Friday, January 27, 2017

Gary Kelly: ‘Basic economy’ would be ‘a huge mistake’ for Southwest

Southwest Airlines will not be following American Airlines, Delta Air Lines and United Airlines in implementing a “basic economy” fare, chairman and CEO Gary Kelly said.

Speaking to analysts and reporters to discuss Southwest’s 2016 earnings, Kelly said Dallas-based Southwest is sticking to its relatively straightforward fare structure that includes checked bags and flight changes at no extra-cost. Southwest also will stay with a single-class configuration on its all-Boeing 737 fleet, he added.

While Southwest does offer a “business select” product that includes perks such as guaranteed early boarding (a particular draw for Southwest passengers since the carrier has no seat assignments), Kelly said the airline has built its brand around a simple, fee-free fare and passenger experience model that would be unwise to alter.

“There is huge value in offering all of our customers—100% of them—a great product,” Kelly said. “We like to say at Southwest there is no second class [and] in addition to that we strive to keep the customer experience and the product offering as simple as possible … Complexity drives confusion and it clouds the brand. So what you have at Southwest is a very strong brand positioning in customers’ minds that we stand for friendliness, reliability and low fares. The whole ‘free bags and no change fees’ becomes a very powerful component of all that.”

Kelly added that Southwest has “spent 45 years educating our customers as to what to expect” and making a major change like offering a basic economy fare “would be a huge mistake.”

He also said Southwest has no plans “to change our seating configuration and add bigger seats compared to littler seats.” American, Delta and United, Kelly argued, “lavish attention on elite customers, and they ignore the rest, and that is our biggest opportunity because we don’t ignore anybody. And we just don’t want to change that.”

Kelly said Southwest’s financial results, which include record net profitability each of the last two years and 44 straight years of operating in the black, indicate “there’s just no emperical evidence that we’re missing anything.”

He added, “If we start tinkering with the brand, we start offering the basic economy, blah, blah, blah, it would risk the revenue stream and the loyalty that we have with that frequent flyer base … So my report to you is we don’t have any thoughts about any radical changes to the program.”

(Aaron Karp - ATWOnline News)

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