Inside Southwest: AirTran, Bag Fees, Hawaii

I know SmarterTravel readers are avid Southwest fans, so last week I took the opportunity to meet with Southwest directly during the airline's Media Day at its headquarters in Dallas. It was a great opportunity to grill the airline's executives and communications staff, and get some first-hand insight into the airline's plans for the future. I've already covered Southwest's Volaris partnership, Wi-Fi plans, and Newark routes, all of which were also announced at Media Day.

So what did we talk about?

AirTran

There wasn't a whole lot Southwest could say about AirTran—well, nothing it could say definitively—and so an hour-long panel discussion about the airline's acquisition was short on specifics and long on cautious confidence that it will continue to proceed smoothly.

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There were some details, however. For example, expect to see AirTran's Boeing 717s, a smaller model than Southwest's 737s, take a fairly prominent role in Southwest's route map. Southwest likes the planes, which have a "pretty good trip cost," and said figuring out what to do with them "might be the easier part of the merger." Chances are the 717s will be deployed on short-haul routes, freeing up the larger 737s for longer-haul flights.

Atlanta will be a key part of Southwest's post-AirTran plan. Chief Operating Officer Bob Jordan said Atlanta could be Southwest's largest destination not too long after the merger completes, but the airline can't get into planning its Atlanta service until the merger closes. But he remarked that Southwest has "very high brand awareness" in Atlanta, not to mention the built-in customer base it will inherit from AirTran. Jordan speculated fares could come down "as much as 40 percent" on routes where AirTran wasn't competing.

Perhaps the most-discussed AirTran topic related to its customers, specifically whether or not Southwest will lose AirTran loyalists when the deal closes. It's safe to say this is on Southwest's radar. CEO Gary Kelly admitted, "I fully expect we'll have AirTran customers that choose not to fly with Southwest Airlines," and said "we'll want to go overboard with our communications [with AirTran customers]."

Jordan echoed that sentiment. "There are a lot of unknowns" for AirTran customers, "and loyal AirTran customers are looking to make sure Southwest offers a customer experience on par with AirTran's."

But Kelly bristled at repeated questions about alienating AirTran fliers, who are used to business class and seat selection, both of which Southwest would abandon. "We've long held out that we're not all things to all people," Kelly said, before noting that Southwest carries more customers than any other airline in the United States. "Over the last five years, our share of the U.S. market has gone up close to a billion dollars while everyone else has basically stayed the same or gone down."

Fair enough, but wooing AirTran's customers is a very real problem for Southwest, especially since it's taking Delta on head-to-head in Atlanta.

Free Checked Bags Are Here to Stay

"Customers hate bag charges," Kelly said, "and I don't understand the logic that if you're truly customer focused, how can you argue that something your customers hate is good for your brand?"

"We just got lucky that everyone else decided to do something customers hate, and we had sense enough not to do it."

Clear enough for you?

Southwest's free bag policy won't be changing any time soon. The airline is absolutely dedicated to the idea, and went to great lengths to tie its recent success to the bag fee policy. This a tenuous link, given the numerous economic factors at play, including a massive recession, spikes in fuel prices, and widespread capacity reduction. Still, Southwest said it's the only airline to see its market share increase since bag fees became the norm, despite capacity cuts of its own.

But if there was any doubt that Bags Fly Free was something other than a calculated business decision, doubt no longer. Southwest saw an opportunity to differentiate itself, and has gone all-in. As Kelly said, "We were either going to charge the fees or tell everybody in the whole world that we don't, and get credit for it." It's worked, of course, at least from a brand perspective and, as far as Southwest is concerned, from a business perspective as well.

Hawaii?

Southwest is currently deciding whether or not to add Boeing's 737-800, a larger version of its current 737s, and Kelly floated the idea of taking the -800s to the Aloha State. "The 737-800 brings us the opportunity to consider a destination like Hawaii," Kelly said.

But before you start dreaming of luaus and macadamia nuts, keep in mind that Southwest hasn't decided to add the -800 just yet, though Kelly said he expects a decision "soon." Once Southwest decides to go with the -800, it still has to agree to new contracts with its pilots and crew unions that would operate the plane, formulate a maintenance and repair plan, apply for all sorts of regulatory forms and approvals, and redraw the route map with the new aircraft in mind. So we're talking years before the -800 is flying with Southwest livery.

What About Rapid Rewards?

There wasn't much said about Southwest's frequent flyer program, except this tantalizing tidbit: "We've got a new and improved frequent flyer program coming next year, that is very exciting and I think will overcome any objections that members of other airlines' frequent flyer programs might have about flying on Southwest Airlines."

Our resident frequent flyer expert, Tim Winship, says this probably means a revenue-based program like Virgin America's Elevate or JetBlue's revamped TrueBlue.

But the real problem for Rapid Rewards is figuring out how to retain AirTran's A+ members, who are used to redeeming their miles for upgrades. "With no more big seats up front," Winship told me, "Southwest can kiss A+ elites goodbye. Delta is licking its chops on that score!" Since Southwest has no upper class seating, and few other unique perks to offer, how will it entice AirTran's elites to stay?

Your Take

Readers, what do you think about the state of Southwest? Do you think the merger will make it stronger?

Read comments or add your own insight!
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