways to present products have advanced significantly in recent years allowing the differentiation in product at the airline side to get much better and more in tune with the customers.
Where this continues to fall apart is that this functionality has not made its way out to the traditional intermediary channels powered by the legacy GDSs.
That issue is not going away despite the GDSs determined stance to get a cookie cutter lowest common denominator approach forced on the users and the suppliers.
This is not sustainable. Fortunately we are seeing some innovation occur – such as products like Amadeus’s Affinity Shopper.
But these are slow to get to market. Google’s shadow now hangs long over distribution. And innovation is likely to be forced from without rather than controlled from within.