Southwest Airlines Raises Fares $1 to $10 Each Way

This past weekend, Southwest Airlines raised fares between $1 and $10 one-way on most routes in order to help keep fares in line with increasing costs. When legacy carriers make fare increases, they are often rescinded since Southwest refuses to match them. But when Southwest leads a new fare increase, the only airlines that don't match are often the smaller discounters, such as JetBlue, AirTran, and other smaller LCCs who have lower costs than Southwest and who can afford to offer lower fares. As a result, this fare increase will likely stick. This move is another sign of an airline in transition. Southwest plans to change the way it's operating in order to be more competitive with other low-cost carriers and to reduce its growing costs. Southwest plans to add additional amenities in the coming months and years in order to help distinguish itself from other LCCs, including a revamped seating system that could pave the way for assigned seating (likely for those who are willing to pay an additional fee). Also, Southwest plans to have Wi-Fi Internet access onboard its planes by the end of next year.

Southwest recently announced a schedule optimization program for the fourth quarter which will allow the airline to cut flights on less profitable routes and add flights on more profitable ones. That will help Southwest boost load factors in markets where the company has a high number of flights (such as Las Vegas to Phoenix), since the number of flights will be cut and Southwest will need to fit approximately the same number of passengers it currently flies onto fewer planes. It will also help the airline expand in key growth markets, including Denver and New Orleans, by adding new flights and destinations from these cities. Finally, Southwest plans to make modifications to its Rapid Rewards frequent flyer program this fall, although the airline hasn't hinted much as to what those will be. Southwest is expanding in key business markets, such as Washington DC, Denver, and San Francisco, and improving the onboard experience and frequent flyer program will enable Southwest to attract higher-fare business customers and increase revenues.

Will Southwest's transition be successful? It's too early to say, but I would guess that some parts will be more successful than others. Southwest will need to be very careful if it tinkers with its seating system, since some passengers love it, and others hate it. Southwest may have to compromise by offering assigned seating to those who are willing to pay and free-for-all seating for those who aren't. But that two-tiered system could be confusing to passengers, and it could take more time on the ground, which Southwest doesn't want. Southwest can't afford to increase it's 25-minute turnarounds as they're one of the key engines of success in the company. Southwest would need over a dozen additional aircraft to run its current schedule if turnaround times were increased, even by just five or ten minutes.

The overall goal of this transition is to help Southwest to keep its revenues up, and I'm worried that while assigned seating may be a big profit-driver, Wi-Fi may not be. Wi-Fi takes a lot of time and money to install on an aircraft, and especially on the short flights Southwest flies, it may not be attractive to too many customers if they have to pay $10 or more per flight to access the Internet. Adding Wi-Fi may be Southwest's riskiest move in this transition, because it may be very unattractive to passengers, and could cost Southwest millions if it isn't successful. But on the other hand, if it is attractive, especially to the business travelers Southwest wants, then it will enable the airline to distinguish itself from competitors more and attract higher-fare customers. Overall, Southwest's transition should be successful. Southwest's management is experienced and understands that they must maneuver a large enterprise like Southwest carefully and deliberately, and that's what they appear to be doing with this series of changes.