Southwest CEO Predicts ‘Price War’ Is On The Horizon

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At the conclusion of last week, Southwest Airlines CEO Gary Kelly predicted that intense competition for passengers will create “a brutal low-fare environment” among carriers once coronavirus fears subside and more people start to fly, according to Bloomberg.

THE CHALLENGE FOR AIRLINES

Due to demand, airlines have had to make extreme capacity cuts. In other words, the airline may have flown 10x per day between your hometown and New York City, but now they are only flying once per day.

However, even with capacity cuts, the numbers of passengers is still down (still ~90% less year-over- year) and there are still more airline seats than customers.

“We’re well prepared for this catastrophe and we must strive to stay that way,” Kelly said. “Our low-cost philosophy, strategy and structure will serve us very well.”

FINAL STAMP

When price wars take place, passengers win.

As I’ve said this in previous blogs, airlines have to put passengers in seats to make money. As the money from the government bailout CARES Act runs out, airlines will need to be creative in their attempts to lure passengers back.

I have no insider knowledge about their strategies but a sure-fire way to NOT add revenue is by increasing the fares.

Generally speaking, passengers haven’t been flying for the last 3 months so it’s possible to hold out even longer if there is no incentive (e.g. lower prices) to fly.

Interestingly, miles and points on Southwest are directly tied to the cost of the ticket so if you have SWA points, you may the unique opportunity to fly without spending any money.

I think the opportunity is best captured by the quote “if you stay ready, you ain’t gotta get ready.” – Will Smith

Do you have your miles and points ready?