Southwest Airlines’ New Fare Opens Door To Ticket Transferability

As ultra-low cost airlines like Spirit began to expand rapidly over the last decade, large U.S. airlines found it difficult to compete at their price point. They could offer the fare, of course, but their cost structure made it difficult to be profitable if they sold too many seats at that price. Delta Airlines was the first to offer a Basic Economy fare — basically a cheap fare that costs the airline less to offer since it takes away some product content. This structure, now in place at American and United, creates a sell-up opportunity as it gives some people a reason to pay the airline more even when a lower price is available.

Southwest Airlines has a different approach. While they grew up primarily carrying leisure customers, over time business travel has become more important to them. Their product offering is appealing to some business travelers also — high frequency and reliable operations if flying for just an hour or two. Their newest fare class — Wanna GetAway Plus — seems aimed at the small business traveler, or perhaps the recently popular idea of the premium leisure traveler. It also gives Southwest the same upgrade option within their own fare structure that has been available to the other large airlines for a few years now. But most interesting is that a canceled fare credit can now have its value transferred to another person.

Details Of The New Fare

Southwest has traditionally offered three fare categories: Wanna GetAway, Anytime, and Business Select. Most sales are in the Wanna GetAway category, because these are the cheapest flights but often sell out long before the flight takes off. The other fares are more expensive and include a few more things, but the price difference has been large when compared with the low fares. This new fare fits between the lowest and the Anytime fare, creating a more realistic upgrade for some. The challenge for the airline then became what they could offer to encourage this sell-up. Features attractive to small business are a greater multiplier on the frequent flier points earned, and the ability to confirm or standby on another flight the same day as travel. This same-day flight change feature is especially attractive on Southwest because of their relatively high frequency among the routes they fly.

The new feature offered on this new fare, plus the two traditionally higher-priced fare categories, is the ability to transfer flight credits to another person. This is a new feature for Southwest and not allowed on most other airlines. Airlines learned long ago that allowing name changes on tickets encouraged ticket scams, and then security issues were added making this even more verboten. This feature will be welcomed by many, but also creates issues that maybe haven’t been completely considered.

Basically Basic Economy

Basic Economy fares, now popular on the largest U.S. airlines, have created a way to match a low-cost competitor but also create a path for an upsell by taking away product content. Prior to Basic Economy, two travelers paying different rates mostly got the same things — same seat, same baggage policy, same frequent flier treatment, etc. There was no reason to pay more if the lower fare was available. But now, some people do choose to pay more because they do not like the restrictions imposed by the Basic Economy fare.

Southwest has stressed that they “are not taking anything away” with this new fare. This not-so-subtle dig at Basic Economy refers to the fact that they added a higher fare and are giving customers new features, but not taking anything from their original Wanna GetAway fare category. While technically correct, this still effectively puts them in the same game because some customers will choose to pay Southwest more to get the added features of the new “plus” fare. Southwest doesn’t charge incrementally for checked bags, or have change fees, or even seat assignments. So, in figuring out what they could offer to entice someone to buy the new fare, they came up with this credit transferability idea.

Pathway To Solving The Refund Conundrum

Getting a refund from an airline has always been a challenge, but problems related to refunds soared during the pandemic. Airlines cancelled many flights, and rather than return money to customers at times when cash reserves were very thin, turned to offering flight credit. This is basically a banked amount of credit that can be used to buy a future flight. But this credit often has limits on it, and sometimes isn’t even appreciated since the reason for the original travel is no longer there.

Many of the industry’s complaints over the last two years have been related to refunds and flight credit limitations. It’s possible that this transferability offered by Southwest becomes a pathway to fixing this tough challenge for the airlines. When I was the CEO of Spirit Airlines, our fares were all non-refundable. When customers had to cancel their trip for reasons out of their control, this frustrated them. I, somewhat callously, compared our tickets to a sports game or broadway show, where if you miss the event you don’t get the money back. Many customers countered with the fact that they can give or sell their sports or concert tickets, but they can’t do that with their airline ticket. Of course, there are now businesses that help you re-market these kind of tickets. It’s possible that this Southwest move is the first move toward airline tickets being traded this way.

Risks Of This New Fare Feature

There is a reason that transferability has been so elusive for the airlines. The new credit transferability offered with the introduction of this new fare by Southwest has two real risks. One is that breakage, or the amount of flight credit that expires or goes unused, is likely to greatly shrink. That will add potentially significant liability to the company. The other is that a secondary market for the credits develops, something that Southwest or any airline would not like to see happen as it takes away some of their pricing control. If you have $150 credit from a flight you cancelled on Southwest, why not sell it on eBay or another site rather than let it expire if you cannot use it? It’s possible that Southwest will say this is against their rules, but if they allow transferability to anyone else this will be hard to stop.

Importantly, it is likely that the time frame of the credit will not be extended. Since credits can expire, the value of selling your Southwest credit will be in part determined based on how much time you have left to use it. These two big risks will make it difficult for other airlines to quickly match. That said, if customers truly sell-up based largely on this, it will be considered elsewhere with possibly some fences to limit the risks.

Will Customers Buy Wanna GetAway Plus?

This is the million dollar question. In stressing that nothing was taken away, Southwest crafted a few things together to make the new fare attractive even when a lower fare was still available. But the biggest of these is basically insurance. When airlines offer actual insurance to protect your fare against a cancellation, the take rate is minimal. The higher frequent flier multiplier is nice, but then you are just buying points which most airlines already allow you to do. The same-day flight change will be valuable to business travelers and less so to leisure travelers, but collectively the reasons to buy-up to this fare are not as compelling than buying up from Basic Economy on United, American, or Delta. It will be interesting to see how Southwest talks about this new fare after it has been in place for a few quarters.