Unbundling Airfares

Southwest Airlines took a full page Ad in WSJ to air travelers about the added costs of all other airlines. The side by side comparison shows Southwest charing $178 flat and the other airline charging extras over over the same $178. The Dallas MorningNews reports:

The message is that “Southwest is not going to do that to their customers,” said Melanie Mahaffey, senior manager at Southwest’s advertising agency, GSD&M Idea City. “They decided to do this marketing push to show how they’re different and not going to raise fees on their customers.”

Southwest chief executive Gary Kelly says the airline wants credit for not charging for such things as changing a ticket or checking a couple of bags.

“It’s not what customers want,” Mr. Kelly said after Southwest’s annual meeting May 21. “Nobody wants to be nickeled and dimed.”

There are two points we can deduce from this

1. Southwest cost structure is so so low that it can still make a profit $178, even after providing all the usuals (free bags checkin, free soda …). In other words, Southwest Bundled Price still makes money for them

2. Southwest by committing aggressively to an Ad strategy of speaking against all the fees and positioning itself as “nofees” gives up the option to every do unbundled pricing.

Either they expect their cost structure to continue if not improve or they rely on every airline doing unbundled pricing and transitioning to it without getting noticed. If it is the latter, then it does not make sense to differentiate themselves on this. So we should assume that they are continuously improving their operations and hence will keep their costs down.

It still look like they will be leaving a lot of money on the table if every other airline does unbundling.

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