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Southwest's Nealon talks:
Southwest Airlines unveiled a major strategy shift this month when it announced deals to participate in the Amadeus and Travelport global distribution systems, providing content and full booking capabilities for the first time. And on Aug. 15, Southwest announced Phase 2 of its buildup of Hawaii service would launch in January, including new daily service between Sacramento and Honolulu, new service between both Oakland and San Jose and each Lihue and Kona, and expanded inter-island service. Southwest president Tom Nealon spoke with BTN transportation editor Michael B. Baker earlier that month during the Global Business Travel Association conference.
BTN: Why did you decide to have agreements with Amadeus and Travelport?
Nealon: We have such a great business-friendly product, such a strong schedule, and the policies and fares are so accommodating. But we've been harder to do business within terms of how you book, transact and settle and all of that kind of stuff. The shift away from our [basic booking request] and the basic approach to an industry-standard GDS is really important. It's the third leg of the stool. Our Swabiz platform—which we've done massive upgrades to, and it's a beautiful, direct, self-serve channel—is the second leg of the stool, and the ATPCO NDC Exchange approach is going to be very good for us. Those two we were always proficient and really capable within, but this third channel, the GDS, we were lagging. Our intent is to win business and to bring the Southwest effect into [the] GDS. We're going to compete hard, and we're going to compete to win. We have a fantastic business product.
BTN: Is this something that was enabled by your new reservations system?
Nealon: I've been asked the question, "Why now?" It's because previously, it would have been really, really hard. Our old reservation system, the old "cowboy system"—we could have worked very hard for a very long time and spent a lot of money and never gotten to a real industry standard. It would have always been a kind of variant. We didn't have the opportunity to really go industry-standard GDS with the full-participation level until we got to Amadeus [passenger service system]. It's a rock-solid platform for us, and now we have the ability to extend that and bring on industry-standard GDS.
BTN: When will content be available on the GDSs?
Nealon: We're still going through the implementation and the sequencing and who comes up first. I think we'll be up and live by mid 2020. I would love that to be both partners. We'll have to see how the work pans out, but that's what we're trying to do.
BTN: You are projecting this will bring between $10 million and $20 million in additional revenue next year. What will it mean for corporate market share?
Nealon: I'm going to be very hesitant to share much about what we think the revenue upside is going to be. We put something in the press release because we had to, because our investors know we're working on revenue initiatives. I think what we put in is a very safe range. I'm not going to get into market share, but we wouldn't be doing it unless we thought we had a real opportunity here.
BTN: Will you partner with other GDSs, as well?
Nealon: We're pretty happy with the two we have. If more are interested, we're certainly willing to talk. I'll leave it at that.
BTN: The new reservations system has unlocked other opportunities, such as codesharing. Are you considering that going forward?
Nealon: Codeshare is certainly something we would be thinking about. Our fleet and our operations are really suited for a high-frequency, high-density, domestic Lower 48 network, and that's where the majority of our growth will be going forward. There's also opportunity for us to do near international. We're doing a lot of it now—it's about 4.5 percent of our capacity—into beach destinations and the Caribbean. With some of the things we need to do for codeshare, foreign language and foreign point of sale, that allows us to begin to serve business markets in Canada and Mexico and other Central American countries. That window opens up for us once we have the foreign language and foreign currency capabilities. I don't see us flying far international. Our near international leisure is doing terrific, and I'd love us to get into near international business.
BTN: What about additional ancillary opportunities?
Nealon: By virtue of our model, our ancillary opportunities are more limited than other carriers. An ancillary opportunity is an upgrade from coach to business, but we don't have those types of things. We don't have extended legroom. We don't charge fees. That means we need to be more creative. What we're doing with things like EarlyBird Check-In might not sound like it's a big idea, but it's a big revenue generator, and the variability in terms of the pricing is really helping drive take rates. Although our opportunities are more narrow by virtue of our model, we still have opportunities. We do have some things in the works that I can't talk about, but we're very focused, and we need to have more revenue streams.
BTN: What's your overall capacity growth schedule at this point?
Nealon: We've made some modest announcements. Cozumel is something we want to get into, and more in Hawaii. Most of the focus in the next 12 months is continuing to build up the network we have. There is so much opportunity for us still in the intra-California markets. We have a 60-something percent market share, and we have an opportunity to grow our capacity, grow our customer numbers and improve our financials. The same is true in Denver. The same is true in Baltimore and Chicago and New Orleans and Nashville. You are going to see a continued investment in the core network, and that's as it should be. That's what our strength is.
BTN: How is your new Hawaii service faring?
Nealon: Hawaii has exceeded our expectations on every dimension. It's exceeded our expectations in terms of demand. Our system average [load factor] for the second quarter was 86 percent, which is a record load factor. Hawaii was higher, so these are really high load factors, and that's both inter-island as well as mainland-to-Hawaii. The pricing is maturing faster than we would have thought. It's still significantly lower than the competition, so we are seeing the Southwest effect coming to the market. We look at the customer experience from the mainland to Hawaii on our aircraft with our service model, and the scores are actually higher than our whole system, which tells me that the product is working beautifully. We intend to begin to execute Phase 2 of our buildup of Hawaii flying. It will probably be a little more temperate than we like it to be; we need more capacity, and this Max thing is taking a bite out of capacity. But it's doing so well, we want to keep feeding it and growing and developing it.
BTN: What's the process once the Max gets the necessary certification?
Nealon: Once the Max is reauthorized to fly, we're excited to get it back into the air. We have a very clear return-to-service plan that we are working through on the operations side, as well as the commercial side. We have over 80,000 hours on that plane, and we have tremendous confidence in that plane and in our pilots, mechanics, flight attendants and the whole operation. We are very focused on bringing it back into service, and we'll bring it back in the right way. We're very disappointed with Boeing, but we are confident it will come back and we look forward to it coming back. And when we come back, we're coming back with a vengeance.
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