The Baer Facts Issue 79: Will "if you can't beat 'em, join 'em" work for Southwest Airlines?

The Baer Facts Issue 79: Will "if you can't beat 'em, join 'em" work for Southwest Airlines?

Will "if you can't beat 'em, join 'em" work for Southwest Airlines?

 

50 years.

 

FIFTY YEARS!

 

That's how long Southwest Airlines stuck by their unique "no assigned seats" approach to airplane seating. 

 

Southwest's proletarian approach to seating was the essence of the brand, and a true differentiator in an industry where all streams empty into the sea of sameness. 

 

But Southwest completely switched course, announcing recently:

  • all seats will be assigned
  • passengers can pay extra for additional legroom (1/3 of all seats)
  • red eye flights will be offered (yay?)
  • Southwest flights will be available on aggregator websites, like Kayak

"From now on, we're going to be just like everyone else, okay?"

 

Why would they do this?

 

If you have a defensible difference (especially one you've protected for 50 years), you typically fight like two raccoons in a trash can to keep it.  

 

But Southwest VOLUNTARILY gave it up. Why?

 

 

The only time you unilaterally yield on a core market differentiator is when the costs of providing the difference exceed the revenue created by it. 

 

According to Southwest CEO Bob Jordan, 80% of Southwest customers and 86% of potential customers prefer an assigned seat. 4 in 5!

 

I'm certain they also have data that shows very few customers choose Southwest BECAUSE of open seating. I suspect their "two bags free" policy is more likely to be the actual preference lever.

 

(Note: it is now ONE bag free....)

 

Southwest found themselves in the unenviable position of defending an unloved difference-maker, burdened by passenger uncertainty about where they might be able to sit, micro-aggressions in the "line up by numerical order" queue, families being split up on board, and other annoyances.

 

Perhaps not coincidentally, Southwest's profit in Q2 2024 was $367 million. Seems solid, but not compared to $683 million in the same quarter a year ago.

 

Another behind-the-scenes gravitational force: a $2 billion investment in June from activist group Elliot, which seeks to replace Bob Jordan due to slumping profits.

 

This move was jarring enough that the Southwest board created a poison pill provision to essentially bar a forced takeover of the company, followed shortly by this reversal of a foundational aspect of the business model.

 

It's weird to conclude that a company that made $12 million in profits per DAY last quarter is scared, but Southwest is, in fact, afraid. And that's when you murder the differentiator. 

 

Will it work?

 

Southwest is now essentially competing on a level playing field against United, Delta, and American. 

 

Is that a fight they can win? 

 

Maybe?

 

They are also adding in-air power plugs at your seat (yes!) and improved Wi-Fi (thank you, because the Southwest Wi-Fi is hilariously terrible).

 

They'll also make more money per seat by charging for extra leg room, although some of that will be offset by people not paying $20 to get a low boarding number. 

 

What about you? Will you fly Southwest more, same, or less now? Please do reply and let me know. I'll probably fly more, personally.

 

There is recent-ish precedent for a brand throwing a longstanding differentiator overboard like a mutinous sailor. 

 

Remember 6 years ago, when LL Bean ended their "no questions asked" returns policy after 106 years? (see link for my interview on CNBC about this)

 

Similar to Southwest, despite the fact that LL Bean's limitless returns were a core differentiator, too many people were abusing the spirit of the policy, costing the retailer $50 million per year in "abusive returns".

 

LL Bean is privately held, so profit information is undisclosed, but top line results suggest their abandonment of their differentiator didn't hurt much, if at all:

 

2020 - $1.59 billion up 5%

2021 - $1.8 billion up 14%

2022 - $1.8 billion

2023 - $1.7 billion, pretty solid given retail challenges everywhere

 

By 2027 we'll be able to look back to this summer and decide whether Southwest's open seating retreat was the catalyst to a brighter future, or the beginning of the end of a great brand.

Paul Valach

Showing how to use chatGPT to create great searched for content in places like your Google Business Profile, Instagram or here on LinkedIN is what brings more clients your way to products or serives you provide.

4mo

BIG SIGH... why I flew SWA, PRICE AND that I got to board first (handicap . extra time.. whatever. I got my row 4 or row 4 seat. Nice window seat. I got to stow my ONE rollie in the overhead, and my other over the should under the seat in front. Leg room.. funny I an 5'7" .. then I watch a the people, who will sit in the back try to stow their stuff in the front so all they need is to walk back by on the way out.. NOOOOOO the flight crew tries to stop that.. the assigned ass sitters will not stop that... yeah not thrilled.. and ok confession, have not flown in a few years.. those $49 fares are alluring... BIG SIGH..

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Paul Valach

Showing how to use chatGPT to create great searched for content in places like your Google Business Profile, Instagram or here on LinkedIN is what brings more clients your way to products or serives you provide.

4mo

BIG SIGH... why I flew SWA, PRICE AND that I got to board first (handicap . extra time.. whatever. I got my row 4 or row 4 seat. Nice window seat. I got to stow my ONE rollie in the overhead, and my other over the should under the seat in front. Leg room.. funny I an 5'7" .. then I watch a the people, who will sit in the back try to stow their stuff in the front so all they need is to walk back by on the way out.. NOOOOOO the flight crew tries to stop that.. the assigned ass sitters will not stop that... yeah not thrilled.. and ok confession, have not flown in a few years.. those $49 fares are alluring... BIG SIGH..

Patricia Fripp Presentation Skills Expert

President @ Fripp Virtual Training | Presentation skills expert

4mo

Jay Baer Very interesting as always. I did not know this. <<Perhaps not coincidentally, Southwest's profit in Q2 2024 was $367 million. Seems solid, but not compared to $683 >>million in the same quarter a year ago.

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Patrick McGovern

Director Marketing and New Business at Ascedia || Connector💥 || Content Creator || Podcaster 🎙|| 🏆 VP of Programming for AMA Milwaukee Chapter 🏆

4mo

Great piece Jay. I've been following this mess and continue to shake my head. What's up over there? My guess is they are going to fall into the dangerous middle ground -- we are no longer a low-cost carrier. BUT we're not a luxury product either. Soooo, They will become a price point like the rest of them. To me this is starting to feel like another New Coke. But maybe I'm wrong.

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Michael Lowenstein, PhD CMC

Senior Advisor, Customer Value Creation International

4mo

For those of us who were one-time customer advocates, and who often extolled the multiple distinctive virtues of Southwest, it’s sad to see this happening. They've had major technological glitches, in part a function of their operational system. Herb Kelleher, a CX and EX icon who strongly believed in the positive and unique travel experience offered by Southwest, the airline he founded, would be very disappointed about the “creeping meatballism” move to conventionality and commoditization by current management. The real question is: Can Southwest ever regain its customer experience and brand image mojo?

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