Southwest Airlines to launch new ticket type to boost revenue
Carriers continue to embrace a-la-carte pricing models to get customers to spend more
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Southwest Airlines Co. is launching a new type of ticket with some additional perks as it looks to boost revenue and its appeal to business travelers.
The new fare will rank above Southwest’s cheapest option and be positioned below two pricier tiers. It includes additional features the airline hopes travelers will pay up to get: the option to cancel flights and give the credit to a friend, family member, co-worker or anyone else who is a member of Southwest’s frequent flier program; and same-day flight changes without paying any price difference.
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Airlines have worked in recent years to carve their offerings into ever narrower niches, embracing an a-la-carte pricing model to get customers to spend more for extra leg room, better seat locations and other benefits that were once bundled into the cost of a ticket.
A Southwest Airlines employee helps a passenger to check in at a counter at Ronald Reagan Washington National Airport. (Photo by Alex Wong/Getty Images) (Alex Wong/Getty Images / Getty Images)
They have bet that this strategy will help them appeal both to bargain hunters and big spenders and to compete with discount carriers that offer cheap base prices with layers of added fees. Southwest has pursued a delicate balance in finding ways to bring in more revenue without taking away the perks that have made it popular with customers in the first place.
The airline allows people to check up to two bags free and doesn’t charge change fees—a policy several major carriers emulated for the first time during the pandemic as they looked for ways to spur booking among anxious travelers.
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Southwest said in December that it was planning to start offering a new type of fare that, along with other initiatives like a modernized revenue-management system, would bring in an additional $1.5 billion in pretax earnings next year.
The new fare will likely go on sale in the coming months, and Southwest hasn’t said how much more it will cost. Executives said the airline’s new offering, its first new fare type since 2007, won’t take any benefits away from its lowest-tier tickets.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| LUV | SOUTHWEST AIRLINES CO. | 31.97 | +0.18 | +0.57% |
Right now, customers who buy the cheapest Southwest tickets get a flight credit they must use within 12 months if they cancel the trip, while only those who buy pricier tiers of fares can get a refund. Southwest fliers buying the cheapest fares don’t pay a fee to change or cancel flights, but they can end up paying for an increased fare to fly on another flight the same day.
Southwest found in its research that customers possess credits they don’t have the time or ability to use and would like to transfer them to someone else, said Jonathan Clarkson, Southwest’s vice president of marketing, loyalty and products. "That is a pain point that a lot of our customers relay," he said.
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Executives said they believe the new offering and other upgrades to Southwest’s business-focused fares will appeal to both corporate and leisure travelers, and they come as Southwest is trying to grab a bigger share of corporate travel budgets.
Write to Alison Sider at alison.sider@wsj.com