(See main story, "SW Woos Corprate Business.")Southwest CEO Gary Kelly this month spoke with Business Travel News airline editor Jay Boehmer about the carrier's attempt to win more corporate business. BTN: Do you expect to see a shift in business from leisure to corporate?
Gary Kelly: Absolutely. I think we have more than our fair share of the leisure segment, with the historical one-size-fits-all approach that we've taken. We have declined in the past to offer choice for customized services to meet the road warriors' needs. We're now doing that. Given the schedule we have and the overall customer service package, we are definitely destined to earn a lot more business travelers—and they're harder to win over. Leisure travelers are oriented toward price—we know that. We win that game hands-down as a low-fare brand. Leveraging that with our business travelers will be a very powerful offering.
BTN: Is Southwest Airlines already structuring corporate discounts?
Kelly: No. I don't think we'll make any radical changes. We have a low-fare structure we're very proud of. One should not assume that we're talking about 50 percent off from our rack rates. That doesn't make any sense, given our fare structure, but at least we'll be willing to entertain that discussion, if the volumes are right and obviously we'd be looking for a very sustainable volume commitment.
BTN: Have you been ramping up the sales force?
Kelly: I think that's fair to say. We'll probably add a few more sales representatives, but certainly they've got a new and improved toolkit. They'll have new targets and new incentives and there's just going to be an aggressive push beginning this quarter to win some corporate accounts, especially in our new markets.
BTN: Are there targets for how much incremental business GDS participation will bring?
Kelly: Our targets this year are modest. Overall, we would like to see our revenues improve, our load factors improve, our yields improve and our mix of Business and Business Select fares improve from where we are. We think we've created the value proposition between the suites of fares to encourage people to make their choice. Instead of just being a tariff gate, now there are true value differentiators. We also are very seriously considering going back to ATPCo, which we left because our needs weren't being met. Assuming that we could reach an agreement with them, I would love to be filing our fares that way. I'd love to get that wrapped up this quarter, if we can, but that has to be negotiated to our satisfaction, and no doubt to ATPCo's.
BTN: When will you introduce inflight Internet?
Kelly: That's high on the list. We have narrowed the candidates to supply us with that capability and if everything goes according to plan, we'll have a handful of airplanes with a prototype in place hopefully by the middle of next year. Then it depends on what we learn from the prototype, but a decision on that could come as early as the third or fourth quarter next year.
BTN: Is your outlook for demand still cautious?
Kelly: The traffic increases this year, excluding Southwest, are up 1 percent to 2 percent at the most on a monthly basis. That's pretty anemic traffic growth. The industry has tried to manage the supply accordingly—us included. We slowed our growth in the fourth quarter as well. It's a pretty sluggish growth environment. I would guess that 2008 will be another sluggish year. I hope it doesn't get much worse, but you can't pick up the news on a daily basis without seeing some concern on the economic outlook. With the Fed cutting rates and the mortgage industry and financial industry crisis that's underway, we've got to be cautious about the outlook for next year. We just released our October traffic. It was a solid month; we had a slight uptick in our load factor—it was above 70 percent, and that for October is very good. No complaints so far, but that's still in the context of a year where the traffic has not grown as much as we thought it would. We had a very strong year in 2006, but the growth just didn't materialize in 2007 and we tried to adjust accordingly. The bigger issue is fuel—talk about $100 crude—people thought that was a ridiculous assumption 12 or 18 months ago, but here we are. We are very well-hedged, so that mitigates the high fuel costs, but it doesn't eliminate them. That's causing us to rethink our plans yet again for 2008. We're just questioning whether we want to grow the fleet at the pace we are. We haven't made any determinations on that yet, but I have to admit the obvious, that things have gotten worse, as opposed to better, for the industry outlook.