Randy Petersen's Opening Remarks – January, 21 2011

Randy Petersen's Opening Remarks – January, 21 2011

Southwest’s Unoriginal Move

As you’ll read in this month’s issue of InsideFlyer, the new Southwest Rapid Rewards program is flying of age. One key factor in the decision to go with this program seems to have been to design something that could resonate with business travelers.

Although Southwest has its share in select markets, the airline hasn’t been able to win over its share of business travelers. And with its “Bags Fly Free,” Southwest certainly understands that although this policy has brought in some business from other carriers, that increased business may not always equal what they might have gained by being like the other airlines and earning their slice of the hundreds of millions of dollars that these ancillary revenue streams will bring the airlines.

So, where else are some revenue models that can aid in the ongoing financial success of Southwest Airlines? That’s right, the untapped model of their frequent flyer program. In doing so, however, Southwest needed to break the current barrier of an inflexible currency–the credit system. Partners, and even Southwest Airlines, were unable to bundle credits in a form that could be nibbled up.

By adapting to the new “points” system, they now have a currency that can be understood and sold as part of their brand. It’s immediately obvious that the single change that is being most overlooked is that members will now be able to purchase points. The check-in counter for airlines certainly has a checkout line for point purchases and when Gary Kelly, CEO of Southwest Airlines, proclaimed that this change could result in hundreds of millions of dollars of new revenue for Southwest Airlines, I understood that declaration better than most, if not all the others.

But a funny thing happened on the way to the “forum.” In this new change for Southwest Airlines, they did something they’ve never done before–they became unoriginal. Throughout most of the legendary history of Southwest Airlines, they’ve created a model like no other–everything introduced from Southwest was original and during these golden days they became the most copied airline in the world.

But no matter how the wizards at Love Field tried, there was no path for originality when it came to creating Rapid Rewards 2.0. After nearly 30 years, the age-old observation of “what’s old is new again” is alarmingly true. While the current program will certainly be compared to U.S. competitors JetBlue and Virgin America, you should look further back for a better comparison.

For those of you who have long read InsideFlyer, there is some irony that in fact Southwest Airlines has borrowed from the past and from their nemesis–America West FlightFUND. Remember the days when these two airlines were absolute in their direct competitiveness as low-cost carriers? And there was reason for the name of America West’s frequent flyer program at the time–FlightFUND. It was because the entire program was fare based. It offered international awards as well. Members earned FlightFUND dollars based on three different fare classes: B or Y (like Business Select fares), K fares (like Anytime fares) and Q, M or V fares (like Wanna Get Away fares). Members could redeem their FlightFUND dollars on Pan Am or Singapore Airlines but could not earn FlightFUND dollars when flying those two airlines. Twenty years ago it was highly unlikely that any of us could have imagined the impact that FlightFUND has today. The idea of tying loyalty programs to revenue spent and redeemed was very foreign back then, and faced with the competitiveness of mileage-based systems, America West opted to go and follow the main currency–miles.

Today, programs far and wide like Air New Zealand, Virgin Blue, Virgin America, JetBlue and now Southwest Airlines have FlightFUND to thank, at least for being different. And while FlightFUND did go on to be more like other FFPs than different, it’s really too early to tell right now if being as different as being fare-based is the right call. It makes sense for the airlines that have adopted the model, but there is no empirical research yet that shows it takes or builds market share from other mileage-based carriers.

So while the upcoming firmly established elite levels for Rapid Rewards 2.0 are a positive start for this program in its quest for the business traveler, there’s still something that suggests it’s going to take more than this to move that needle away from empty to full. I have no doubt that this program will be successful with its financial goals for Southwest and that accounts for much in this new program.

But there’s still plenty that will keep the elite business traveler glued to their elite perks–lifetime Gold and Platinum and London and Hawaii all in the same award chart–from straying too far. And with the economy picking back up, it really is too bad that this program couldn’t have come at a better time–when the economy was tanking, rather than when it is improving.

Southwest and Rapid Rewards remain one of my favorite airlines and frequent flyer programs to track, but I just wish that there was something more original in this new program that would have made it more than just being new for Southwest Airlines.

Leave a Reply

Your email address will not be published. Required fields are marked *