In a clear sign that growth and change can be positive and problematic, Southwest Airlines grapples with its changed business model.
As Southwest continues to grow and revise its business model, there is increasing evidence that the airline is beginning to manifest many of the problems that afflict its legacy peers.
Getting big equals more complexity
Once the unchallenged champion of performance, the carrier’s website history for 1992 records: “Southwest scores 1st annual Triple Crown. For the first time in the history of the DoT Air Travel Consumer Report, one carrier, Southwest, topped all three major (on-time performance, baggage handling and customer complaints) performance categories for the year, capturing the industry's first annual 'Triple Crown' for its 1992 performance.”
By 1997, the airline painted an aircraft celebrating its ongoing stellar performance and for some years continued to claim the No 1 position.
But as it expanded and grew, load factors grew as well, challenging the ability of the carrier to maintain its 20-minute turns as more passengers were involved at each station. And the airline continued to expand into more congested airports and airspace as it grew its presence, especially in the congested East Coast corridor.
All of this culminated in 2010 when the carrier ranked very near the bottom of the government’s on-time list.
Much of this was also due to the realisation by its competition that poor punctuality was costly, and many began to address the issue. United, for one, radically improved its performance in the 2000’s, often grabbing the top spot.
Rapid Rewards 2.0
And in its latest revision, the overhaul of its Rapid Rewards programme, the company has encountered considerable pushback from its customer base. Rapid Rewards, perhaps the simplest of all frequent flyer programmes, had been virtually unchanged since its inception in 1987. Throughout that period it awarded a point for each completed segment, irrespective of cost or distance.
However, as the client base has grown, and the airline has moved aggressively into the corporate market, the high rollers that the airline wished to attract were not pleased with such an egalitarian system. While frequent travel allowed them to amass lots of points, there was no inherent recognition of their higher expenditure or ongoing loyalty.
As a result, Southwest introduced a new, far more nuanced and complicated Rapid Rewards programme on March 1, 2011.
Not everyone was pleased
The new complexity confused many travellers who had been comfortable with the previous system and many worried about the conversion of “old” points to new. While still quite egalitarian, the method for accrual and redemption was no longer a simple math problem and the phone lines began to light up.
The company struggled to cope with the volume of calls and received a rare negative assessment for its inability to cope adequately with the situation. Extra staff were deployed to assist both on the phones as well as in dealing with the huge increase of contacts via social media, not all of them flattering.
Last week, the airline announced a giveaway of ten million points to those registering on its website between March 15-31. Once on the registration site, customers are presented not only with the possibility to sign up but also with a synopsis of the structure and advantages of the new scheme.
Ten million points equates to a lot of free seats, and perhaps an additional cost that was not anticipated when the new programme was created. Nonetheless, Southwest was quick to realise that it needed first, to broaden the dissemination of information regarding the programme and second, to give it a positive spin.
More surprises to come, says CEO
Southwest’s Chairman, President and CEO, Gary Kelly, acknowledges that the airline has changed and will continue to do so. In the March issue of the airline’s onboard magazine, Spirit, Kelly confronts the issue head-on in an open letter to the airline’s customers.
In it he states frankly that, “Southwest Airlines is much different than it was in 1987, and the way our Customers use our airline is different too. We’ve evolved from being a short-haul, regional airline to the nation’s largest carrier in terms of originating passengers boarded; by month’s end, we will serve 72 cities in 37 states.”
And he leaves little doubt that there are more surprises yet to come. “We plan to continue evolving Southwest over the next decade with potential service to longer-haul destinations like Hawaii and Alaska, along with near-international destinations like the Bahamas.”
While Southwest may continue to flaunt its playful image in the market, the carrier is no longer a young upstart ignored by its legacy competition. Quite the contrary, it is now the elephant in the room and, being that elephant, it moves with more care and deliberation to avoid injury or inadvertent damage.
However, it still ranks high in customer satisfaction and continues to get top marks for its ability to please its customers. It has continued to buck the trend by allowing free bags and has shunned many of the additional fees and charges that rankle customers on its competitors.
But the “carefree” days of being a feisty and unpredictable newcomer are long gone and both the airline and its customers will need to adjust to the new reality.