Southwest Airlines just announced the biggest change in its 57-year history, but it has now upended the last bastion of its tradition and will likely have to continue to shift its model. Southwest is dead.
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Southwest Airlines starts charging and seat selection
This week, Southwest Airlines announced it would change one of its trademarks since the airline’s founding, assigning seats starting in January 2025. The airline is signaling a shift from its longstanding policy of free seating. By allowing passengers to board in numerical order and sit wherever they like, and including checked bags in baggage fees, passengers spend less time searching for overhead space and Southwest has been able to turn planes around more quickly.
Faster boarding allowed Southwest to achieve incredibly fast turnaround times and get planes grounded sooner. Because planes only generate revenue when they’re in the air, this was a key strategy that helped the world’s first low-cost airline operate more flights with the same aircraft, staff, and gates.
In the US domestic market, ancillary revenues have taken over, with Southwest Airlines starting to sell early check-in benefits to help with priority boarding. A-List and A-List Preferred elite members have the option to board first. In recent months, fees for the A1-15 boarding position have reached as much as $150, far more than what peer airlines charge to secure seats with extra legroom, such as in exit rows.
The company plans to start building out its revenue model for seat allocation and priority seating in the new year.
What was it and what is it
Southwest Airlines started out as a quirky Texas startup that competed not with other airlines, but with driving. It flew between the state’s major markets of Dallas, Houston, and San Antonio. Once known for flight attendants wearing hot pants and handing out liquor bottles to entice business travelers on board, the airline changed a lot in the 1990s.
As it expanded into more distant markets, Southwest helped lower fares across all airlines by about 25 percent on average and added nonstop routes from airports that typically only had connecting flights. It also offered lower fares, often with sales that reduced short-haul flights to $29, $39, or even $49 one-way. That bold approach led to happy, loyal employees and enthusiastic customers.
But those days are long gone. Once the cheapest airline, Southwest was often more expensive than traditional airlines, which led traditional airlines to abandon Southwest to compete with ultra-low-cost carriers and introduce basic economy fares to even the playing field. The airline chose to fly to alternative airports rather than mega-hubs, including Houston Bush Intercontinental, Chicago O’Hare, Washington Reagan National, and Miami.
Once-satisfied labor unions have in recent years criticized the airline for new contracts, as it added several international routes to Hawaii and the Caribbean a few years ago and acquired Air Trans Airways, an Atlanta-based low-cost hub-and-spoke airline.
Another option has been discussed to use only Boeing 737 planes, which would reduce costs through common seating, and the airline has said it would consider Airbus products given delays in production of Boeing’s new 737-MAX jets.
This airline is no longer the quirky airline it once was, it is now a behemoth.
Why Southwest Airlines continues to transform into a legacy airline
Southwest remains the largest domestic airline in the United States, and one of the largest (and most valuable) airlines in the world. But five years ago, the airline started running out of places to grow. It flew to every airport in the U.S. that could serve at least its smallest planes, 737-700s that seat about 125 passengers. It reluctantly added Hawaii, a destination it had avoided for 50 years. Canada remains off the route map, but there are few places to grow geographically.
Then, as the company expanded its revenue streams, it began to charge more and more for ancillary products. Getting an early boarding pass became so important that most passengers added it to their checkout process, and even though they paid the fee to board as early as possible, some passengers found themselves delayed early in the boarding process. As mentioned above, even early boarding saw a price increase far beyond the previous price of a round-trip ticket on Southwest Airlines.
But that’s not enough.
To stay competitive, Southwest must find more ways to grow the airline. Airfares can’t do that. The company is already far ahead of its competitors. It can’t grow geographically without changing its aircraft. Under the previous model, ancillary revenues were limited in both what they could charge and how much they could charge. Now is the time to blend what was a differentiator with the rest of the airlines in the market.
With the loss of its first-class division, Southwest has only two areas of growth left: food and beverages and checked baggage. In every other way, the airline is now old-fashioned and, to make matters worse, expensive.
The End of Southwest Airlines
of heart Southwest’s soul is fading. It took the last decade for the airline to truly transform from a point-to-point low-cost carrier to a giant network airline. As another differentiator disappears, so does Southwest’s unique edge. Other US airlines have homogenized fleets (e.g. Spirit, Alaska, JetBlue). Others are making big money by offering direct service from smaller airports.
Some travelers were avoiding Chicago O’Hare Airport, with its five enormous terminals, in favor of quicker connections at Chicago’s revitalized Midway airport, but the airline also had to compete with flag carriers for business travelers.
With each of these changes, Southwest Airlines became more like every other airline. Assigning seats and charging for those seats was a major shift in the airline’s business model, making it nearly indistinguishable from other airlines.
The airline has been incredibly profitable for decades and is unlikely to go bankrupt. But these services have allowed the company to charge higher fares even as other airlines have lowered their prices. Passengers are tired of small fees, but prefer low fares. These unique differences were reasons to choose Southwest, and respecting the customer was reason enough. But a recent cash grab has blown away every last ounce of the company’s soul. And arguably, they were the main reason passengers chose Southwest.
If all airlines were the same (yes, Southwest still lets you carry bags for free, but that won’t be the case forever), there are only two ways they can compete: schedules and price.
Conclusion
Southwest Airlines has spent decades building a bulwark to protect itself from competitors and stand out. That’s over now. It won’t go bankrupt, but the catalyst for a low-cost solution is gone. The company will face its biggest challenge yet when consumers realize they can get the same experience as the major airlines for less, but not on Southwest.
What do you think?
