A major problem facing airlines is oversupply. The problem is broader than too many flights/seats on any given route. The problem is a lack of differentiated experience in air travel. Flying on American, United or Delta is basically the exact same experience. They all use the same airports, gates, counters, baggage claim, etc. Even their frequent flier clubs are similar. Granted much of that is outside their individual control. One differentiated experience in the airline world is Southwest.
Why has Southwest garnered so much publicity over the years? They are newsworthy because they have differentiated their customer experience. They have designed their experience to be cost efficient, fun and entertaining. Southwest is successful because they broke the mold. Their no frills low cost service was a distinction when other airlines were providing perks and extras. Now that other airlines are being forced to cut their costs to survive Southwest will face competition within its category of cheap point to point service. All the airlines are beginning to look like Southwest.
What should Southwest do now? Stay the cheapest point to point provider. That's what the Southwest brand name stands for. This is their brand equity. How should they do this? Continue to streamline service by:
Eliminate Checked Baggage - This would save huge amounts of time and money by eliminating baggage handling crews and equipment. Baggage compartments can be modified to hold additional fuel tanks. Less refueling and no baggage handling saves ground time thereby increasing flying(paying) time per plane.
Standardize Carry-on Bags - You want to fly Southwest, you better bring a Southwest brand carry-on bag. Special carry-on bags designed to fit tightly with maximum efficiency in modified overhead bins. Quick in, quick out.
Further Streamline in Air Service - Eliminate any beverage/peanut service on flights less than three hours. On longer flights just beverages in cans. No cups, napkins or ice. Less trash, less labor, lower costs.
Seat People to Optimize Boarding and Deplaning Times - On multi leg flights seat people in sections by destination to speed deplaning and subsequent boarding. Reduction in ground time increases flying time per plane.
Steps like these would definitely define the customer base. Baggage free, short hop, ultra low cost airline service like this would appeal to cost conscious business travelers making day trips, weekend tripers, college, people traveling between homes and other circumstances where people need fast low cost travel with little or no luggage.
Would Southwest loose customers? Yes they would initially. However, cost and time savings would allow an increase in the number of flights possible with the same amount of equipment. Increased schedules and reduced flying related hassles would win the right customers in droves. The new Southwest would again be a differentiated offering continuing to serve customers who expect Southwest to be a no frills provider.