< A view of the homeless | Main | Carstarphen's view >

The Southwest strategy

Posted at 11:43 AM on February 19, 2009 by Bob Collins (2 Comments)

Southwest Airlines made itself an aviation star by -- mostly -- avoiding direct competition with the big airlines. It flew to Midway instead of O'Hare. It concentrated on Love Field instead of the giant Dallas-Ft. Worth and all the big airlines. It flew to Providence and Manchester, New Hampshire instead of Boston.

It never came to Minnesota, partly because there wasn't a place to fly here without competing with Delta/Northwest. Rochester and St. Cloud aren't close enough to the Twin Cities.

That changed last fall when Southwest announced it'll start flying to Minneapolis St. Paul next month, tackling Northwest/Delta head-on. The company was quick to dampen speculation that it had changed its strategy and was now unafraid to go head-to-head with the majors. After all, Minneapolis-St. Paul was the first city Southwest added since adding San Francisco in 2007.

That changed today when Southwest announced it will start flying into Boston -- the home of Delta in the most profitable northeast market.

The Wall St. Journal's Middle Seat Terminal blog says it marks a historic change in the Southwest business model.

"This is another step back in a long line of moves that changes Southwest's historical business model," wrote aviation consultant Scott Hamilton, of Leeham Co., in an e-mail to the Terminal. "Southwest used to avoid big city, congested airports and/or hubs of other airlines by focusing on secondary airports. It's run out of secondary airport and now has no choice but to go into the big-city airports. With rising labor costs--Southwest now has one of the highest labor costs-to-expenses in the industry--Southwest has to go where the passengers are chasing revenue."

And that's bad news for the former-hometown airline, but good news for consumers. Lower fares tend to follow when Southwest moves into a market.

For example, a Minneapolis to San Francisco roundtrip flight can be found on Southwest for March for $240. The pre-Southwest service (it doesn't start flying here until March 8) on Delta/Northwest costs anywhere between $500 and $1,000. The same flight on Delta/Northwest after Southwest starts service here is going for $320.

Comments (2)

Bob, while I enjoy your blog, I need to disagree slightly with your methodology on this one.
When it comes to airfare, prices are based on a number of factors, with two of the biggest being advance purchase and availability.
On the domestic market, advance purchase requirements for most cities are 14 or 21 days. Therefore, if you searched for an early March fare today, you may still qualify for the 14 day ap (depending on the date chosen) fares, but not the 21 day ap fares.
Also, only so many seats are set aside at that rate, so once they are sold out, you will be forced to pay a higher price even if you meet the qualifications of the lower fare.
Therefore, it is misleading to say that the pre-Southwest fares are running at $500-$1000 on Delta/Northwest. I currently work at a travel agency and just a few weeks ago sold a roundtrip ticket on Northwest/Delta from Minneapolis to San Francisco on March 5 for about $310.
The rates of $500-$1000 may be accurate, but they are not the standard and are likely based on remaining availability.
I agree that Southwest flying to MSP will help bring fares down, but a much better market to demonstrate that is Minneapolis to Chicago where the new competition seems to have cut the fares nearly in half since this fall (a current roundtrip base fare of $129 before taxes as opposed to $231 back in September).

Posted by Jennifer B | February 19, 2009 3:21 PM

That's true, Jennifer,you're correct, of course.

A better analogy of what competition does is one I tracked last year -- MSP to Midway, back when AirTran was in the picture locally.

Posted by Bob Collins | February 19, 2009 3:56 PM