Southwest To Add A New Fare Category But Keeps Its Strategy

In 2022, Southwest Airlines plans to launch a new fare class. While details are limited, the airline plans to offer a fourth category to enhance its current offering. The airline envisions this as a way to provide more choices to customers and as an initiative to drive revenue growth. However, it does not plan on altering the tried and tested – and successful – model that offers customers flexibility and complimentary baggage.

Southwest Airlines plans on offering a new fare class next year, but it does not plan on taking away benefits from its existing fares. Photo: Southwest Airlines

Southwest Airlines will introduce a fourth fare class

Southwest plans to offer a fourth column of fare offerings in 2022. The airline has not released any information, except that it plans to launch the fare class in the second quarter of 2022. The only details it has released thus far is that it plans on using this fourth offering to “enhance” its overall offerings and increase benefits tied to existing fare classes.

Andrew Watterson, EVP and Chief Commercial Officer at Southwest, described the new fare offering as the following at an investor presentation:

“We believe this will better segment our fare structure in line with the buying habits and needs of our customers, while allowing us to generate more revenue. We will not be penalizing customers in terms of their fares and our product offerings. That does not lead to repeat purchase, which is what powers our business model.”

Southwest will not release details on the new fare offering until 2022. Photo: Getty Images.

Mr. Watterson offered some hints as to where this fare class will land. It wants to use the new fare product to help close the gap between its existing fare classes. He placed the new fare category above the “Wanna Get Away” class and as more of an upsell for enhanced attributes, though below the “Anytime” fare offering. He does not envision the “Wanna Get Away” fare to become more unbundled as a result.

The existing fare classes

Southwest’s three fare classes are called “Business Select,” “Anytime,” and “Wanna Get Away.” With all fares, Southwest offers two free checked bags, no change fees, and no fees for canceling flights at least ten minutes before scheduled departure times.

Wanna Get Away is the lowest fare class Southwest offers. With this fare, customers earn six Rapid Rewards points for every dollar spent and receive a flight credit for future use if they cancel their flight. This is currently the lowest fare class offering Southwest has.

The mid-tier fare class is Anytime. In addition to the basic benefits, customers get a refundable ticket. Passengers booking in this class also receive free same-day changes and standby options. Customers also earn ten Rapid Rewards points per dollar spent.

Southwest Airlines 737-800
Business Select is geared toward higher-yield business travelers who desire early boarding and shorter lines. Photo: Getty Images

Southwest’s highest tier is Business Select. This offers the most benefits for customers in addition to all of the benefits of the Anytime fare class. With the airline’s open seating policy, Business Select customers will be among the first to board with guaranteed A1 to A15 boarding positions. Customers will also get access to priority baggage handling at check-in and security, where available. Business Select customers can also receive a complimentary premium drink (though alcohol service is currently suspended) and earn 12 Rapid Rewards points per dollar spent.

The upsell charges vary based on demand and itinerary. However, the goal is to segment the airline’s offerings further and create a new fare that does not give all the perks of Anytime but offers an incentive to buy up from Wanna Get Away. This should also allow the airline to price up some of the Anytime or Business Select fares.

Southwest will stick with its strategy

While much of the recent changes to fare classes in economy products are focused on unbundling offerings and “basic economy” products, Southwest plans on keeping its customer-friendly offering. Robert Jordan, Southwest’s incoming CEO, was asked about potential changes to seats or bags at the investor event. He stated the following on the airline’s thinking:

“When you think about the things that are important to us in terms of  how we think about our customers, no bag fees, no change fees – they are not changing. 100% absolute. Those will not change.”

Southwest To Add A New Fare Category But Keeps Its Strategy
Southwest Airlines plans on keeping its popular complimentary baggage policy. Photo: Southwest Airlines

He did add that seat selection would be part of a “never say never” pool of opportunities. It does not appear that the airline is looking to abandon its open seating policy anytime soon. However, he was stark in stating that the airline was not planning on cutting its bag offerings because It is a customer-friendly offering that it views as a competitive advantage.

This strategy has worked well for the airline thus far. Despite the growing popularity of basic economy and ultra-low-cost carrier growth across the United States, it plans to continue this strategy. For now, the fourth offering is not looking like it will create a “basic economy” product at Southwest. Instead, it is designed to generate additional revenue for the airline and further segment its offering, thus providing more customer choice. Details of the fare class will be available closer to launch next year.

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