Interview: Southwest Airlines Vice President And Chief Marketing Officer Kevin Krone

Kevin Krone New Orleans - Southwest Airlines vice president and chief marketing officer Kevin Krone on Oct. 7 took the hot seat at The Beat Live here, answering questions from attendees and The Beat readers. Among the topics were Southwest's growth plans, an update on its new reservations system and the carrier's distribution strategy. An edited transcript follows.  What's the plan for Dallas following the expiration of the Wright Amendment? Oct. 13 is the official sunset of that date, and we are extremely excited, because now we get to fly to all of our cities nonstop if we so elect. Our plans will be to add a bunch of new nonstops as well as a bunch in November. [Southwest on Oct. 13 added service to 17 domestic destinations from Love Field, with eight more planned to begin Nov. 2.] We will have a great expansion opportunity for the citizens of Dallas, but more importantly, for the citizens of the United States, because we can connect people with our famous low fares into Dallas and provide new opportunities for lots of people in this country. Is Southwest straying from its winning formula by using multiple airplane types, a hub-and-spoke system and integrating AirTran employees who are far from being "type A" people? I would take exception with a few of those assertions in the question. Through the AirTran acquisition, we did acquire a different aircraft type, the Boeing 717, but we are phasing that out. By the end of this year, that type will be out of our fleet, and we'll be back to pure Boeing 737s.

We don't have a spoke. We have some very large airport operations. Chicago Midway has nearly 300 departures, so it looks like a hub, but it's really traditional Southwest flying, just a lot of it. If you look at a hub airport, you'll see times when it's extremely busy, and then you'll see it turn into a ghost town. If you look at Midway, it's almost constantly active with Southwest flights. That's not a hub. That is a point-to-point carrier flying through there. There just happens to be a lot of point-to-point at the same time.

The AirTran employees, we're extremely proud of the service they provide. Any organization, you might have experiences that differ from what we see, but they're a fantastic group of employees, and they're excited to be a part of Southwest Airlines.

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Hear Kevin Krone in his own words:

When should we expect Southwest to land in London? I hope soon, but unfortunately, they don't listen to me. That's actually a pretty far-on-the-horizon thought. We have a lot of opportunity here that lets us take the 737 lots of places that are domestic or near-international, so I don't foresee anything that far out. What sort of international expansion are you doing? We will be expanding internationally, and that is a focused area of opportunity for us. We did announce last month that we'll be starting service into San José, Costa Rica, next spring. All the AirTran routes that are flying internationally will be converted fully into Southwest next month. We're currently building an international airport facility down in [Houston's William P. Hobby Airport]. We're not doing that just because we like building airports, so there will be opportunity for us to continue to grow out of Houston as well. That airport project wraps up in the fall of next year. When you consider Southwest's sizable marketing and advertising spend, is your direct-distribution model still the most cost-effective? Absolutely yes. When you stack all distribution costs for airlines—advertising, third-party fees and merchant relationship—and you look at it by airline, Southwest is next to the lowest. It varies, but we're either the lowest or in the bottom two to three on cost. The difference between us and a legacy model is dramatic. I'm absolutely convinced that it's working.

Distribution can be very expensive, and if it's expensive, that means it's got to show up somewhere, and it ends up showing up in the ticket price, or it shows up in some cases in a bag fee or change fee. We're really trying to be as fair and transparent about all that as we can. We have to be deliberate in the distribution channels and how we interface with them so it doesn't get so expensive that the fares go way up, because that's the worst case for everybody. It's not an antagonistic way we're trying to interact with anybody. In fact, we're going to great lengths to find solutions that provide all the inventory that are low-cost to no-cost and integrate seamlessly in your systems, so you get all that you need. Why does Southwest seem like it is hesitant to work with travel management companies? I'm sorry that you all feel that way. Since 2007, we've had a lot of effort in this, and we've grown the team since 2007. They are not as large as the other airline teams. They're small and mighty, so they take a while to get around to everybody, but they are very anxious to talk to you all. Once you migrate to Amadeus' Altea systems, what changes will we see? It's a multiyear, extensive project, and we are early on in that, so you won't see any meaningful results in that project for years to come. It is a more flexible system, so it does allow us to ponder new relationships, new codeshare partnerships, perhaps new distribution channels, although on the distribution channel side we have worked around and built some capabilities into our existing infrastructure so we can power third-party tools. That capability still will exist in the new system. Right now, we have a pretty rich depth of third-party offerings, and I don't know if that space will change with the migration, but there will be lots of other things. Will it usher in bag fees at Southwest? There's always a bag conspiracy. I could never say never, because never is a long time, but there are absolutely no plans to charge bag fees. While sadly it's becoming routine to us now as flying customers, it's still annoying, and we're not in the business to annoy people. We're in the business to connect people to what's important in their lives and make their day better. Charging a bag fee isn't a great way to do that. It's not a technology issue for us. We could charge bag fees today if we wanted to, but we're electing not to, because we think it's the right thing to do and it makes us more successful as an airline. We're winning new customers and making a heck of a lot more money winning new customers than charging someone for a bag fee. What thought process went into choosing Amadeus? It was a pretty extensive review for us. It's a huge decision, as it's literally the heart and brain of the company. You don't take it lightly when you switch your heart and your brain at the same time. It was a very detailed process to go out and look at the vendors that were out there and who had the best technology and options for us. It boiled down to an analysis and economics was a key part as well. It really boiled down to an opportunity for us to get the right mixture of terms and the capabilities. What sort of growth are you seeing through Swabiz? We don't disclose specific growth rates on channels, but it's got a niche. It's a managed travel tool. It's on the basic side, but it's free and is intended to provide lots of functionality, more than you would through a dot-com booking. It gives you tracking and reporting capabilities, but it's not the depth of features and functions you'll get with some of the commercial third-party tools. It's a fantastic tool and has a large user base and continues to be a healthy tool for us. Corporate discounting at Southwest is relatively new. Any lessons learned? We've approached it differently than a lot of traditional models. We focused our efforts in 2007 and have been growing since. From the get-go, we wanted to do things differently. It's the important difference in how we structure our deals, and as a result, we've had a tremendous success and a substantial growth in our corporate business over that period of time. A lot of people say Southwest is just getting into the business travel game—that's not true. We grew up as a business carrier. When you have 22 flights a day from Dallas to Houston, that's not aimed at the leisure traveler. Our routes were short-haul, high-frequency. Now, with long-haul, routes get a little thinner and there's not as deep of a schedule and frequency, but that doesn't mean we're not trying to be a great partner of businesses. Are there any plans to offer an upsell product, such as seats with more legroom? There's nothing imminent. One of the areas of marketing I have responsibility for is our product development group, which is charged with thinking of things like that. We're always obsessing over whether the product is right and satisfactory to our customer base. The trick with it is: On the one hand, a more-legroom section has huge benefits to the people who sit there and enjoy but comes at the expense of fewer seats in the airplane, which then has a revenue and cost impact, which gets back to higher fares for all. We are very mindful not to force ourselves into a situation like that. Or, it means to really squeeze seats on the airplane for those who aren't in that section. There's a point there where it's too narrow and uncomfortable and not a product we want to offer. Something like a business-class cabin, that's a far stretch for us even to be thinking about. We're always tinkering around with it and will have some enhancements to the in-flight experience coming later this fall, so stay tuned for that. Does Southwest plan to participate in Concur's TripLink? I can't make any kind of announcement on that here today, but obviously we have a partnership with them, so we'll see what the next step might be.