Southwest Airlines plotting new strategic course

It has 110-volt power outlets at every seat. Each plane has a first-class section, with massagers built into each seat. Customers will be able to do computer chatting with passengers elsewhere in the airplane. Soft drinks are free.

"I think for Southwest, the most important thing is that it stay true to its 30-plus-year heritage of providing affordable transportation," said travel analyst Henry Harteveldt of Forrester Research.

"Even if it chooses to charge extra for seat assignments, Internet access or anything else, it has to be in tune with the Southwest legacy of providing consistently good value to the customers," he said. "That's going to be a combination of attractive price and consistent delivery of the product."

Seat assignment

One of the first changes is likely to come in the boarding process. Today, Southwest distributes boarding passes on a first-come, first-served basis, brings passengers aboard in groups A, B and C, and lets people sit in the first empty seat that suits their fancy.

Previously, low-cost competitors followed Southwest's example with no assigned seats. But many of today's rivals, including JetBlue and AirTran Airways, are assigning seats, and Southwest feels it is often at a disadvantage, particularly when chasing the higher-paying business traveler.

Southwest has tested a variety of options. By the fourth quarter, the airline is expected to announce some changes to the 36-year-old practice of first-come, first-served.

The airline could assign all seats. It could let passengers pay extra to get priority seating -- the right to get on before any passengers who didn't pay for assigned seating. The priority seating could be for an assigned seat or the first choice in open seating.

Southwest concedes all possibilities and confirms none of them. But it has said it wouldn't be making changes if the result would be higher costs and no increase in passengers or revenue.

Mr. Boyd, president of the Boyd Group Inc. in Evergreen, Colo., said Southwest has to go to assigned seats to remain competitive with other airlines. The lack of assigned seats hurts Southwest when it enters new markets.

"This stuff about people are going to love, love, love this?" Mr. Boyd said of assigned seating. "Horse manure. The markets where they have to expand, people don't like it."

Passengers can get seat assignments, along with in-flight TV and a more comfortable Airbus airplane, when they fly low-cost Frontier Airlines between Denver and Orlando, Fla.

"At Southwest, you get a humorous boarding announcement," he said. "It's hurting them."

Stuart Klaskin, principal at KKC Aviation Consulting in Miami, sees Southwest charging for assigned seating or priority boarding.

"I don't know if it'll be pure assigned seating," Mr. Klaskin said. "But maybe if you pay a fee from any fare or are booked in the highest class of fare, you get some priority of boarding."

Retrofitting TV

Longer term, Southwest must decide how -- and if -- it wants to respond to onboard TV and music offered by JetBlue, Virgin America and others. Those carriers had the advantage of ordering new fleets with TVs from the outset; Southwest has to consider a solution that works with its 500 existing airplanes.

Southwest is readying a test of wireless Internet on some planes. It'll give the carrier an idea about how popular it is and what technical issues it would face to extend the service over its entire fleet. Internet access could also provide the carrier a backdoor way to bring TV onboard.

On the issue of international service, the airline says it doesn't yet have the technological capability in its reservations and operations systems to handle flights that go outside the U.S.

But by 2009, it should have the capability to begin feeding passengers to other airlines, starting with current domestic code-sharing partner ATA Airlines Inc.

Mr. Kelly told analysts July 18 that Southwest sees the potential for "hundreds of millions of dollars a year" from international code-sharing. The domestic code-sharing with ATA now brings Southwest about $40 million in annual revenue, he said.

"So if we can expand that offering into the near-international markets, we are very hopeful that that alone will produce a very sizable increase in incremental revenues," he said.