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Long Post: The Ultimatum Game (Why I'm Obsessed with Southwest)

Long Post: The Ultimatum Game (Why I'm Obsessed with Southwest)

Old Jan 16, 10, 4:28 pm
  #1  
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Long Post: The Ultimatum Game (Why I'm Obsessed with Southwest)

I have some time on my hands sitting in the airport, so I thought I'd share my thoughts. I finally realized why I have this irrational affinity towards Southwest, and I think/hope some of you will relate.

Some frequent flyers don't "get" Southwest. Most of the rest of us are obsessed. There is very little middle ground. I'm clearly one of the obsessed; allow me to explain why.

You may have heard of The Ultimatum Game.

Here's a short description: You have 10 pieces of candy. You offer me any number from 1 to 10 of those pieces. I can accept your offer and we go on our way, or -- here's the catch -- if I reject your offer, neither of us gets any candy.

Economists and game theorists originally thought that even if you offered me one or two pieces, keeping the other eight or nine for yourself, I'd accept it. After all, a little candy is better than nothing. But that's not how humans are wired. In experiments, children nearly invariably rejected unfair offers.

Kids would rather go without candy (think about this, parents) than deal with someone whose gain makes them feel cheated. It turns out the only power these kids had in the game, was to go away and play elsewhere.

So they did.

I'd venture a guess that airline CEx's and bean counters don't put much stock in the lessons that can be learned from the Ultimatum Game. They don't seem to consider there are consequences for creating customer-unfriendly policies simply because "they can". They don't seem overly concerned about making customers feel welcomed, valued, and fairly treated. They don't seem to care about making customers WANT to fly with them. If they did, things like $1,000 fares for 700-mile domestic flights on puddle jumpers, baggage fees, and exorbitant $150-$250 change fees would be a thing of the past.

Yes, I understand some people are not offended by fees. But I and others like me always have been, even before baggage fees were a glimmer in the CEOs' eyes. They offend me so badly -- especially change fees -- that I go out of my way to avoid their possibility.

You see, I don't care what anyone says: airlines oversell flights, so even a last-minute change does not cost an airline $150-$250. They blatantly admit it's nothing more than a "penalty" -- a slap on the wrist from momma -- apparently for daring to buy a discounted fare in the first place. What's even worse is when I miss my flight, they make me pay extra money to take the next one. No matter what the reason, the fact I missed my flight means it's likely going to be a bad day. It's unbelievable that airlines see my mishap/misfortune as a chance to gain some cheap bucks; it's beyond insulting and completely unnecessary.

Even when things go well on legacy flights, I don't feel good about flying with them. I feel I'm part of the problem to have paid them money. And it stems almost exclusively from the fact they charge exorbitant change penalties and baggage fees. (To be fair, it's not just legacies. Heck, I even hate flying JetBlue and AirTran because I've had to pay both of them change fees.)

As passengers, however, most of us intrinsically know the Ultimatum Game. We see the legacy airlines as the kids trying to keep eight Skittles for themselves. Meanwhile, we passengers are the ones saying, "If you're going to be unfair, I'll play with someone else." To me, the only "someone else" in the entire industry has been Southwest Airlines.

My disdain for these other airlines' policies makes me willing to give something up -- for example, a little money, a little time, a little convenience, the ability to fly first class, or the ability to earn awards that can supposedly be redeemed for overseas flights. I'm willing to give these up to avoid dealing with companies whose goal is to squeeze every last possible penny from my wallet.

I only fly airlines that charge change fees when my destination is not served by Southwest. Some extreme examples of going out of my way to avoid legacies:

1. I once turned down a non-stop US Airways flight to Philly. I instead took a Southwest flight to Baltimore, and connected to an Amtrak train to the Philly area.

2. On an upcoming flight to see my family I had two choices I was willing to consider:

Choice A: Pay $350 out of pocket for a one-stop Delta flight to my family's town.
Choice B: Pay $250 out of pocket for a one-stop Southwest flight that lands five hours from their town.

I swear to you I seriously considered Choice B despite being a Gold Medallion Skymiles member.

3. I fly to Miami almost weekly for business. I choose to fly Southwest to Ft. Lauderdale (30 miles away) rather than AA to Miami (2 miles away). The fares and schedules are similar.

4. In a few months I'm taking a vacation to Maine for the first time. I'm flying Southwest to Manchester, NH (60 miles away) rather than another airline to Portland, ME (which is where I'm going).

This is all precisely because -- just as the Ultimatum Game predicts -- the feeling of being treated fairly is a hell of a lot more satisfying than an upgrade to first class.

The results of The Ultimatum Game, though hard to understand for a few, rings true for most people. This convinces me the goodwill lost through junk fees is more widespread than many believe. My frustration with airline CxOs, finance officers and accountants is that they seem to fully deny the loss of goodwill stemming from change and baggage fees.

Being an MBA myself and spending too much time around those types, I think it's because we don't value things that aren't easily measurable, even if they're real. It's difficult to measure the dollar value of goodwill (which translates into tangible dollars from customer loyalty and repeat business), but easy to take credit for a quantifiable amount collected in fees.

Legacies give me the vibe their CEOs would take my baby's candy as a "fee" if the FAA allowed it. WN gives me the vibe that they charge enough to make a fair profit from the services they provide, and try within reason to serve customer needs without gouging them.

Personally, I'm not rich, but like most frequent flyers I'm not poor either. I'm lucky and blessed enough that I don't have to pinch every last penny. But I'm like the kids in the Ultimatum Game. I refuse to deal with even the possibility of a change fee or baggage fee solely on principle, even if it costs me extra inconvenience or cash up front.

Some naysayers say Southwest's lack of change and baggage fees is unsustainable. I disagree. To me, it's empowering to have a choice to avoid legalized robbery. And that feeling of empowerment -- knowing I have a choice not to pay junk fees -- is ultimately what makes Southwest my airline of choice.
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Old Jan 16, 10, 8:09 pm
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Wow. And I mean that in the best possible way. Wow. Great post.
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Old Jan 16, 10, 8:20 pm
  #3  
 
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Wirelessly posted (iPhone: Mozilla/5.0 (iPhone; U; CPU iPhone OS 3_1_2 like Mac OS X; en-us) AppleWebKit/528.18 (KHTML, like Gecko) Version/4.0 Mobile/7D11 Safari/528.16)

Your flight must have been really, really late...
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Old Jan 16, 10, 9:18 pm
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I can relate to your feelings, judolphin. As an industrial engineer, the noticeable operating differences between WN and the competition is amazing:
  • Simple fare structure
  • check-in counters with WN reps handling 2-4 kiosks
  • The method the drink orders are taken and distributed (without expensive carts that have to be stocked between flights)
  • Gate areas that don't have multiple plasma flat screens to show me a standby list I never need to see

WN has tackled so many issues to make the most of their resources and capital - and they've been profitable in the past when the legacies bleed red ink. I feel compelled to support a business like that, as opposed to the legacies, most of whom in the past week have just raised fees to check a bag by another $5. Where does that end...when it's cheaper to buy a suitcase the window seat? My next thought is that if I don't give my business to the airline setting the lower fares and not gouging consumers with fees to change a flight, that airline may not be around forever, leaving me no choice and lighter pockets in the future.

Personally, I travel to HSV two weeks per month (unfortunately the weeks are never set in stone, so I need some flexibility). Our plant is literally right next to that airport. Instead, I have flown MDW-BNA all but once, rented a car (which I'd do from HSV anyway), and driven 120 miles each way to HSV. A last minute fare for MDW-BNA is roughly $320; a last minute ORD-HSV can exceed $1200. The cheapest 21-day advance ORD-HSV (on UA/AA) is $330, whereas WN's MDW-BNA can be had for $140. I wish I could bring myself to fly AA/UA directly to HSV and avoid the time spent driving...I just can't see spending the money, despite the argued value of my time and extra gas driving between BNA and HSV.
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Old Jan 16, 10, 9:29 pm
  #5  
 
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Originally Posted by MilesMonster View Post
I can relate to your feelings, judolphin. As an industrial engineer, the noticeable operating differences between WN and the competition is amazing:
  • Simple fare structure
  • check-in counters with WN reps handling 2-4 kiosks
  • The method the drink orders are taken and distributed (without expensive carts that have to be stocked between flights)
  • Gate areas that don't have multiple plasma flat screens to show me a standby list I never need to see

WN has tackled so many issues to make the most of their resources and capital - and they've been profitable in the past when the legacies bleed red ink. I feel compelled to support a business like that, as opposed to the legacies, most of whom in the past week have just raised fees to check a bag by another $5. Where does that end...when it's cheaper to buy a suitcase the window seat? My next thought is that if I don't give my business to the airline setting the lower fares and not gouging consumers with fees to change a flight, that airline may not be around forever, leaving me no choice and lighter pockets in the future.

Personally, I travel to HSV two weeks per month (unfortunately the weeks are never set in stone, so I need some flexibility). Our plant is literally right next to that airport. Instead, I have flown MDW-BNA all but once, rented a car (which I'd do from HSV anyway), and driven 120 miles each way to HSV. A last minute fare for MDW-BNA is roughly $320; a last minute ORD-HSV can exceed $1200. The cheapest 21-day advance ORD-HSV (on UA/AA) is $330, whereas WN's MDW-BNA can be had for $140. I wish I could bring myself to fly AA/UA directly to HSV and avoid the time spent driving...I just can't see spending the money, despite the argued value of my time and extra gas driving between BNA and HSV.
Not to second guess you since you make the trip far more often than I ever will, but why BNA instead of BHM? It seems like BHM is 30 miles closer than BNA to HSV.
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Old Jan 16, 10, 9:32 pm
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Originally Posted by SCGustafson View Post
Not to second guess you since you make the trip far more often than I ever will, but why BNA instead of BHM? It seems like BHM is 30 miles closer than BNA to HSV.
MDW-BHM requires a layover in..........BNA.
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Old Jan 16, 10, 9:40 pm
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This is a very interesting theory. I wonder how it would play out if WN flew to more cities. I have never flown WN because they are not a reasonable option where I live, I would have to drive 3 hours to the nearest airport that they fly to. In addition, WN can never take me to family or vacation overseas. Finally, I, like many FTers, have elite status on an airline so we don't pay many fees (except change/cancellation fees on cheap tickets).

I've never really felt wronged by an airline (or even nickel and dimed), but I have never flown WN, so I don't fully understand the WN lovers.
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Old Jan 16, 10, 9:54 pm
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Originally Posted by MilesMonster View Post
MDW-BHM requires a layover in..........BNA.
Not to mention that you get to go through Ardmore, Tennessee/Alabama if you cut across country. A garden spot if there ever was one.
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Old Jan 17, 10, 8:16 am
  #9  
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Originally Posted by flyastrojets View Post
Wow. And I mean that in the best possible way. Wow. Great post.
Thank you!

Originally Posted by tusphotog View Post
Your flight must have been really, really late...
Ha... to be honest, I was about 3 hours early to the airport (tried to get on a 4:30 but couldn't, so went on a 7:30), thought of this and started writing at the airport and on the plane. Edited it yesterday and posted it.

Originally Posted by MilesMonster View Post
I can relate to your feelings, judolphin. As an industrial engineer, the noticeable operating differences between WN and the competition is amazing:
I agree. They found a way to profit from the actual product they sell (imagine that!) -- instead of resorting to "ancillary revenue" to try to make ends meet.

Originally Posted by MilesMonster View Post
A last minute fare for MDW-BNA is roughly $320; a last minute ORD-HSV can exceed $1200 . . . I just can't see spending the money, despite the argued value of my time and extra gas driving between BNA and HSV.
Your anecdote is not uncommon, and this is another good point: legacies engage in monopolistic pricing when they really don't have a monopoly. UA doesn't consider Nashville or Birmingham a competitive market to Huntsville, but you obviously do. WN has built an entire company saying that, yes, any airport within driving distance (MDW, ISP, FLL, MHT, PVD, DAL, HOU, OAK) is a legitimate alternatives. Legacies are digging their own graves by ignoring or denying how many pax implicitly agree with WN's "driving distance" philosophy.
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Old Jan 17, 10, 8:22 am
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Originally Posted by fs2k2isfun View Post
This is a very interesting theory. I wonder how it would play out if WN flew to more cities. I have never flown WN because they are not a reasonable option where I live, I would have to drive 3 hours to the nearest airport that they fly to.
Right, that would be a bit crazy.

If you happen to be between Pensacola and Panama City, WN's starting service there in May with the new airport.
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Old Jan 17, 10, 10:23 am
  #11  
us2
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Very interesting post. I suspect one could turn the subject into a PhD thesis, if one were so inclined.
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Old Jan 17, 10, 11:10 am
  #12  
 
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Great post, Judolphin! We have been loyal WN flyers for years now. It's simplicity and ease is just a bonus to their great fares and so far very good customer service. As a CP member, we are now to the point that we make our vacation decisions somewhat based around where WN flies.

We too believe that any kind of support to businesses that practice gouging only gives them the idea it's ok. We do everything we can not to participate. The only time we fly non-WN is when it's international.
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Old Jan 17, 10, 3:30 pm
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Originally Posted by MilesMonster View Post
[*]The method the drink orders are taken and distributed (without expensive carts that have to be stocked between flights)
How do they get drinks on and off the aircraft?
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Old Jan 17, 10, 4:30 pm
  #14  
 
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A Convert To WN Used To Fly Legacy BOS - DCA

judolphin,

Great post. Agree with at least 95% of what you say!

I wish that WN would put more political style advertising in the media. It should really be like an add for a politician, and say essentially, if you fly a legacy airline you are supporting change fees, bag fees, redeposit fees, close in ticketing fees, $1,000 fares for short flights, etc. I think WN could do more to make their passengers in to evangelists. Maybe they could use the goodwill to try to influence the DOT with things like slot transactions. I think they could easily make announcements that explain to the average person how WN has different procedures than nearly any other airline when it comes to change fees.

I have managed to avoid paying change fees much of the time on the legacy airlines via a variety of methods . However, I am still very much offended by their business practices and lack of ethic in dealing with customers. I am offended by their bean counter mentality. Of course its largely the accountants, suits, executives, bankers, etc. in the corporate headquarters. I'm also offended how stupid the public is to just accept these fees. If the public rallied their elected representatives and flooded the US Department of Transportation with complaints, Congress would feel more compelled to act! Instead, like sheep, the public just pays the fees and doesn't engage the people in Washington either at DOT or in Congress that the public pays to look after the public interest.

I agree with you 110% also that change fees are a much bigger deal than baggage fees.

I travel 2-3 times a month from BOS to WAS. One trip I take often could easily be done as a day trip on the US Shuttle. However, it is hundreds of $'s less for me to fly WN from BOS to BWI, travel from BWI to DC, stay in a hotel near BWI, and take the first WN flight from BWI to BOS. I've flown 20 WN flights starting in October 2009. The most expensive o/w WN ticket from BOS to BWI is $150 for business select. A similar ticket on US Airways could be at least $400 for BOS to DCA. There are similar fare issues in the BOS to PHL route.

On 99% of my BOS to BWI flights the airplane goes out full. On the few US Shuttle flights I've taken there are always plenty of open seats. I really hope people are smart enough to book away from US Airways on the BOS to DCA route until they lower and simplify their fares. Only other carriers on the route are AA and DL, and largely they are following US rather than innovating.

Even with a corporate discount on the US Shuttle it is significantly less expensive to fly WN to BWI even when we factor in additional ground transportation and hotel costs.

I tend not to fly with either B6 or FL because they have change fees, even though they have a slightly better in flight product. For instance I'm an elite member with FL and would most often be upgraded to business class.

The ease of rebooking and changing WN tickets is amazing even coming from the perspective of a top tier elite on (at one time) all the legacy carriers.

The re usability of ticketless travel funds is also very seemless, and you can use these funds for another passenger.

I just gave a WN award to a friend, booked roughly what I thought he wanted for dates, and times. I gave him the PNR, and presto, he could make whatever changes he needed to make, and I can still see the booking under my account with the updates he made. There are no junk change fees, redeposit fees, close in ticketing fees, etc. It was just $10 plus the 16 credits. If he can't make it and even if he no shows the flight I will automatically get the award back. This was the easiest transaction I've ever had gifting an award. He could even change the city with no fees. Try that on a legacy airline. I was so impressed regarding how WN made the process hassle free.

Also on track in the next 1-2 months to get the WN A List and CP! Transferred hotel points to get the CP faster.

I do think though we need to make an effort to educate the public in these matters. I don't think the public, unless they travel a lot and even then, really understands the content of this thread.

I also feel good about spending money on WN in a way I don't with the legacy carriers. They have also embraced new media like blogs, podcasts, Twitter, etc. They have a much better mission statement than the legacy carriers. The CEO sounds like a likeable guy who isn't trying to find ways to gouge the companys employees and customers.
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Old Jan 17, 10, 5:24 pm
  #15  
 
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Coming from a Platinum Medallion on DL....VERY good post. I am exempt from most junk fees, but it just seems to be going downhill faster every year. I took a few WN flights last year and they were great experiences.
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