"Are peanuts no longer enough?" asked The New York Times on Sunday, March 7, in an article on Southwest Airlines
For example, Frontier Airlines
Without providing its opinion, the Times simply raised the question of whether Southwest should alter its "no-frills" approach and noted that management is seriously considering matching some of the competition's offerings such as in-flight entertainment systems.
In my opinion, Southwest should not change a thing. These perks are ephemeral attempts to create differentiation that go against the fundamental trend in air travel -- an airplane seat that was once a luxury good is quickly becoming a commodity.
In a commodity market, low-price always wins. Southwest has significant cost advantages from experience and economies of scale, which give it the ability to be the low-cost leader in this industry. While in-flight entertainment, food, and assigned seats are nice, if given a choice, customers have demonstrated that they would rather save a few bucks and forgo these perks.
If Southwest sticks to its original strategy of continuously driving operating costs lower, it will dominate this industry in the long term. By maintaining a cost advantage, it can choose to match or slightly undercut competitors' prices and generate high margins in selected markets. Or it can aggressively cut prices to attack particular markets or competitors who can't survive at a lower price point, then raise fares once it gains control of a market. It successfully drove US Airways
Southwest has a proven business model with a competitive advantage that gets stronger over time. Tinkering with it would be a mistake. For the majority of airline customers today, if the price of the ticket is right, peanuts are more than enough.
Fool co-founder Tom Gardner is always searching for the next Southwest in his Hidden Gems newsletter. Take a free trial and see if your portfolio takes off. Also, tell us if you think Southwest should stick to peanuts on the Southwest Airlines discussion board. Is JetBlue the next Southwest? Will it and Frontier be able to move in on Southwest's turf?
Fool Contributor Salim Haji lives in Denver, Colo., and does not own shares in any companies mentioned.