Southwest Airlines last month eliminated all meeting fares, bucking all other major airlines by discontinuing its longstanding program of flat 10 percent discounts for any group of 25 or more passengers. No major carrier matched the move by press time, and most insiders expect none to do so in the immediate future.
Southwest will honor existing meeting contracts for travel through the end of 2004 but has canceled "five or six" contracts for meeting travel in 2005, said Southwest senior director of marketing and sales Richard Sweet.
The airline's program—which in addition to the flat discount also offered buyers one free fare for every 40 fares booked—did not generate enough revenue to justify its cost, Sweet said. "Essentially, we were discounting an already discounted fare," he said. "We're not immune from reassessing ourselves. "We have to focus on our core product, and we have the product and prices that we want."
Ironically, Southwest eliminated its meetings program at the same time the carrier was rated by buyers as the second-most flexible airline in terms of negotiating group and meeting pricing in Business Travel News' Annual Airline Survey
(BTN, Nov. 10). That finish was viewed as a fluke by the airline and observers, as Southwest does not negotiate its meeting fares.
The problems with Southwest's meetings program went beyond revenue, Sweet said: Unlike transient fares, attendees could not book meeting fares over the Internet, he noted. Developing that functionality would cost more money and time than the carrier is inclined to commit, he added. Also, 65 percent of meeting fare users fly to Southwest's 10 most popular markets, he said, sometimes forcing the carrier to turn away higher-revenue demand.
"We've never put a lot of resources into it," Sweet said. "We wanted to have that product with nothing behind it. If we truly wanted to be a major player in the meetings market, we would have pursued it, but it doesn't make sense for us to spend more money on these [discounted meeting] fares.
"We still will try to incorporate the meetings message," he continued. "Southwest can and does have better fares than other carriers' meeting fares. We're not leaving." Sweet said the carrier's meeting personnel will be reassigned to other marketing and reservations positions.
"It's not all that much of a surprise," said Terry Egger, regional director of Des Moines, Iowa-based Air Fulfillment Services, a third-party firm that manages group and meeting air travel for meetings management and incentive companies. "They had a pretty good program to offer, with discounted meeting fares booked in full coach, but they were dragged into meetings kicking and screaming in the first place."
Southwest's meeting program was different than those of the other major carriers. In addition to being non-negotiable, the carrier did not offer any type of zone fare pricing, in which attendees pay a flat fare based on the geographic zones of city pairs and which do not include a Saturday-night stay requirement.
Other carriers' programs also include a higher level of incentives, or soft-dollar amenities, beyond Southwest's former policy of offering one free fare for 40 booked.
"Southwest didn't have zone fares and the like, and they do not have the same reach," said Andrew Menkes, chairman and CEO of Princeton, N.J.-based Partnership Travel Consulting. "Many corporate meetings are held in resorts and having nonstop flights there is critical. Overall, it's not that big of a deal."
For these reasons, among others, Menkes does not expect another major carrier to match Southwest. "In this day and age, nothing would surprise me, but I don't see it happening," he said. "Carriers can control the dynamics of their flights through inventory management. Meetings has never been a loophole for them to tighten, but an opportunity to fill empty seats and guarantee space. They'll take group bookings to help balance their inventory. It's still an integral part for the majors."
Other major carriers, Egger said, have invested significant resources into developing yield management technology to assess the value of their meetings programs. "I don't expect them to match," he said. "The other carriers spend a lot of time watching the yield side of it and spend a lot of time negotiating the specifics. Plus, all the other major carriers are getting better on the automation side."
Southwest's standing in the Annual Airline Survey's category of group and meeting pricing flexibility was not seen as an accurate representation of its standing in that segment.
"My guess is that people in the survey are just happy with the low fares," Sweet said. The results were more revealing for the other carriers.
American Airlines repeated as the most flexible carrier in the meetings category, according to clients, although it finished barely ahead of Southwest, United Airlines and overall survey leader Continental Airlines. Yet, American's score of 3.13 on an ascending scale of one to five declined from the previous year. In fact, most airlines saw such declines, as the overall meeting flexibility rating dropped to 2.98 from 3.05 last year and 3.21 in 2001.
"Number one is number one, so we're thrilled about that," said George Coyle, American Airlines group and meeting sales product manager. "We exclude no categories of fares from meeting fares, while we do restrict corporate fares in some categories. On the meetings side, none of it has been taken away."
Coyle pointed to the carrier's proprietary group yield management system, which allows its agents to find flights quickly and apply variable hard-dollar discounts based on anticipated load factors, as a likely driver of its first-place finish. "It saves time and can find what flights can have the best fares," he said. "It can be really attractive, especially when you're dealing with flights with low load factors."
United's rating also was welcomed by the carrier, as it was one of the few airlines to post an increase in score over last year's survey.
"We've fixed some internal systems and improved the internal reporting and the lines of communication to people in the field," said JoAnn Bedrosian Ryan, United manager of specialty markets. "It lets us refine our internal communication and get a match on an agreement or a creative package and get it to the customer quicker."
United spearheaded a significant change to its standing meeting package in August 2002, shortening the advance purchase requirement needed to receive an additional 5 percent discount off group and meeting fares from 60 days to 30 days
(Meetings Today, Sept. 23, 2002). American and Northwest Airlines, which finished last in the flexibility in group and meeting pricing category, matched the move but the other major carriers did not. Though this was the first full year the changes have been in place, Ryan did not think usage was a significant enough factor to affect United's survey standing.
Despite the decline in average rating, some buyers have seen some additional flexibility in some areas from the carriers. "They're being a bit more conversive," Egger said. "There seems to be better dialogue with them before we get to talking about fares. They'll talk about moving [the travel] a day. It used to be that they would just end the call, and if you wanted to move it a day, you would have to call again."
The fares themselves also have become more flexible, Egger said, as low-fare carriers have increased competition on many routes. Still, he said, the airlines typically are not going to offer soft-dollar discounts, amenities and incentives unless they're requested. "Things now are not carte blanche," he said. "You need to take it upon yourself to negotiate everything, and if you're not going to take the amenities, that needs to be reflected in the price."
Others noted that the continually changing fare structures for transient travel have made the whole concept of meetings and group air management more complex. "We're finding that, more and more, zone fares are often higher than existing or corporate fares," said one corporate buyer who requested anonymity. "You have to do a lot more searching among existing fares, low fares, contracted fares, and then look at the number of free tickets and other value-adds. It used to be that you could almost always go with the zones."
Others, though, were unimpressed with the carriers. One survey respondent noted: "Air carriers have become less and less flexible with group contracts. There used to be an understanding that group travel is an unpredictable thing, and airlines and buyers could work together to create a mutually beneficial situation. From my perspective, it seems that the airlines need to be offering anything they can sell in order to get things moving again. They should be working to return to their terms pre-9/11, with the exception of those new rules associated with security."
Travel buyers responding to the airline survey were asked to grade only those airlines with which they had done business in the past year. Not every respondent rated every airline in the group and meeting flexibility category. Business Travel News removed all returns that rated the carriers with zeroes and ones across the board.