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.
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.
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]
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.
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.]
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.
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?