Southwest Business Class, Lounges, Europe Flights Inevitable

Southwest Airlines has openly explored the possibility of adding business class, airport lounges, flights to Europe, and new aircraft – but it’s not if, it’s a matter of when. 

Southwest Will Move Into Premium Expansion, Here’s Why

Management at Southwest Airlines has publicly stated it’s exploring a number of options which more or less assimilate the carrier to mirror other major US airlines like American, Delta, United, Alaska, and JetBlue.

But it’s not really a matter of “if” the carrier will make this move but rather when it will do so. The reasoning is really very simple. The airline had a unique selling point (USP) of bringing sensibility to the airline industry. Simple point-to-point routes, a standardized fleet that meant flyers were never stuck on a 30-seat prop plane, no luggage charges, and boarding that allowed passengers to choose their own seat without paying extra to select it. With Elliott Management’s investment and then assumption of board seats, it’s USP is gone.

As Southwest has not immediately seen a complete market turn around from charging for luggage, seat selection, and priority boarding (some of which have not been implemented for current flights but are billed for future flights), management has no choice but to kill the remaining sacred cows to look for value.

What Will The New Southwest Look Like?

The Days Of An All 737 Fleet Are Coming To An End

Alaska Airlines was a mostly 737 fleet but to move forward and grow, it needed to add long haul flights, and alliance affiliation. The quickest way to accomplish that goal was to buy Hawaiian Airlines which already owned long haul aircraft and held firm orders for additional equipment rather than place an order years into the future or buy second-hand equipment on the open market.

Unlike the Airbus A321-NEO and XLR which have the range to reach Europe consistently from multiple points to several east coast gateways, the Boeing 737 doesn’t have the same range. Additionally, Southwest’s presence on the east coast would limit logical connection points to Baltimore.

If Europe is the next logical point it will need bigger aircraft with enhanced range. I agree that this would be the long haul market to engage if long haul is a forgone conclusion (even though I disagree that it’s necessary at all.) For minimal continuity, I would presume that Boeing 787 would be the choice though Airbus could make a play with its A330NEO and A350 family aircraft. I wouldn’t put anything past Elliott and co.

Business Class

What in the world would Southwest Business Class look like? Well, it would have to look like the competition. There would be little point in bringing any product to the market that wasn’t lie flat, and in the current environment looking forward, probably with a sliding door.

It would also mean proper meal service, ovens, larger galleys, and buy-on-board options for coach. All of this, including the meal service, would be a seismic and fundamental change. Crew training, catering costs, adjusted weight for both the galleys and food it currently doesn’t serve, as well as spoilage would all factor in.

Airport Lounges

Management for the airline has stated it is entertaining airport lounges. This is one area where Southwest might stay more true to its current nature. Unlike other carriers that bring in celebrity chef-designed menus, and build sprawling lounges, Southwest will likely be more reserved. It will also operate from some alternative airports where the airline is likely to depart for long haul flights. Baltimore, perhaps, but Chicago Midway, Dallas Love, and Houston Hobby are all huge hubs for Southwest’s current footprint but do not cater to larger carriers that operate lounges. Dallas Love has just 20 gates in a single terminal, implementing a large scale lounge like a United Polaris facility is impractical. According to View From The Wing, Southwest has signed a lease for a space in Honolulu – an interesting place to start.

Airport lounges serve dual purposes. First, to support credit card holders and frequent travelers on the airline, and second, to service international business class customers and elites on those long haul flights. It’s clear the airline is interested in adding a premium card that will have to justify its higher annual fee, lounges are the bait for this card category.

I expect it to keep with its blue, orange, and yellow signature colors, but limit both the size and the scope of the lounges as well as target airports.

Europe Flights

Spreading Southwest’s wings across the Atlantic is also something management has publicly kicked around and following Alaska’s model, it make sense. The two carriers have very different customer bases and geographic concentrations, I’m inclined to believe that Southwest customers are more likely to book a flight to Paris than Seoul based on zero evidence.

Assuming the carrier adds jets capable of reaching anywhere on the continent from any major base in the United States, the top priorities would have to be (in no particular order):

• London
• Paris
• Dublin
• Barcelona
• Rome
• Berlin
• Athens

London and Paris have an excessive amount of lift already in place, and I can’t imagine that Southwest will play spoiler to American Airlines and British Airways extensive network. Paris is also well serviced by existing carriers in the US and, of course, Air France. Athens is seeing a large lift from American next year including flights from Dallas. Dublin would also be hard to crack simply because Aer Lingus’ use of A321-NEO/XLRs make more nonstops possible, and its US network has grown considerably.

Barcelona might be an interesting option with fewer flights than some of the others, but year-round excellent weather, and some familiarity with the Spanish language. Berlin is chronically underserved from the US market. Munich and Frankfurt see plenty of traffic due to their Lufthansa hubs, but tourism demand is higher in Berlin as is governmental traffic yet Delta and United offer just once daily service from the New York/Newark market each. Norse adds 2-4x weekly service seasonally, also to New York.

Southwest is also going to have to decide what its passenger split will be in terms of consumers and business, a determining factor in the type of aircraft offered and the destination chosen.

Credit Card Partnership

Southwest exclusively partners with Chase for its credit card portfolio. As many have described the US aviation business, airlines are just credit cards with wings. There’s little data that refutes this assertion. In the affinity credit card market, airlines tend to have different products at entry, mid, and affluent levels with elevated perks and annual fees for each. Similarly, there are business card equivalents.

To generate more credit card sign-ups and spending activity (whereby Chase will purchase more points from Southwest to award its members’ earnings) it will need a more robust line-up especially at the middle and top levels of the market. In order to justify those higher annual fees, the benefits will have to include lounge access and higher uses of its points. It’s difficult to justify a $500, 600, or even $900 annual fee without a slew of high end benefits including lounge access. While this can be achieved through Priority Pass, it’s not unique, and it makes the airline beholden to the lounge network to deliver its core product and at a price that will be higher than a per-entry cost in its own lounges.

Southwest must have greater revenue, the shortest path to that is through credit cards, and the requirement for the best credit cards are to have a lounge network of Southwest’s own.

Conclusion

While it’s been hinted at, there’s been no official announcement of these elements coming together. However, Southwest has made a clear departure from its short haul days of the past. Its endless quest to reinvent itself will require large systematic changes where every sacred cow has been slaughtered and a standardized approach with a traditional model is the most likely answer. The only question, to this writer, that remains is just how far outside its model and comfort zone it strays. It will need long haul aircraft but will those move to Airbus or stay with Boeing? It will need lounges but where do those make the most sense? What does a Southwest lounge look like when it has to stay close to the fun brand it has built but offer some level of serious luxury and comfort? And where does Southwest put those lounges?

What do you think? How do you imagine Southwest will approach these changes?