“Sea of sameness” is how my colleague Andrew Harris likes to describe a market with a number of undifferentiated players. I am adapting his term for the big three U.S. carriers—United, American and Delta—and now call the market they inhabit the Sky of Sameness.
What I mean by this is that there are few meaningful differences between these three carriers. Whenever one carrier rolls out something that seems to appeal to customers, the others soon copy it. So when United rolled out separate boarding lines for elites some years ago, its competitors soon copied it. When one airline started upgrading international business to lie-flat seats, the others started to do this as well. Delta rolled out Wi-Fi fleet-wide, and soon American and United were scrambling to catch up.
This is partly the nature of the industry. Airlines only have two suppliers to buy their mainline planes from, and the number of seat manufacturers is not much higher. And given the tight design envelope for an economy-class seat, there is not a lot of room for innovation. So we should expect the physical product (the “hard product” in industry parlance) to be pretty much the same except for a few specialty areas like international business class and transcontinental first class.
But air travel involves so much more than the hard product. The service (the “soft product”), the pricing architecture, the buying experience and so much more go into the total passenger experience, and there is a lot of room to differentiate in these areas.
So who is different? Southwest. While Southwest is similar in scale compare to the big three, it offers a very different value proposition. One of the most obvious manifestations of this is “Bags Fly Free.” With Jet Blue moving to charge for a first checked bag for at least some fares, Southwest is now the last domestic carrier to not charge.
At the recent GBTA conference in Orlando, Southwest CEO Gary Kelly said, “Southwest has this distinctive position as the only airline that does not charge for bags. Who would not want that?” He went on to say that internal analysis showed that if it started charging for bags, the company would lose $1 billion a year, net of the income from bag fees.
This implies that Southwest’s “Bags Fly Free” offer appeals to a segment of travelers who value this feature highly. As the only airline with this offer, the carrier now owns this segment. If it were to charge for bags, Southwest would give up this segment, and would have to spend money in other areas, like advertising and fare sales, in order to make up the lost business.
So here is my advice to the big three: Stop trying to be serve everyone, and stop chasing each other’s tails. Figure out the market segments you really want to serve, and go after those with focus and determination. Don’t worry about what your competitors are doing. Worry about what your chosen portion of the market wants.
Last year, Delta announced it was moving SkyMiles from being a miles-based program to a revenue-based program. United soon followed suit with Mileage Plus. Will American also move its AAdvantage program to a revenue basis? Only a few top people at American, if any, know the answer to this question. Should American move AAdvantage to a revenue-based program? I will share my point of view in my next post.