There are very few complaints you can make about America's low-cost airlines. Southwest (NYSE: LUV) disturbs our sense of "everything in its place-ness" with its no-assigned-seating policy. Motley Fool Stock Advisor pickJetBlue (Nasdaq: JBLU) doesn't yet fly to (or from) most of the places most of us want to go. AirTran (NYSE: AAI) doesn't offer first-class seating. These and other cost-cutting measures put in place by the discounters help to keep their fares so low that they are stealing market share from the old-guard airlines and gradually driving them out of business (Delta (NYSE: DAL), for example, is already halfway there.)
But the thing is, the discounters really aren't all about eliminating frills. They are about eliminating the kinds of frills that their customers are willing to do without -- and keeping or even adding benefits that their customers see as adding value. It's all a matter of priorities. Whereas American Airlines (NYSE: AMR) will serve you a hot lunch of mystery meat, boiled potatoes, and a cookie, Southwest understands you are willing to forgo the entree and munch peanuts if it means saving a hundred bucks on the plane ticket.
On the other hand, say you want to send your 12-year-old off to summer camp in Florida. With American, you not only have to pay for the ticket, you have to pay the company a $40 "baby-sitting fee" as well (penalty for non-payment: "We may drop your kid off in Duluth." No, not really.) The same is true for Continental (NYSE: CAL), Northwest (Nasdaq: NWAC), and United Airlines. Continental will charge you $40, Northwest $45, and bankrupt United, which really needs the cash, a $60 tip.
How much do Southwest and JetBlue charge for baby-sitting? Zip. (AirTran is a bit of a cheapskate in this regard; however, its $25 charge is still a bargain compared with the big boys' fees.) Asked about Southwest's policy, a company spokeswoman explained to TheWall Street Journal: "We treat it as a service to the customer." What a concept.
Put it all together, and the discounters have hit upon a formula that billionaire super-investor Warren Buffett would instantly recognize. You could almost suspect that the discounters are cribbing from his September 2001 memo to Berkshire Hathaway managers, in which he instructed his team to (1) "Widen the moat," (2) "build enduring competitive advantage," (3) "delight your customers," and (4) "relentlessly fight costs."
Memo to the old-guard airlines: Nos. 3 and 4 are not mutually exclusive. And if you can figure out how to do both, Nos. 1 and 2 should fall right in place.
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Fool contributor
Rich Smith
owns no shares in any company mentioned in this article.
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