What Meaning, Price?

The TV commercial surprised me. Airing repeatedly during the Atlanta Falcon’s football game, Southwest Airlines (SWA) was spending lots of money explaining to consumers why their airfares are lower than competitors (here in Atlanta, that’s Delta Airlines, given SWA acquisition of AirTran). The implication is that without such an explanation for the low fare, Atlantans might be suspicious of an airline offering “$69 fares, one way”. Oh yea, and your bags fly free.

$69 airfares southwest

Southwest Airlines flies more Americans domestically than any other airline in the US.  They have been repeatedly celebrated for their corporate culture, innovation, and efficiency.  They’ve been in business for nearly 50 years, with a great safety record. And yet, they feel the need to explain why they are less expensive!

The reason stated in the commercial has nothing to do with the real reasons SWA has less-expensive fares: (1) SWA flies only 737-800s and 700s, rather than the 14 models of aircraft maintained by Delta (much lower maintenance costs); (2) they pay their captains less ($159K v $205K for 10 years’ experience); (3) they keep their airplanes in the air more (faster turn-around), and (4) they’ve historically had a more successful fuel-hedging strategy than has Delta (see 2005-2007), among others.

winglet physics

The commercial says the presence of “winglets”, upturned wingtips invented by NASA in 1976 to reduce wing-drag from turbulent airflow at the wingtip, is the reason for the low fares, enabling them to “burn 54 million less gallons of fuel each year”, which by the way represented only 3% of Southwest’s fuel burn in CY2012.  Saving 3% of fuel doesn’t equate to 30% lower airfares.  Moreover, at least 80% of the passenger jets I saw this week at Hartsfield-Jackson, Chicago O’Hare, and San Diego’s airport also had winglets, encompassing Delta, United, American, Alaska and US Airways.  So winglets are hardly a competitive advantage.

hidden brain

Whether we admit it or not, we Americans have a deep-seated belief that “you get what you pay for” when buying goods and services.  If an item costs less, our hidden brain (the Limbic system) believes that item is less trustworthy, less desirable, and lower quality.  I see this phenomenon in healthcare too.  The newest (ie, more expensive) antibiotic, implantable, catheter, scanner is immediately believed by doctor and patient alike to be superior to that which is tried and true (less expensive).

KP logo

When comparing health insurance plans with equal benefits, among populations of persons with equal levels of disease burden, Kaiser Permanente’s healthcare is nearly always less-expensive (see AonHewitt’s HVVI Report, for example).  And we deliver much higher quality outcomes and patient satisfaction than do the other companies (see annual NCQA National rankings, for example).  And yet, I hear Atlantans express suspicion regarding our lower costs.  Nevermind 9-years in a row as the quality leader in all of Georgia (see NCQA, Consumer Reports, ACHP).  Never mind we’ve received the JD Power award for customer satisfaction 5 of the last 6 years in Georgia and both Carolinas.

Maybe the Southwest commercial wasn’t about explaining their lower prices …. Maybe it was actually intended to entice the growing demographic of female millennials, who are the Americans most predisposed to changing their buying behavior based upon real or imagined impact to the environment (“54M less gallons of fuel!”).  Nah.  Given how smart their executives are (I’ve met some), they know exactly what they are doing.

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