Southwest’s Chief Marketing Officer Responds to My Thoughts on Transfarency

After I wrote my thoughts about Southwest’s new Transfarency campaign, I received a note from Beth Harbin, Southwest’s Senior Director of Communications. Since I hadn’t been at media day to hear the presentation, she wanted to connect me with Chief Marketing Officer Kevin Krone so he could better explain where Southwest was coming from. I was more than happy to have that conversation.

Below I’ve included an edited transcript of our conversation along with a couple of notes I added after the fact. This doesn’t really change my view of the situation, but let’s see if it changes yours. I really do appreciate Southwest’s eagerness to discuss this, but I must apologize to you all for the long post (again).

Take it away, Kevin.

Planeline

Kevin Krone, Chief Marketing Officer, Southwest Airlines: I guess I would sum up your thoughts and then maybe add some perspective I’d share on it. There’s an economic principles discussion, which is where I think you’re coming from, and then there’s a customer demand/behavior piece, and then there are just some Southwest facts that are pertinent to the conversation. I’ll start with the facts and work backwards.

One of [the facts], a former employee had posted a reply about the length of haul increase. That obviously is a big driver in the increase in fares. Other things have led to it too, but it’s a much different world for us when we’re flying transcon offering fares in those kinds of markets versus short haul. So that length of haul increase, from 2000 it’s gone up, I don’t know, about 50% so it is substantial and that will just by gravity put upward pressure on fares.

Along with that, we’ve evolved the frequent flier program, which didn’t reward someone for taking a long haul trip on Southwest. We fixed that 4 years ago. Now the impact of that is more long haul, business travelers which tend to book later at higher fares. Those kind of things are going on structurally that are innocently raising the average fare.

[Cranky Note: Southwest’s length of haul (distance each passenger travels) did increase 47.5 percent between 2000 and 2014, but I can’t easily compare to other airlines since we’re only looking at domestic here.]

[UPDATE: A helpful reader pulled the data and sent it to me from the DOT O&D Survey via mi.diio.net. Including AirTran, Southwest was up 43.9 percent from 2000 to 2014. During the same period United/Continental was up 12.9 percent, American/TWA/America West/US Airways was up 6.1 percent, and Delta/Northwest was up 5.4 percent.]

Cranky: But your sales fares have gone up too. I mean back in 2000, it wasn’t long before that where $29 fares were more commonplace on sale.

Kevin: I remember more $39s and $49s, but I’d have to go back to see exactly. But I’ve been here 23 years and I have those same memories as well. That was some of the genesis for the research we did this spring. Have customers given us grief and adapted to the higher price point? When you ask those folks, they all give us credit for having low fares, much more than the industry. What that tells me is heck, who doesn’t want those low fares? But people realize the world is different. That was encouraging news to us that our low fare perception has been alive and well.

Cranky: Sure, and that’s always been a strength. That’s why I look at Transfarency as a way to reinforce that perception and get people to continue to view Southwest as having low fares. Whether it is actually low or not, I don’t think that’s the point. Of course you want to say you have low fares, but you really want people to have that perception.

Kevin: We want people to know that we have low fares and we give you things other guys charge you for. You get a low fare and you don’t have to pay the add-on fees that the other guys are charging you. And people get tricked. I’m not saying that every day, every seat we are the lowest fare. We can’t do that. But I’m very proud of our low fares. And the research we do, we check ourselves, when we go out and do thousands of fare shops, we compare our fare to competitor fares, 60% of the time or more, we are the lowest fare [excluding any ancillary fees]. Which I think is absolutely stunning.

[Cranky Note: Kevin explained that their fare shops look at alternatives in a narrow time frame, so those most price-sensitive people might find lower fares at another time, but that’s outside the bounds of their search.]

[Transfarency] is really a message to all customers out there that just says there’s a better way to do it. We’re winning 60 percent of the time or more, which I think is a pretty good record since we’re one guy versus 7 or 8. We’re also giving you all the stuff for free. We think it’s a 1-2 message. Don’t get tricked, don’t fall victim to it, and by the way, a lot of people are so fed up with this, and that transitions into my next point; we’re worried that they think all airlines do it. So we need to say that’s not what Southwest is about.

Planeline

Cranky: Do you have research showing people [think you charge a lot of fees]? It seems to me that you have strongly come out and made it very clear for years with aggressive marketing, national campaigns. So is there research showing people are slipping into this belief about you guys?

Kevin: One of the charts I showed at media day is when you ask who has low fares and doesn’t add on fees, Southwest comes very strongly. But you do see that [a much lower percentage of] the non-customer group has the perception that Southwest doesn’t have fees compared to our customers. That’s someone we think really needs to hear this message.

[Cranky Note: Here’s the chart he’s talking about]

Southwest No Fees

Cranky: Have you done this research before? Did you do it 5 years ago and you saw 75 percent of non-customers thought you didn’t have a bag fee? Is it decreasing?

Kevin: We have not done this look previously.

Planeline

Kevin: [Moving on to] the economic argument that you [and others] have put forward that those who don’t check bags subsidize those who do. I can grant you that on a theoretical level but customers don’t see it that way. They see it as part of the journey. If you take the economic argument to the extreme, you could argue that restaurants are subsidizing other patrons because there are silverware and plates there versus having you bring your own plate.

Cranky: Well, but everyone is using the plate. It’s not like everyone is given a plate and then some people don’t use it. I guess you could say free water or something would be a closer parallel.

[Cranky Note: Though if a restaurant wanted to charge me for water to keep menu prices down, I’m in.]

Kevin: Yeah, you could take those economic arguments to the extreme. For me where it breaks down is there are just some things that are fundamental to products. For travel, the ability to bring along your clothes are things that are part of the product. So it really becomes to me an academic argument if you can unbundle that. It gets a little bit hard to tease those things apart. And another thing I say on the subsidy thought. I haven’t really debated it with people, but I assume that argument is that if I’m checking a bag then you’re subsidizing my checked bags on Southwest.

Cranky: Yes, that’s one of the fees, sure.

Kevin: So the counter argument to you is that the whole airline is a little bit of an ecosystem. You can’t have 100 percent of the people carrying bags on and you can’t have 100 percent of the people checking bags. For it to be in balance you need a little bit of both. So I’m trying to put on the economic hat. You need both to make the airline operate efficiently. I wouldn’t think of it as subsidizing each other but as in keeping the ecosystem in balance by including it.

Cranky: Though you’ve seen the ecosystem shift, your share of it. I don’t remember what the number was, but I remember being told that the average number of checked bags per passenger has increased since you started pushing and other airlines started adding bags fees.

Kevin: I don’t recall that stat, but let us double check. I don’t think the per capita bag checking has gone up.

[Cranky Note: I followed up to get this stat, but I could not get an answer from Southwest. I had been told off the record previously that there was a substantial increase, but I have no official confirmation.]

Planeline

Cranky: By putting [Transfarency] out you’re trying to get people to realize how much more fees can cost them on other carriers. So why not find a way to make it easier for people to compare the total experience instead of just fees? You still don’t participate in any comparison shopping sites. I think technology has come to a point where you could get people to put together a comparison site that does a total comparison instead of just fees.

Kevin: Is the question, “should Southwest be on other third party sites that aggregate data?”

Cranky: Or building your own. If you want to take this comparison to the extreme.

Kevin: Being on other sites, there are 3 reasons [we don’t do it]. First of all, it’s expensive. They don’t provide that service for free. Secondly, we want to make sure we have the closest contact as directly as possible with customers so we can give them the best service as possible.

Cranky: Well there’s Kayak, metasearch sites where they can send people to you to book.

Kevin: Yeah, but Kayak is still expensive. And the third reason is it’s not hard to come over [to Southwest.com] and compare. We invest in tools to make it easy, use our calendar. And I’ll give you a fourth one as a bonus. I don’t think [third party sites] right now are being helpful and sharing that there are other things beyond the fare being charged. Simply being on the third party site together doesn’t tell the whole story to customers.

Cranky: I agree with that, but you have the heft to push that further. The technology is finally getting to where they can start to share this information better, and yet it’s not being done very well. This is something you guys can even invest in. If you [are cheaper, as you say, 60 percent of the time and you] really want to make the point that you’re cheaper…

Kevin: And that’s an interesting thought that we may give some thought too. It’s nothing imminent but it’s an interesting way to think of a solution in a different light.

Planeline

As we started wrapping up, I asked Kevin if he had anything else for me. He asked what holes I’d poke in his argument, so we continued the discussion for several minutes going back and forth. I certainly respect Kevin’s openness and interest in having the debate, though unsurprisingly, neither of us changed our minds.

Over the years, Southwest has developed an internal belief that traditional all-inclusive pricing is right. (Whether that originated out of principle or out of technical limitation doesn’t matter. The airline has certainly made this a core belief.) I say that people should be able to pick and choose what they want.

Did Kevin change the way you view things?

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44 Comments on "Southwest’s Chief Marketing Officer Responds to My Thoughts on Transfarency"

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ChuckMO
Guest
The current WN model suits me fine. I haven’t checked baggage in years as I have the flexibility in my travels to get by with 3 changes of clothes in my carry-on. For longer stays I can wash my clothes if staying with friends/family or spend an hour or so at a laundromat. What I like about the model is that if I should decide to check a bag on WN, I don’t need to cough up extra money to do so. Conversely, I have a backup option via the Delta Airlines American Express Gold Card, which allows me to… Read more »
JoEllen
Guest

In recent years I definitely have NOT seen Southwest’s fares as lower. Even when they have these one day sales, they are almost impossible to grab after the first few minutes out there. Either they have so few seats or the website becomes inaccessible. Like everyone else, they dangle carrots that are unreachable or they spout psychobabel about free bags.

Dale
Guest
When I am working I like to fly Southwest because I check two bags in the hold and have one carry on for the overhead and another for under the seat in front of me. That is what ALL airlines allowed at one time. So I say Southwest is best for my needs. If I did just a day trip say to the Bay Area or Las Vegas or Phoenix, leaving in the morning and returning in the evening and I did not need to check bags, I might feel differently. I’m glad that there is still ONE airline in… Read more »
Nick Barnard
Member

Most airlines don’t charge for water or soda..

Dale
Guest

True, at least in the USA and Canada. However Allegiant and Spirit charge for water and soda and Frontier charges for soda. Also I understand there are ULCC’s outside the USA where nothing or almost nothing is free.

Nick Barnard
Member

True. I was thinking mostly US mainline.

Eric Morris
Guest
Brett, I know you call the no-charge bags a subsidy. Have the other airlines reduced the number of baggage handlers due to lower volume or has WN had to increase its baggage handling man-hours? Isn’t the cost and utilization of the plane important, therefore by having lower priced professional baggage handlers putting the bags where they are designed to go, the underbelly, more efficient than having customers force bags into overhead storage to save a few bucks? Are airlines going to reduce underbelly storage and increase passenger/baggage space topside because of this new paradigm? I’d say you’d have to weigh… Read more »
Goe Friday
Guest

The number of mishandled bags has dropped dramatically at the other airlines.

Eric Morris
Guest
Because fewer bags/handler hour? Meaning costs have actually risen, at least partially coming from additional revenue? Or because mgt has emphasized since they are now charging additional for this service? Or because hiring better, therefore costlier, handlers to ensure bags aren’t lost? Without knowing full cost per bag above and below deck in employees and different times needed to accommodate, it is just a guess. The one productivity improvement may be that people are packing less to avoid bag fees, but there is also a time factor for customers to do that. It’s hard to know who is subsidizing whom.
Mike
Guest

It’s interesting, they really push the no bag fee angle which definitely resonates with a lot of people. That’s said for me, I find their lack of ticket change fee so much more important. The ability to be flexible with my plans without having to eat $200 is huge. That is where WN earns my $ when I choose to fly them.

Better By Design
Member
No change fees IS huge… but also hard to communicate with people – most folks I know really have zero idea what a change fee is, or how much they are nowadays since for occasional travelers, they are a highly infrequent occurrence. When you explain that change fees are SO high (and typically if you’re using them it’s a last-minute situation) that you pretty much throw your ticket in the trash the majority of the time, it’s an eye opener – and a moment of truth that WN can capitalize on… if they could explain it to people. It’s just… Read more »
austinflyguy
Member
Left out of this discussion is the original reason carriers started charging for bags….government taxes. When the bags are included in the fare, as they are in WN fares, the government charges, I believe, 15% tax. When the bag are separate, the passenger (and the carrier) do not pay the taxes. When I compare the airfares, I never find WN to be the low cost competitor, and with the highest salaries in the industry, it is only a matter of time before the public learns they are far from the low cost carrier (though they may still have a great… Read more »
BigDaddyJ
Member
Cranky, I think the observation that’s unstated here is as to why checked baggage is so crucial to WN—namely, turnaround times. If you want low-cost-carrier turnaround times, you need to minimize carry-ons, as they are boarding/unboarding time killers. There’s only two ways to do this: 1. Unbundle everything and charge for carry-on luggage; 2. Offer passengers the alternative of checked luggage and incentivize them to use it (via free and aggressive marketing). If Southwest were to go the ULCC route with #1, it’d be a disaster, at least short-term. So, they’re dialed into #2. But, there is no easy way… Read more »
XJT DX
Guest

As a former industry employee, I recommend southwest not only to families and vacationers that are liable to use those free bags, but to infrequent and new travelers, so they can enjoy their first flight experience and have the minimum amount of surprises possible (read: “I didn’t know they charged for that”) . As for the no-bags traveler, they enjoy not worrying about overhead space, faster boarding/deplaning, and a generally happier workforce that other carriers couldn’t charge extra for even if they wanted to.

enplaned
Guest
Some of this is a bit of a crock. This statement for instance: Kevin: Yeah, you could take those economic arguments to the extreme. For me where it breaks down is there are just some things that are fundamental to products. For travel, the ability to bring along your clothes are things that are part of the product. So it really becomes to me an academic argument if you can unbundle that. It gets a little bit hard to tease those things apart. And another thing I say on the subsidy thought. I haven’t really debated it with people, but… Read more »
Nathan
Guest

I would be curious to know if bag fees on the other airlines are profit centers, or merely covering the cost of transporting the bags. If airlines are making a profit from baggage fees, then I would argue that those customers who pay for checked bags are subsidizing those who do not.

Allegiant and Spirit come to mind as their base fares are very low and surely cannot cover the cost of the flight. If everyone flew without paid assigned seats and checked bags those airlines would likely disappear.

AW
Guest

That has always been my problem with random fees. I understand paying to cover expenses, but does it really cost $50 more to carry-on a bag at the gate than half an hour earlier the front desk, Spirit?

(I also understand the deterrence argument, but still…)

Nick Barnard
Member

I’d argue it would cost more to carry-on a bag at the gate, since at that moment employees are more into getting people checked onto the plane, if they have to stop to charge for a bag, that can cost a lot for the operation as a whole.

rSteinmetz
Guest
I’d say reaching back to 200 for fare data is a little fare. More recently since say 2010 when they bought Airtran ( I was a very frequent Airtran Flyer) I began tracking Southwest Fares and they were almost always lower than Southwest, for what I though was a better product. As the integration progressed and teh economy improved Airtran and Southwest fares climbed substantially. Recently my fares continued to rise Until about the middle of this year when the seem to have stabilized. For the last 5 months I have been flying Frontier a lot and I like their… Read more »
PF
Guest

No airline is always the lowest fare; you have to buy the product that gives you what you want; total journey cost, convenience, reliability, loyalty, – it all contributes. SWA and everyone else will spin their point of view – that’s just business. SWA is still a great airline, can still be good good value if the product is what you want, and most people deliver good service. Other airlines are doing well too, so it’s just a matter of personal choice at this point.

AW
Guest

How much would you say WN actually looses on a per customer basis by not charging for bags? Not everyone who boards checks a bag, and of those that do, a bag fee would serve as a deterrent for some to switch to carry-on. Combined with faster turn times from fewer carry-ons (historically a key WN strategy) and generally good publicity, could this be a reasonable strategy?

jaybru
Member
Each of us has a take on all of this. –Who’s lowest fare anymore? –Why do we even talk about fares? Why not just get rid of the word “fare” and the words “fare rules” and just talk about “price,” something that comes about by a meeting of buyer and seller, mili-second by milli-second, millions of time each day? –Is bundling the best or should everything be unbundled? –Does anyone care about service, or is everything about price? –Does anyone care about branding anymore? In this world where I live, a couple miles from Dulles, and with pretty easy access… Read more »
LT_DT
Guest

Hah. I feel the same way. I live 35 minutes from Bush Intercontinental, and 25 minutes from Hobby.

Like you:
–I fly UA all the time,
–I complain about UA all the time,
–I love WN.
–I never fly WN,
–I love low fares,
–I wouldn’t fly Spirit, Frontier, or Allegiant unless my life depended on it (probably not even Allegiant in that case).

LT_DT

DAB
Guest
Wow. I don’t think I could have summed up me being a UA Plat any better than JayB… My only difference is that I live in SAT and thus only really have one viable airport (I have never seen AUS work better for me when I tried). WN does a big business here, and I like them, but I fly enough to get to around 75k miles a year on one airline and UA has the best flights to LA for me (and WN doesn’t fly to BIS or ANC which are occasional destinations for me). My main complaint against… Read more »
Len
Guest

I prefer WN’s model and believe thier “ecosystem” argument is stronger than Cranky’s. It is not a simple straight subsidy. An even if Cranky is right, customer perception is different and perception beats reality every time. WN is winning the marketing war.

mike
Member

I am impressed by Kevin’s ecosystem comment. It’s like with hotels: as a non-TV watcher I am “subsidizing” those who do, yet the ecosystem of travel demands that there be a TV. Cranky instead would love to see a fee for TV watching in hotels!

He has a better grasp of consumers than the Ivory tower beancounters at other airlines. Bravo.

Nick Barnard
Member

Well why doesn’t every hotel have free HBO and on demand movies?

These are services I’d actually use, and perhaps even pay a bit more for the opportunity of having them included?

But having non-premium cable-TV and the local over the air stations piped for free into my room? Those things are useless to me, and I’d rather have a discount for them.

(Oh, and I’d also like for there not to be that big blank grey thing in the room. TVs are kindof horrible that way when they’re in a living space.

Better By Design
Member

My last couple stays at Renaissance properties had a TV with Netflix built in – that was an amenity I thought was pretty nice for today’s traveller.

Same goes for Carlson’s “business class rooms” with free on-demand movies… that’s a perk more hotel chains could be emulating.

Then again, WN has free “bundled” TV with “unbundled” on-demand movies and Wifi…

kelty
Member
We are in the Washington area (DCA, IAD, BWI). Have used Southwest, but UAL is our most frequent carrier, lately to Alaska and Oregon. We get free bags on UA because of lifetime Club privileges and our UA credit card. However, my wife and I differ on the bag procedure. I want to check our bags and not have to drag them to the gate and lift them up to the bins. Also, I resent the people who delay loading and unloading while they are trying to deal with their bags. My wife really resents waiting a half hour or… Read more »
Lundberry
Member
I think ultimately it does come down to what you have tolerance for. I am one of those people that likes WN a lot. But in part that is because I check 2 50lb bags have a roll on and a back pack nearly every single time I fly them. They also do have a surprisingly robust schedule from MSP which is nice. I think the other thing that seems to get left out of this discussion is that often WN is flying a better product in and out of a market that might be serviced by regional jet by… Read more »
southbay flier
Guest

One thing the Legacy carriers have that WN doesn’t is the ability for same day standby or same day confirmed for a small fee or free depending on what status you have. Plus, their FF program doesn’t allow me to get a ticket to almost anywhere in the world.

So, I don’t know if WN can do anything to get my business unless I need to fly intrastate and there are no other options.

Better By Design
Guest

I believe Same Day Standby is free on WN for folks flying on Business Select fares (assuming same city pair).

As for flying around the world… well, that’s not happening!

(although their expanding network to the Caribbean and Central America is a HUGE plus for me and my family vacation plans!)

Bob
Guest

I don’t get the subsidize “the other guy” thought. Revenue Management at an airline either price match or do not. That varies by day. If Southwest decided to match DL for instance they don’t tack on a fee, they match it or they do not. Then another department within RM decides how inventory is opened/closed based on individual demand. I’m not sure where a fare would be implemented that adds a “bundle of fees” inside a specific fare.

Please advise if I’m off my horse here.

B.E. Radtke
Guest

Cranky,

I think you hit the nail on the head with the Transfarency campaign. WN is still pushing the meme that they have the lowest fares which is clearly not the case. When WN goes on 3rd party sites then I’ll reconsider their claim until then its just disingenuous.

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