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.