Tues., Aug. 2 at 12pm ET / 9am PTSponsored By: TripActions
Monday, August 1 at 2:00 PM ET / 11:00 AM PTSponsored by: Avis Budget Group, HRS, United for Business
Wed., July 27 at 1 PM ET / 10 AM PTSponsored by: United for Business
Marriott Marquis San Diego Marina, CA - August 16,
InterContinental Times Square - New York City,
etc.venues Monument - London, 26 September 2022
Kimpton Fitzroy London - 29 September 2022
Filter in or out as many as 200 cities, as well as hotel and car rental class and meals of the day and watch as the per-diem calculator automatically adjusts per diems to your program. Drill down into cost breakdowns and export the results.
Southwest Airlines CEO Gary Kelly last month spoke with Business Travel News senior editor Jay
Boehmer about the carrier's plans for growth, its pending acquisition of
AirTran Airways, opportunities for international expansion and planned upgrades
of its reservations system.
BTN: When you
last spoke of expansion, it sounded like domestic opportunities were foremost
in your mind. Is that still the case?
Gary Kelly: If
for no other reason than that we don't have our reservations capabilities in
place yet, we won't in 2011 and may not in 2012. Logically, we're going to
focus on the domestic market for the next several years, and I think that's the
right priority anyway. AirTran brings 37 new destinations, 38 with their Bermuda
service—and who knows what their route map will be when we actually close. They're
in charge of themselves, and they don't ask me whether to add new markets. We'll
need to work hard to integrate all that first. This is pacing out very nicely.
Our concurrent effort will be installing this new reservations system, so that
hopefully by 2013 we're ready to seriously entertain launching international
flights on Southwest Airlines. It could be 2014. All of those plans just aren't
firmed up yet. But now everyone knows what the goals are, and we'll be able to
put into place work plans that are very logical and figure out the right
sequence. The number-one priority right now has to be getting AirTran closed
and integrated, and the pacing of the other items can fall after that.
BTN: What's your
2011 capacity outlook?
Kelly: We'll be
growing in the low single digits. We're not adding to the fleet, but we are
increasing the utilization of the fleet. Of course, our schedules are published
well in advance. We're published today through August of 2011. This time a year
ago we weren't sure what was going to happen. We were definitely seeing some
improvements, but we took an ultraconservative approach with the 2010 schedule
well into the year. In fact, our business rebounded much more rapidly than we
thought. We just looked at our 2010 results year-to-date versus our annual
plan, and we're far ahead of our plan, so we will be able to add back some
flying [in 2011] that we had cut [in 2009]. That helps our costs, it gives our
employees more work to do, which they like since it fattens their paychecks,
and of course customers like it.
BTN: Some legacy
carriers say they peg growth plans to GDP growth. Does that rule of thumb apply
Kelly: I don't
know that we've ever paid any attention to that. Now, as an analytical tool, we've
certainly monitored our growth vis-à-vis GDP. As we're thinking about the
future, it has some impact, but we're much more granular: We're thinking about
those several dozen cities. We're thinking about what different airplanes might
bring to us in terms of growth. We're monitoring all of our markets today. Now,
the economic factors inform the way we think about our plans, but we don't tie
it so numerically to a GDP forecast.
As importantly, or maybe more importantly, it informs how
one would think about energy prices. I don't think we're any better or worse
than anyone else at trying to predict what energy prices might be, but there's
a lot being written right now about how we're at record levels of consumption
and demand, and prices have firmed. There are all kinds of projections about
where prices go from here, but the fundamentals do seem to be driving commodity
prices, and that's a huge concern going forward.
BTN: You said you
see a few dozen cities where you can expand. Is that independent of AirTran?
Kelly: I think it
is, in the sense that after almost 40 years we served just 72 cities. With or
without AirTran, we have all these additional cities that we'd consider. The
point is that AirTran improves the prospects of adding those new cities faster
and more profitably. If you think about Atlanta as an example, they've already
got that business up and running for us at 200 flights a day. I'm not sure,
absent the AirTran deal, when we might add Atlanta—and it could be never.
The other thing that AirTran does is that we've got the
[Boeing] 737-700 sweet spot in our fleet. We're going to augment that with a
bigger airplane, and we're also going to augment that with a smaller airplane
for the sole purpose of serving smaller communities with less frequency. That
is a market that we had been unable to crack, if for no other reason than we
felt like we didn't have the right airplane for it, and it's really tough to
take that first step. It takes a lot of effort to bring a new aircraft type
onto the property. By definition, you're only going to have a handful of
airplanes, and in the beginning it only provides some incremental contribution
at best. Here, we're stepping into a business: They've got it up and running,
they've got 86 airplanes, and they've already plowed that ground. We can take
what they've got, put the Southwest brand on it, plug it into our much larger
network, then grow it from there. AirTran does a number of different things for
us and that's why we think it's such a compelling opportunity.
BTN: Southwest in
2012 will take delivery of 20 Boeing 737-800s, which are larger than anything
in your fleet. Will there be a different cabin configuration?
Kelly: All coach.
It will be Southwest Airlines. Now, we have a green airplane that we are
experimenting with different materials for seat covers, carpeting, seat-back
material; they are more cost-effective and climate-friendly and they weigh
less, so we burn less fuel. We'll be continuing to evaluate things like that,
but it's not unique to the 800. You'll continue to see some evolution in our
fleet interiors, but between the Boeing 717, the 737-700 and the -800, you
should expect to see a consistent onboard look.
BTN: Where does
the res system stand?
Kelly: We had a
serious work team underway. Basically, just to take you back a bit, in 2004
when we looked at expanding our presence at Midway with a codeshare
relationship with ATA Airlines, we thought through at that point whether we want
to replace our reservation system. It was too big. When you say system, it
really is systems. In the meantime, over the last six years, we have replaced a
number of peripheral systems, so that we're pretty much down to the core
booking engine. It is an undertaking that is at least viable. It's something
that we feel like we can do without creating too much enterprise risk. The
question was: Where do we want to go for the next decade with our technology?
Do we want to continue to build or do we want to replace? We decided it's time
to replace, because it takes us too long and it's too expensive to build our
own. We formed a work team, they're out evaluating options, we've narrowed the
options down to two potential suppliers, then the AirTran announcement was made
and we asked that team to stand down for one to two quarters. We'll pick that
back up early [in 2011], make a decision on which vendor we want to use, then
get to work on laying out a work plan and beginning the implementation process.
It will take several years from whenever we start.
BTN: In addition
to enabling international expansion and codesharing, what are you looking for
in your res system?
Kelly: Those are
the two main things. We do have our international connection product in place
with Volaris. It works pretty well. It will bring to us the vast majority of
the benefits that we would see by having a relationship with them. But there's
no question that having a full-up codesharing capability with a different
reservation system will have some benefit for us. I don't think we could pursue
a new reservation system for that reason alone. The main reason is
international. We want to find a way to grow. We need places added to our
prospect list—this is one of the big enablers. The other thing is to provide
some revenue-management enhancements that come with reservations systems. Also,
there are some customer-experience enhancements that come with the reservation
system. There's automation available to accommodate passengers for flights that
get off schedule, and it's far more efficient than what we have today. Those
are the keys. We're going to have to invest in our reservation technology one
way or the other—whether we build it ourselves or we replace, so I don't see
that it's a material difference from a capital spending perspective.
BTN: Would a new
res system ultimately bring new ancillary revenue opportunities?
Kelly: It would,
but there are a lot of things that are built in, in terms of features and
functions, that we may not use. Assigned seating is an example. That's one of
the reasons that [Southwest co-founder and former CEO] Herb Kelleher years ago
decided we don't need all this stuff. We're paying for a lot of stuff that we
don't need, and it was classic Southwest and it was absolutely the right thing
to do. Now, we can't operate that way. We don't have $20 crude anymore, and
that has been a game-changer in the cost challenge. You look at this industry,
and the traffic in 2010 is less than it was in 2000—except for Southwest
Airlines. We think there's a bright future for a carrier that has the right
product, but we need different tools today and more flexibility today than we
did in 2000 to be successful. You just can't rely on fare increases if you want
to grow, and that's what a new reservations systems gives us. More tools.
BTN: Any changes
to your distribution strategy?
updated our fleet strategy, we've updated our technology strategy, we've
updated our growth strategy and we've updated our fuel-hedging strategy, if you
will. We're pleased with our operations and our distribution, so for the time
being we're just going to leave those strategies alone—not to say that we won't
cycle back to them some time in the future, but we've got a very ambitious work
plan for the next three to five years as it is.