Awesome: Game Theory and Southwest Airlines' Response to American Airlines' Baggage Fee

Let's hear it for the usefulness of game theory!!!

Two weeks ago, I wrote about American Airlines' (AA) bone-headed move to charge for all baggage, which included these little tidbits:

".... This is an idea straight out of an Excel spreadsheet designed by a newly-minted MBA with no concept of value propositions or game theory. 

.... But what I hope happens, and is certainly possible, is that Southwest or JetBlue will start running ads that focus on "our price includes everything, including your bags."  Or even better, "Why pay extra for your bags on AA if we're more likely to get them to where your going for free?" ...."

Regarding the first point, I subsequently found an AA press release stating exactly what I suspected: 

Additional Revenue Initiatives

.... Today, American introduced a $15 fee for the first checked bag, given the increasing costs of transporting checked baggage.... American also said today that it has increased its fees for certain other services, ranging from reservation service fees to pet and oversized bag fees. The increases mostly range from $5 to $50 per service. The company estimates that new and increased fees announced this month will generate several hundred million dollars in incremental annual revenue.... 

 I think we need to put that quote into a marketing textbook as the antithesis of a market-orientation!!

Hmmm...to paraphrase Dr. Phil, "How's that working out for you?"

Oh, wait, I think I have an idea how it's working out for you!!! 

As I predicted, relying on rudimentary game theory, Southwest Airlines has responded with competitive gusto!! Rather than talk about it, I'll just offer the following evidence. Enjoy!

Southwest Airlines Newspaper Advertisement

Southwest Airlines' Website:

Southwest Airlines' Television Advertisements:

Flight Attendant 

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