Modeling Southwest Airlines

Posted on April 20, 2010 by - Also by this author

SURVIVAL STRATEGY: Sensitive pricing for today’s economy can make you flexible enough to get the sales volume you need.
I remember going to the International LCT Show in Las Vegas in 2009. Everyone was gloomy and talking about how far their sales had dropped in 2008. I was a bit embarrassed when people asked me how I was doing in Bakersfield, Calif. I had finished the year up instead of down. All was going well for us. Had it not been for media reports, I might have even missed that we were in a down economy.
That all changed for me at the beginning of this year. I am not sure what happened. All of a sudden, our sales took a major slump. My biggest day-to-day client with locations throughout California decided to stop using regional providers and opted for a central ordering point in Florida using current affiliates of that company. The decision was made at headquarters in Sacramento and no matter how good we were, the local office had no input in this decision. I was in a world of hurt and panic.
I started thinking about what to do. There were so many considerations. I had become set in my way that I was never going to discount. After 20 years, we had earned a reputation of delivering consistently good service at a price that was above a handful of competitors. But this is a new game — it involves 20 limousine operators in our new phone book from small nearby towns that couldn’t survive in their tiny locales and started hustling for work with lowball rates in my area. I know they can’t make much profit by lowballing and driving two to three hours round trip for free. Not to mention the wear and tear on the vehicles as they make these free trips to compete against us.
It was time for some drastic measures. It was time to step back and look at who our customers were, where they went, and how to get them back. This required some serious soul searching and looking at other models of travel related businesses including hotels and airlines. I also drew on personal experience in this economy and my travels. I thought about a family reunion last summer and how our family of 200 people had booked at various hotels in the Midland, Texas area. I called several hotels to get group rates or blocks of rooms. Ultimately, one hotel was the most reasonable and seemed eager for our business. They offered up a free breakfast for our block of rooms. They had the lowest rate with the highest star rating in various travel guides and Internet sites.
I vividly remember boarding our family on a Southwest Airlines flight from Burbank to Midland with stops in Phoenix and El Paso. We could not keep our family of seven together on the flight but were allowed to move to other seats in Phoenix when nearly the entire plane was vacated. When the new passengers boarded, we were full again. Nearly everyone got off in El Paso and the plane was filled again. This was the ticket — literally! The lowest priced airline had more business than any other airline. In fact, they were the only airline to turn a profit last year. They are running the same planes as United and Delta, but those airlines are going broke.
It was time to adopt this model. It was time to be more sensitive to our clients. You can get fantastic deals on everything right now from hotel rooms in Las Vegas to brand new cars. Everything is on sale. Restaurants are offering free kid meals, all-you-can-eat pasta nights, and doing all they can to stay busy. We are doing it, too.
While I still have standards, we have become the most negotiable, fair, reasonable, deal-making limousine service in central California. I too have waived travel charges when needed. Gone is the five-hour minimum on Friday and Saturday nights. You want a ride to and from the club? Done deal! $150 gets it done. No more plus, plus, plus either. It is $150. No hidden charges. People like it! Because people start and end their nights at various times, I can keep three cars busy all night doing short hops when otherwise those cars would have been sitting. Now they are driving three or four parties in a night. The good news is no one else in my city is doing it, so like Southwest, I get all the business!
Volume is the name of the game with Southwest Airlines. I am not ready to give up the free soft drinks, champagne, bottled water, and stocked bar yet, however.
Airlines are big on loyalty rewards. Skip earning the points! I dropped my rate for funeral directors to $59 per hour flat. Once again, we do not levy any hidden or extra charges. They feed me business every day. I don’t just want six funeral homes; I want them all. If I must kick a competitor’s butt to do so by beating their price, I’ll do it. One small difference is selling them blocks of time with a purchase of 20 hours at a time to boost our cash flow and lock them in to our service only.
We are in a new era and it is survival of the fittest, most negotiable companies. The companies that scream, “I want your business and I will do whatever it takes within reason to earn it” are going to survive. This was very hard for an old dog like me to adapt to but the proof of success is in the number of sold out days we have seen in the past three weeks. I am talking every single day of the week. I think Southwest Airlines just might be on to something and I am going to follow a proven, profitable leader.

LCT Contributing Editor Jim Luff is general manager of Limousine Scene in Bakersfield, Calif.

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