Southwest Wins BTN Annual Airline Survey 2006

For the first time, a low-cost domestic carrier that does not offer corporate contracts, an international network, a business class cabin or global distribution system participation drew the highest marks in an annual survey of executives responsible for purchasing corporate airline services.

Southwest Airlines took top honors in the ninth Business Travel News Annual Airline Survey, edging out American Airlines and Continental Airlines—the only two carriers that since the survey's inception in 1998 have finished in first place.

Southwest garnered a first-place finish in the survey largely through strong performance in overall price-value ratio and quality of customer service.

American and Continental airlines finished second and third, respectively, while United Airlines finished fourth, followed by Northwest Airlines, Delta Air Lines and US Airways, according to ratings by nearly 400 corporate travel buyers, the vast majority of whom worked for smaller companies.

Survey figures show an overall decline in domestic carrier average scores, showing a downward sloping perception of the quality of the airline industry's negotiation flexibility, data availability, problem resolution, communication, account manager relationships, customer service and overall price value. On a scale of a one to five, the former being poor and the latter excellent, the rating among the Big Six and Southwest this year averaged 3.05, compared with an average last year of 3.25. Apart from Southwest, all of the carriers represented in this year's survey slipped in their overall score.

American Express Advisory Services senior practice leader for air Mitch Cwanger said the lingering effects of last year's fare restructuring, declining domestic discounts—both in discount level and number offered—and reductions in airline salesforces "could have had a negative impact on the value of relationships" in the past year. "I would assume that it is probably some of these things that the so-called legacy airlines have been doing with corporate agreements in general, whether that's a $2 million account or a $20 million account," Cwanger said. "There's a level of discomfort among travel managers with what has happened to their corporate discounts for the most part, and it's almost by default that some other low-fare airlines are ranking higher in certain categories."

Bob Brindley, vice president of the Americas for Advito, BCD's travel consulting division, said that the survey respondents—more than half of whom represented companies with less than $500,000 in air volume—probably helped lift Southwest to the number-one spot, since those smaller companies typically are the first contracts to be cut. "Their score on overall price value really drove them to the number-one position," Brindley said of Southwest. "Especially if it's skewing toward smaller companies, who may not have substantial discount program from the other carriers, Southwest is really getting a halo effect from that. That may explain some of the lower scores in some of the other carriers, especially since this is limited to domestic travel operations. The discounts for domestic air travel are much smaller than they used to be—especially for the smaller customer."

Even when results are segmented by company size, however, Southwest still led among the largest companies surveyed for overall price value and customer service.

"We hope that we are extremely relevant to the corporate market," said Southwest vice president of marketing, sales and distribution Kevin Krone. "In theory, the whole point of managed travel is to find a way to reduce spend yet provide a good-quality experience. We should fit hand in glove with that strategy. We give you everything the traveler would want—convenience, schedule, nonstop, good service—and provide it at a value that the travel manager would want."

Southwest taking the lead in the domestic survey has prompted the legacy hub-and-spoke carriers to tout their strengths and relevance to the corporate market and differentiation from Southwest—noting their international coverage, relationships with corporate travel buyers as well as customized reporting and data tools.

"I would think managed travel programs would give Southwest the worst ranking: They don't offer corporate discounts, they don't run agency programs—they're totally against a managed travel program," said American Airlines vice president Frank Morogiello. "You can't fail if you don't have a corporate contract that you have to do a review on, you can't fail if you don't have an agency program that you win or lose, and you can't fail if you don't offer amenities."

However, for buyers responding to this year's survey, price was king. In response to an open-ended question about the primary way their preferred carriers in the next year could keep their business, respondents overwhelmingly asked for more favorable pricing.

"Southwest has made us feel like they care and value our business, even though we are a small account," said one travel buyer responding to the survey.

International capabilities—an area where domestic low-cost carriers generally do not compete and a topic increasingly turning up in negotiations—is among the biggest differentiators the legacy carriers bring to their corporate customers.

Brindley said that higher-priced international air travel offers a larger opportunity for cost savings and the separation of domestic from international in the survey's ranking may have hurt the hub-and-spoke mainliners. "While international for the typical large corporate client may make up 25 percent or 30 percent of their spend," according to Brindley, "it could make up about 50 percent to 60 percent of their savings. The savings potential in international markets has been huge, and that's where a lot of the competition has been in the last year. If you did this overall, you would see the more traditional performance, where American, Continental, United would be scoring higher."

Overall, buyers rated the international experience with U.S.-based carriers at a higher level than their domestic experiences. Although Singapore Airlines and Lufthansa finished in the first and second spot for international, respectively, Continental scored a 3.83 and American scored a 3.53 in their international service—both higher than their domestic ratings. Meanwhile, Delta scored more than a tenth of a point better, while United was marginally higher in international performance.

"If you have that international travel, that's what the airlines are after," Amex's Cwanger said. "They're cutting back domestic capacity, they're moving their planes to international locations, they want that high-yield, long-haul traffic. If you've got it, they're willing to work with you."

"Our business model is very different from Southwest," said Continental Airlines vice president of North American sales Monisa Cline. "We're a full-service carrier with a large international network—and growing. When we work with a customer, we represent the full scope: domestic and international."

Northwest Airlines vice president of sales Steve Sear added, "In my mind, the international remains a critical component of our corporate contracts and continues to have a growing importance as our customer continue to go global. Nearly all of our deals have a domestic and an international component."

The distinction should remain as Southwest has no immediate plans to shift its focus from the domestic market to international ones. "The next several years of growth for Southwest will be strictly domestically based," said Southwest's Krone. "You can see a path where you could say some international markets would be natural choices for us, but I don't think that's imminent."

Although the survey results point to slipping performance among hub-and-spoke carriers in 2006, American Express' Cwanger said that in coming years buyers once again may shift perceptions, as mainline carriers reinvest in the product.

"Some airlines have cut back because they had to cut costs," Cwanger said of the industry in recent years. "Over the last couple of months, several airlines—not just domestic but globally—have added a bunch of new things to their products. Whether it's better seat configurations, better seats in general or better onboard entertainment, they're investing more money into the product. I think you'll see the perception change a little bit because the airlines are investing the money they've made in the second and third quarters in the long term, rather than just trying to stay in business."

As airlines remain in a demand market and fares continue to hit highs not seen in recent years, the value of corporate negotiations can only improve, said Advito's Brindley, who noted that with rising fares could come rising discounts—and more value to a managed travel program.

"We had the situation last year where prices had been trending down for a four- or five-year period, and discounts had to come way down because of it," Brindley said. "Now the pendulum is moving in the other direction. Prices are going back up so we see discounts sliding back up."