When Southwest Got a New Identity

For many smiles and a few minutes of what Southwest used to be, do enjoy this flight attendant’s safety talk:

This week, Southwest added a baggage fee and a new tool. Called the Bebop–the Baggage Estimation Based on Passengers–is supposed to predict the carry-ons that Southwest will check at the gate.

Much more than a charge, through $35 for the first bag and $45 for a second one (and Bebop), Southwest became a different airline.

The Southwest Identity

Our Southwest story starts in 1971 when interstate air travel was highly regulated. With the Civil Aeronautics Board (CAB) setting fares and distributing routes, the result was pricey tickets, few fliers, and minimal competition.

Then, a Texas businessman decided to start an intrastate carrier beyond the reach of the CAB. At first, between places like Dallas and San Antonio, the airline, that he soon called Southwest, flew short haul flights in Texas. As a discount carrier with fares that were approximately 45% lower than the larger airlines, a ticket could cost you $10.

And here is where it gets interesting.

Only a year after Southwest’s first flight, to raise some money, they sold one of their four 737s. Still though, by cutting turnaround time to 10 minutes (a sliver of what then was typical), they were able to fly the same number of hours. Imagine cleaning, restocking, unloading people from the back while new passengers entered through the front in (what they said was) 10 minutes. In addition, they knew not to charge for checked luggage because it creates the incentive to carry more on the plane which eats up time. Also, with no seat assignments, their boarding system worked faster than most and no inflight meals meant less clean up and set up. Meanwhile, reflecting the spirit of their founder, Herb Kelleher, crews were encouraged to have some fun.

The Southwest “recipe” had five ingredients:

1. efficiency
2. product simplicity
3. flight frequency
4. low fares
5. fun

Its impact was a low fare “Southwest effect.”

Our Bottom Line: Thinking at the Margin

As economists, we could say that Southwest competed at the margin. Defined as something extra, when they cut turnaround time and used planes more efficiently, they moved the margin. Even by reducing the food it served, Southwest made a decision at the margin. And aware of the margins that established their unique identity, Southwest avoided baggage fees.

However, you can see why Southwest finally moved its baggage fee margin:

They also will offer “premium” seating:

In the past, Southwest treated us all equally, just peanuts, no assigned seats, “bags fly free.”

Concluding, we see how margins can create and erase an identity.

My sources and more: Thanks to WSJ for inspiring today’s post. They also looked at some Southwest history as did we, here and here, at econlife. Then KETV had the industry statistics.