SW Offers Corp. Enticements

<B>SW Offers Corp. Enticements</B>

By David Jonas

Long known for not negotiating discounts with corporations, Southwest Airlines, at times, has provided soft-dollar incentive programs for buyers in exchange for frequent flyer program enrollments. That strategy, along with its first-ever product for the managed travel community unveiled this spring, could bring the low-fare airline into the forefront for many companies.

However, travel managers still have no reason to hope that Southwest will begin listing inventory in any global distribution system other than Sabre. The carrier said it has no plans to use the others, since participation means more GDS fees, which would necessitate higher fares.

Still, with Buffalo, N.Y., added as the 57th destination, a few long-haul routes popping up in the network and a recent order for hundreds of new Boeing 737s, Southwest shows no signs of pulling back on the throttle.

The carrier is continuing its stance against corporate discounting, but actively is seeking out new corporate accounts to educate. "With our corporate clients, we try to communicate the shift toward operating as a cost center and what Southwest can do for them in their most important markets," said Brad Newcomb, a regional marketing director. "We provide to them statistics, including comparable stage length costs and costs per mile where Southwest is not a factor."

In turn, the carrier uses its network of 40 area marketing managers to establish relationships with the top 100 corporations in most Southwest markets and relay feedback that could help address scheduling needs and revenue management. "The focus clearly is on relational sales," Newcomb said, adding that travel managers can use Southwest as a bargaining chip when negotiating with other carriers.

However, the carrier will negotiate some soft-dollar agreements with corporations. "They are unofficial programs, fine-tuned for each company, to help corporations enroll their travelers in Rapid Rewards," said Mark Erickson, recently promoted to national accounts manager. He added that a certain number of new enrollees would result in a certain number of free roundtrip tickets: "When an area marketing manager meets with a company, he or she will determine if it is necessary to incentivize that corporation to increase or initiate usage on Southwest."

One travel manager confirmed that her St. Louis-based company has such a deal in place. The 300 company travelers already enrolled in Rapid Rewards were given six free credits--eight are needed for a free roundtrip flight--and 100 more travelers were added. While all 400 travelers continue to earn personal frequent flyer points, the company also earns points for segments, redeemable down the road for free business travel.

"Several of our employees are their top frequent flyers in this market, and this program gives them more market share while providing incentive to us," the travel manager said. She added that one concern is a cap on new employees joining the program, and therefore a restriction on segments eligible for the corporate incentive. "If we are doing corporate business with them, then all our revenue should count," she said.

Nevertheless, other travel managers said they are interested in pursuing such an arrangement. And Newcomb said the incentive program in the future might somehow be rolled into SWABIZ, the carrier's new online tracking tool for corporate travel managers (BTN, May 15).

"SWABIZ is the first tangible product from a sales standpoint that we have for business travelers," Newcomb said. "The response, mainly through word of mouth in the travel manager community, has been fabulous."

The carrier already has enlisted numerous corporations--some with as few as five travelers and others with as many as 500--and said the product has experienced incremental growth on a weekly basis, particularly in the Northeast where Southwest still is relatively new and generating a lot of buzz. Companies in high-tech corridors also have given the product attention.

The carrier actively is promoting the program as a way for travel departments, now cost centers in most cases, to avoid transaction fees. "Eliminating the third-party fee is a significant, hard-dollar fact," said Erickson. "Those transaction fees can range between $10 and $40 per ticket, and even higher at some corporations I have met with."

Assuaging travel manager concerns that inventory available to travelers using SWABIZ is not real time, Newcomb said there is "essentially no difference in availability" between SWABIZ and normal bookings on www.southwest.com because both systems use the same booking engine.

However, the SWABIZ reporting features do not include real-time data. Instead, batch processing results in updates every 24 hours.

"Real-time reporting would bog down the system because of the sheer volume of information passing through the Web site," Newcomb said.

Southwest views SWABIZ as a constantly evolving product. Feedback from beta testers already prompted the carrier to add origin and destination data to the reporting features. Additional enhancement in that area will allow area marketing managers to actively track the activity of their accounts.

Car rental bookings also may be added to SWABIZ. "There's no reason not to include that as part of the program," said Kevin Krone, senior director of automation. "It is a big project to integrate their inventory databases, and we haven't figured out the best strategy. Maybe it should be a single computer reservation system or multiple CRS connections?"


<B>Low Tech Investment</B>

Because Southwest is trying hard to maintain its cost structure and keep fares at their low levels, technology investments have been minimal. In fact, overall investment into www.southwest.com remains around $5 million. Other areas, including wireless connectivity for business travelers, e-ticket kiosks and the airport experience, all have gained some attention but are not priorities. "We are looking at those things, but we don't want to make the investment until we think we can see a return," Krone said. "We want to make the whole experience easier and to deploy technology, of course, but we do not want to jeopardize our low fares."

The same holds true for third-party technology vendors, an avenue explored by several of the other majors. "All those third-party products are just a redefinition of the GDS issue," Newcomb said. "There are still booking costs associated with those products and that is another reason we internally developed the SWABIZ reporting tool."

Krone added that tech vendors predominantly write their software for hub and spoke carriers. "If we need to modify that to make it fit our needs, we might as well build our own," he said.

Despite low levels of overall investment, funneling travelers to www.southwest.com, and empowering them once they arrive, remains a top priority. Bookings on the site now account for more than a quarter of all revenues and cost $1 per transaction, or 10 times less than traditional bookings through travel agents. "The GDSs are an expensive distribution channel, and the savings we are seeing from our Web site allows us to maintain our low fares, especially in light of rising fuel costs," Krone said.

Meanwhile, the carrier's marketing automation team has grown from 18 employees to 56 in less than a year. That group handles Southwest's e-mail service, which posts the "truly lowest fares available." More than 2.5 million travelers currently subscribe to the service. It also is exploring ways to advance the frequent flyer program, including online reward redemption.

Despite its focus on short-haul point-to-point service, Southwest slowly is bringing more long-haul routes into its network, including service from Buffalo, N.Y., its most recently announced destination, to both Las Vegas and Phoenix. Those daily flights, as well as daily nonstop service from Buffalo to Baltimore and Orlando, launch Oct. 8.

Also, as an alternative to the New York-Boston shuttle services offered by Delta and US Airways, Southwest on Aug. 6 will initiate four daily Providence, R.I.-Islip, N.Y., flights. Fares of $49 one-way will be a much more attractive option for many travelers, depending on their location, compared with the $200 fares on existing shuttle services, even when taking into account corporate discounts.

Islip in particular has been a strong growth market for Southwest, with about half a million boardings since service commenced in March.

To handle its expansion through the next decade--currently planned at 8 percent annually--Southwest recently announced the largest-ever next generation Boeing 737 order. The deal includes 94 firm orders and nearly 200 options. The current fleet, exclusively 737s, is 323 strong.