Southwest Merger Should Make High Ancillary Fee Legacy Carriers Very Nervous. Especially Delta.

As news of the proposed Southwest and AirTran merger continues to drive speculation on fares and competition, one aspect of the merger needs no contemplation:  the impact of Southwest’s fee structure vs. their direct competitors.  Perhaps nowhere will this impact be felt more than Atlanta – an AirTran hub and by far Delta’s biggest backyard competition.

In mergers, typically, the surviving brand is derived based upon many factors.  Reputation, global reach, history, market value, etc.  In some mergers, brands are combined to squeeze the best of all worlds – United/Continental comes to mind.  In the case of Southwest and AirTran, can there be any debate that the Southwest brand will survive? And anyone watching television these days knows that Southwest  is touting its zero first and second checked baggage fee as part of its brand.  But make no mistake, Southwest’s competitive fees go far beyond just their baggage fees.   In fact, in virtually any category, Southwest offers the lowest fee.  And who, you ask, leads virtually every category with the highest fees?   You guessed it:  Delta Air Lines.

It makes perfect sense that Southwest would keep their fee structure intact once SWA and AirTran synchronize their policies.  Why?  Because, as posted on my earlier blog entry, SWA enplaned an astonishing 101.338 million passengers in 2009.  Its closest competitor, American, enplaned a distant 85.720 million passengers in 2009.   (Of those, 19.5 million passengers on American were international passengers who typically get many more freebies like first checked bag and in-flight meals.)   My conclusion, Southwest can keep its fee structure low because what it lacks in actual cost per fee, it makes up for in sheer volume.  Now add AirTran’s 23,968,050 system-wide passengers in 2009 to Southwest’s and you have a staggering number of bodies paying lower fees.  There’s no practical reason to change such a structure especially if it’s core to your brand as it is to Southwest’s.

So what does this do for a company such as Delta whose behemoth market presence in Atlanta has given it great pricing power over fees?  Well, a simple look at the math says that 7,435,755 passengers on AirTran in Atlanta and 19,953,559 passengers on Delta in Atlanta will now have a choice to board Southwest airplanes with Southwest’s dramatically lower fee structure across its system.  So, based on this merger, the folks at Delta’s General Offices may have to reconsider their fee strategy.  The dreaded Southwest monster is now in Delta’s back yard.  Be afraid.  Be very afraid.

Chris

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One response to “Southwest Merger Should Make High Ancillary Fee Legacy Carriers Very Nervous. Especially Delta.

  1. Ah yes, competition over FEES! Who would have ever believed it? I like it.

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