A Strong Southwest Launches Co-Branded Card

<H1> A Strong Southwest Launches Co-Branded Card</H1>By Jay Campbell

<I>Dallas </I>- Southwest Airlines last month made a rare move by joining a trend it didn't start-the introduction of a co-branded credit card.

The new Visa card, issued by Dallas-based First USA Bank, will provide one flight credit for each $1,000 spent as part of the airline's Rapid Rewards frequent flyer program. Passengers earn a free round-trip ticket on Southwest for every 16 flight credits accumulated within a year.

Although Southwest has no immediate plans to introduce a corporate version of the product, Southwest manager of business development Joe Lamkin said corporations can use the existing card.

The president and CEO of Visa USA, Carl Pascarella, said co-branded cards are a major trend in his business. "One in four Visa cards are now co-branded, and we expect that to reach 50 percent."

The announcement came at Southwest's annual media day and followed news that the airline will begin serving Jacksonville, Fla., on Jan. 15, marking the carrier's 50th airport and making Southwest the largest airline serving that city.

Addressing Southwest's competitive position in relation to the other major carriers, vice president of marketing and sales Dave Ridley claimed that Southwest is "less vulnerable to regional or local economic downturns because our strengths are spread throughout our point-to-point system." While over 50 percent of most of the major carriers' daily departures are concentrated in one to four cities, 10 cities make up over 50 percent of Southwest's daily departures. "There's a strategic strength in that kind of diversity," Ridley said.

Southwest will concentrate on Nashville, Baltimore/Washington, Providence and Florida. "It is my estimation that Providence will be the finest of the 50 airports we serve," Ridley said. "It's a beautiful, convenient alternative to Logan Airport."

Asked whether Delta Express, scheduled to begin Orlando-based service this month (<I>BTN</I>, Aug 19), was a competitive threat to Southwest in Florida, Ridley said no. Unlike CALite and Shuttle by United, which he said were aimed directly at Southwest, Delta Express will have only 19 of its 64 flights in Southwest markets by January; it is not a point-to-point operation but a hub-and-spoke model; and it has "ValuJet pricing," with non-refundable fares and a $50 change fee on 7-day and 21-day advance purchases. "We are respectfully watchful, but not obsessed with Delta Express," he said.

Discussing distribution expenses, Southwest CFO Gary Kelly said the airline includes advertising, reservations costs, charge card costs and CRS fees, among other items, putting costs of distribution in the "high teens" as a percentage of total costs. He noted that before three CRSs ejected Southwest from their systems, 60 percent of the carrier's bookings came from travel agents; now that number is 40 percent.

Kelly said the carrier is developing a new internal reservations system with Sabre-"a kind of Sabre Junior"-which will reduce the operating costs of reservations and will eventually be marketed to other airlines.

CEO Herb Kelleher said the airline is "fundamentally in wonderful shape. We're fit, we're trim, we're lean, we're mean, and we'll add one more city next year." Pressed to reveal the new destination, Kelleher said "it will be in and around the Mississippi."

Kelleher elaborated on his concern regarding "Cartel of Seven," the airlines' proposed user fee for airport funding, noting that it will result in "continued warfare" among different segments of aviation, and is "anti-competitive and anti-consumer." He accused the seven carriers of wanting to "increase fares and diminish service."

Regarding proposed changes to the FAA certification process for new entrants, Kelleher said, "you'll see fewer new carriers. They won't be allowed to grow as fast, and their costs will be higher.