Posted: May 24, 2011
The travel wars are on
Winning one bag and one seat at a timeBy Robert Polk
In what has been quite possibly the smoothest and fastest airline acquisition in recent history, Southwest officially purchased AirTran early this month.
In the short term, not much will change for Southwest and AirTran customers. Southwest and AirTran will continue to operate separately until receipt of a Single Operating Certificate from the FAA, which is expected in the first quarter of 2012. However, during this time, the U.S. airline industry should be preparing for the major impact this merger will have on our industry. A war will be waged over real estate.
Southwest is gaining a very large hub in Atlanta. Before this deal, Southwest did not have one single flight to Atlanta-the world's busiest airport. Delta has dominated Atlanta for as long as there have been airplanes in the South.
Additionally, on a smaller scale, Southwest will also gain access to Washington DC through Reagan National, where US Air is the major carrier, and add gates at New York's LaGuardia. Both of these airports are preferred by business travelers over other current nearby Southwest options.
What advantage will Southwest bring to Atlanta over Delta? First and foremost, Southwest does not charge fees for luggage and many other services for which Delta does charge additional fees. Will Southwest start charging for luggage or will Delta stop charging for luggage?
I see no way Delta can stop charging for luggage. If airlines stop charging ancillary fees, how on earth will they stay in business with the price of fuel rising almost daily?
In turn, I see no way Southwest can start charging for luggage. However, Southwest spokeswoman Whitney Eichinger recently said to USA Today, "Southwest's policy of not charging a fee for the first two checked bags, and its single-class cabins, are possibly the biggest change passengers will eventually see."
This is like saying the Rocky Mountains could leave Colorado, Coke is considering changing its formula, or FedEx is rethinking their policy and will begin delivering packages some time instead of on time.
I cannot believe I have not seen anyone else in the travel industry comment on this statement. Can you imagine the fallout if Southwest were to start charging for luggage and offering first class seating?
Southwest has said for three years that they have won market share from other carriers by not charging for luggage. We have also read that Southwest is leaving an estimated $700 million per year on the table by not charging for luggage. Has Southwest won more than $700 million per year in market share? If the answer is no, you can expect to see Southwest dip its toe in the luggage fee pool. Our best guess is that Southwest may test the waters by charging for the second piece of luggage, leaving the first checked bag free.
Moving beyond ancillary fees, Southwest previously has said that AirTran's first class product will be discontinued when AirTran aircraft are converted to the Southwest brand starting in 2012. Now, Ms. Eichinger's statement leads me to believe Southwest may be thinking outside the single-class, cattle-call-boarding box.
If Southwest does eliminate AirTran's first-class cabins, will these AirTran customers move to Delta's first class seating product? Or, will Southwest eliminate their one-size-fits-all mentality and make a fight for these valuable customers?
While it is difficult to picture Southwest charging for bags, it is nearly impossible to see a day when Southwest would offer a first class cabin. But, could this be a new strategy to assist Southwest in gaining ground with the business travel market, an objective Southwest has stated several times but not acted on or achieved?
You can see why Southwest's purchase of AirTran is such a game changer. They will now be in direct competition with Delta for market share at the world's busiest airport and with US Air (and other legacy carriers) for valuable business travelers in Washington DC and New York. This is a clear clash of cultures.
Legacy carriers Delta and US Air are long-established carriers that fly all over the globe in a wide variety of airplanes that offer coach, business and first class seating. Delta has been in bankruptcy and has successfully merged Northwest Airlines into its system. US Air has been in bankruptcy more than once and has successfully merged with America West.
Southwest is exactly the opposite. Southwest is a young 40-year-old carrier when compared with Delta and US Air (83- and 72-years-old, respectively). Southwest flies only one type of airplane and offers only coach class seating. They have never been in bankruptcy and it seems they have reported profits since their first plane took off. They have never done a merger/buyout on the scale of AirTran.
For your humble reporter, this will be great fun to watch because I will have lots of material to discuss for the next several years. This battle will affect the entire industry and will be fought one passenger and one baggage fee at a time.
Robert Polk is CEO of Polk Majestic Travel Group, Denver's largest independent travel agency. He welcomes your comments and questions at Robert@polkmajestic.com.