When we look back in the distant future, I think we’ll remember today as the day that Southwest died. No, it is not going out of business, but its entire value proposition — everything that made it different — has disappeared faster than you can say “Elliott Investment Management.” For this, Southwest has earned the Cranky Jackass Award, but even that seems insufficient.
At the JP Morgan Industrials Conference today, Southwest will announce the following:
- First and Second Checked Bag Fees will be implemented for all tickets purchased from May 28 (elites and credit card-holders still get at least 1 bag free)
- Basic Economy will be introduced with Basic effectively taking over the pricepoint where Wanna Get Away is today
- Flight Credits will once again expire after 1 year from the date of ticket issue (Basic is 6 months from date of issue, so… why bother?)
- Rapid Rewards points will now be redeemed on a variable scale with no transparency (or, um, transfarency?) in what the multiple vs the paid fare will be
In other words, Southwest has erased every single positive differentiator it ever had. That’s especially true when you consider the other recent changes (not all of which are bad, mind you, but they were differentiators):
- No change fees became irrelevant when everyone else did the same thing
- Had to buy direct but you can now buy on Expedia and elsewhere
- Open seating is gone for travel next year
- Uniform cabin experience is gone when extra legroom seats get added later this year
- No employee layoffs changed last month
In the past, I haven’t been a big proponent of free checked bags, but as Southwest’s differentiators started to erode, I started to believe in that more. Whether it was something that mattered or not, this was a powerful marketing message that helped maintain the “we are different” aura. CEO Bob Jordan acknowledged that less than six months ago when he said free bags would stay at the airline’s investor day. But now, it’s gone. That in itself isn’t a problem. The problem is that there is nothing to replace it. With all the differentiators gone and nothing to replace them, what’s left?
The press release which will be on Southwest’s site today leans heavily on its people.
Southwest Airlines remains committed to its core tenets—amazing People who deliver great Hospitality to all Southwest Customers, a strong network with the most nonstop flights within the U.S., and a loyalty program that gives real value to Rapid Rewards Members.
Sure, Southwest has great people, but they are going to be deeply unmotivated after seeing the gutting of this company. They will also not make up for the fact that so many policies have been made so customer-unfriendly in such a short period of time.
The reality is that this move takes Southwest back to an old-school way of thinking that more successful network airlines have tried to minimize: choose us based on price and schedule, because that’s pretty much what we’ve got.
Again, I am not suggesting that all of the changes that have happened in the last couple of years are bad. To me, the extra legroom section and assigned seating was the right thing to do, but what Elliott and the new board members have hastily forced upon the airline since that fateful investor day has been universally ill-advised. The only thing that differentiates Southwest now is negative.
- no ability to redeem points on global partners
- no long-haul network
- no First Class
- no lounges
- no access to smaller regional destinations
As we discussed on The Air Show recently, Southwest’s failure to change under previous CEO Gary Kelly had put the airline in a bad place that just primed it to be torn down by an activist investor like Elliott. Elliott came in pretending to be interested in improving Southwest, but everyone who saw a wolf in sheep’s clothing was right. Elliott only cares about Southwest until it can extract a nice gain on its investment. Then it’ll walk away and Southwest will be a shell of its former self.
Perhaps most surprising is how quickly the Elliott mindset to race to increase profit at all costs has infected the airline. Clearly the majority of the Board didn’t bother to put up a fight, but that’s what happens when you have so many new board members. It can go off the rails quickly when you don’t have enough people who understand the core that makes the airline work. It’s breathtaking how negative this all is.
It also seems pretty clear that CEO Bob Jordan has no actual power. When he presented the transformation plan last September, it was the view of an airline trying to evolve but still remain uniquely Southwest. Now Bob looks like a liar, having said things then that just a few months later he is completely reversing. Chances are he isn’t actually a liar. He just didn’t realize at the time that the Board would be running the show, and he would just get to be a figurehead. I can see now why Elliott decided not to push harder for Bob’s head even though they originally wanted it. They could just turn Bob into their puppet and get the same result.
So again, why would anyone fly this airline now? It falls back to price and schedule, and schedule is where Southwest does best. If you live in Kansas City, you’re probably likely to fly Southwest more than anyone just because of where the airline flies. It does have its own fortresses around the US, primarily secondary airports in big cities (Love Field, Midway, Hobby, Oakland, Baltimore…) and all those former midwestern hubs where others have left (St Louis, Kansas City, Indianapolis, Pittsburgh…) But this doesn’t leave it with any notable growth opportunity. It no longer holds a significant advantage for attracting customers.
As someone who worked in pricing at America West twenty years ago, this turn of events is so outlandish that it’s hard to believe it’s real. We spent so much time just trying to figure out how to compete with Southwest, because the airline was just that good. We even dropped change fees for a time in some markets, because we thought that might help in the fight. It didn’t. But now, competing with Southwest just seems… easy. That’s a remarkable — and terribly sad — thought.
The Southwest we’ve all known and LUVed for more than 50 years is dead, and the new Southwest has nothing going for it except for a shiny, new Cranky Jackass award.
