It’s been awhile since I’ve posted an Across the Aisle interview, and I hope you’re prepared for a whole lot of words. I sat down with Dave Harvey, VP of Southwest Business right during the airline’s meltdown last month. We spoke for an hour, and after much effort, I was able to break it down into two posts. I trust this will keep you busy all week since I’m at a conference and won’t even have time to put up 3 Links this Friday.
In this post, we get into Southwest’s business roots, what companies want from the airline, and the importance of O’Hare… and even Jackson, MS… but really O’Hare.
This has been edited for clarity purposes, but please make sure that when you read it, you hear Dave talking with his trademark thick Texas twang.
Brett Snyder, Cranky Flier: Southwest and business travel is kind of a funny thing, because a lot of people think of Southwest as not being a business travel airline, but you’ve always been a business travel airline. You don’t start flying to Houston like 15 times a day or whatever it was for leisure travel, right?
Dave Harvey, VP, Southwest Business: When I started in 1999 and we served both Houston airports, we flew over 50 times a day from Dallas Love Field.
Cranky: And you don’t need that for leisure. So you’ve been a business airline. I think probably where the disconnect lies is more in the managed travel world. And so is that really what the the goal is right now? To expand the business base?
Dave: It really is, you’re right on. It’s really a return to our roots, that short-haul, high-frequency point-to-point network. When you think about the business traveler, they want on-time, they want reliable.
Cranky: They do (**cackling maniacally since this conversation took place in the middle of the October meltdown**)
Dave: They want the warmth, they want the hospitality that that Southwest brings. They want the low fares, because it stretches their budget a little bit farther, but it’s about the schedule. We grew up in the seventies and it was all about Texas; it was the end of that decade where we finally started getting outside of the state. The network gravitated south and west, you know, Phoenix, desert mountain, Cali. We’ve been in Cali a little over 40 years now, and if you think about all the intra-Cali traffic, we’re still 60-70%.
So, the further west you go, they definitely think of us more as a business carrier. It wasn’t until the mid ’90s ’til we actually got to the east coast; Florida, Baltimore. It wasn’t even ’til the aughts that we got up into some of the upper northeast business markets. And we don’t have quite the schedule strength and frequency in some of those east coast markets as well.
The fundamental point is the last 20 years, managed travel has gotten a lot more sophisticated. There’s a lot more mandate and policy at corporations with booking tools… what’s gonna get expensed, what’s not, how the expense flows works for mid office and back office? Travel management companies big and small are a big piece of the equation, so to get your fair share of that business the last 20 years, you had to really have a sales and services team that were geared for managed travel… which we haven’t had until the last couple years.
And then you had to think about your overall distribution and channel strategy, about how you shop, book, ticket, settle, and serve on the day or after the fact. We had not made those investments as a company until the last couple years so that’s really opening up the door for a whole new customer base that we can fully compete for.
Cranky: I think for those who aren’t familiar with what managed travel means, I should define that. It’s the companies that have contracts, agreements, policies to direct their travel spend…. And you also have as you get into larger companies, they have the duty of care. They need to know where you are, they need to be able to follow you, so if you’re just going rogue and doing your own thing, it’s harder to do. So is that really the thrust of what you’re focusing on here?
Dave: Yes. I think it’s fair to say because we haven’t had the sales team so you know a lot of these big accounts two years ago say “we hadn’t heard, no one’s called on us in years, where have you been?” Maybe Southwest is more of the spill business carrier because we haven’t displayed right in their program or they’ve had to do a punch out solution to book Southwest. You have to be fanatical, a fan of Southwest, to use us for business. By not having that in place, we could never truly deliver the low fares, the service, the hospitality, the things that the travelers love and rave about Southwest because we didn’t make it easy on the travel managers and the [Travel Management Companies] to work with Southwest.
Cranky: You’ve made a lot of progress even without the GDSs… standardizing SWABIZ and Southwest.com so that you can manage bookings back and forth, just making it easier to interact. I know you’ve done a lot of different things, but what are the main points that you’ve heard from these travel managers and corporate agents that you need to really focus on?
Dave: On sales calls over the last 10 years, the number one thing that typically comes up is “get me industry standard GDS.” Leave the brand aside — we know that Sabre clearly is the largest player here in the North American market — but because those travel managers and TMCs are not only dealing with Southwest Airlines as an air supplier, they’re working with all the other airlines, all the other hoteliers, all the ground transport… so doing one-off solutions for Southwest just adds time and adds friction.
“Get me on my platform of choice” and then following behind that, you hear things like “hey, you don’t actually take us to some pretty important markets.” That’s where COVID has been huge. “I got to get to the north side of Chicago, get me back into [Houston] Intercontinental.” We left Intercontinental in ’05 to consolidate at Hobby, and think about all the growth over that 15, 16 year period. “Get me right into Miami. Lauderdale’s great, but sometimes it’s uncertain what that traffic pattern is going to be down into Miami.”
So there’s network plays, clearly the channel plays, and the last is they just want a little bit more flexibility. So during COVID we’ve been able to pivot. You think of a wallet for the company and funds and unused tickets and how you reuse those things, the COVID pandemic forced our hand to kind of move more aggressively. And we’ve come up with some really creative solutions.
There are other things that we’ve been working on but those are some of the big ticket ones: playing into our flexibility, expanding the network, and getting them their channels of choice.
Cranky: I was definitely gonna ask about network because I love network. I’m guessing the addition of Steamboat Springs doesn’t matter so much, but you talk about an O’Hare, you talk about Intercontinental, these are companies that are going to these places right?
Dave: It’s both.
Cranky: These are origin companies?
Dave: Yeah, if you go to north side of Chicago, it’s chockablock… looking at Fortune 1000 companies in the United States, there’s over 80 of them in the greater Chicagoland area and they’re all downtown-north.
Cranky: Yeah, but you have such a minor presence compared to American and United. Is that really moving the needle?
Dave: It is, yeah. It’s already becoming one of our fastest startups in our history. We launched with 16 daily operations to five markets; we’re already up to 12 markets and 28 flights and we continue to expand. The first offering was a little bit more business-oriented, but we’ve seen so much local demand we’ve actually really started rounding it out with Florida, Cancun, a lot of the weekend stuff….
Your comment about the Colorado mountain towns, you’d be surprised. All these business travelers, a lot of them have the credit card, they racked up a lot of points in the Rapid Rewards program. In the last 12 months, it got a lot more attractive with a ton of Florida beaches, Savannah, Colorado mountain towns rounding out our California portfolio. Bellingham’s about to come online, Eugene, Oregon…
Cranky: Jackson Mississippi, oh wait,
Dave: I was about to say… *laughing*
Cranky: Maybe not the most attractive destination for the Rapid Rewards crowd but important to people in Jackson.
Dave: Tons of government and military and defense. And Colorado Springs, plus a lot of good leisure there too. Network planning, you know, whatever their ten-year plan was, they deployed it in about a 12 month period, but [the new cities] are all contributing to the network and driving more revenue than they are cost so we’ve been thrilled with the new adds.
Cranky: I’m curious more about some of these north side of Chicago companies. What are you hearing from them where they’re eager to work with you? They already have two massive airlines duking it out at O’Hare.
Dave: The fact that we have a history in the Chicago marketplace with Midway since ’85, there’s a built-in customer base and there’s people on the north side of Chicago that have been driving down to Midway for our product and our fares for decades. So now, if you’ve got that non-stop right there around the corner at O’Hare, you’re naturally picking up attraction to the travelers.
When you’re having that conversation with the travel manager, there are quite a few things that Southwest brings to the table that are differentiators from the other two brands that are there. Clearly, they get a lot of non-stop, point-to-point service having the the two hubs, but our all-Boeing 737 jets, our unrivaled flexibility….
If you put yourself in the shoes of the travel manager, they’re not only trying to keep their travelers happy, but they may be answering to somebody in supply chain, a CFO, Chief People Officer. They have a lot of bosses they’re trying to keep happy, and if they can go to those bosses and say, “hey, I just avoided X amount of bag fees, X amount of change fees. I have either a rebate on the back-end or a point-of-sale discount on the front end on these naturally low fares. I just saved my company x millions of dollars by shifting some share over to Southwest versus the other guys.” They look like a hero.
Cranky: On the managed travel side, do you have accounts that are saying “hey, great, now that you can get me and my wife to my chalet in Steamboat, we’re gonna sign the company up?”
Dave: You’re not hearing that necessarily as much directly from the travel managers, but you absolutely hear that from your road warriors and the travelers themselves.
Cranky: Yeah, but they’re not necessarily the ones making the decisions. Are you seeing them push on their travel managers to work with you guys?
Dave: Companies have all kinds of different personalities. Some will be lowest logical fare down to the penny. I don’t care if you have to connect versus a nonstop. And others, the travel program is really an extension of their HR or people plan and if these folks are willing to live a significant amount of their lives on the road trying to drive revenue or develop business, they’re going to give them a hundred to two hundred bucks swing on a one-way ticket. We’re going to give them more flexibility on their carrier of choice based on that brand affinity and the loyalty.
Cranky: Do you have any numbers that you can share about increasing penetration from a lot of the efforts over the last couple of years? Is there anything that you can point to that, well, you’re willing to point to?
Dave: …I think the macro level to answer your question, COVID threw us all upside down because the data isn’t where it needs to be over the last 18 months to really kind of make heads or tails. But we absolutely know we’re making huge strides down at the account level.
Cranky: So you’re working on faith a little bit just because the data is such a mess at this point but you’re seeing the right signs…. Are there certain geographies where you’ve seen better response? You talk about going into O’Hare and IAH and all that, that’s one thing, but if you’ve seen certain places that maybe O’Hare was the the key to them, like Kansas City…
Dave: That’s another great example. A company may have a lot of traffic out here in California where we sit today, but the fact that we don’t serve their headquarters in O’Hare, we’re not going to get our fair share of their California business because we literally can’t get people back to their mothership, So now by having O’Hare because they told us, “Get us GDS, get us O’Hare,” or whatever this big business market is, it just opens the door for a conversation. Our sales team has never been able to have a meaningful conversation about not only getting share in and out of the north side of Chicago, but now inherently picking up more volume across the Southwest Network.
Come back on Thursday for part two where we discuss operational meltdowns, vaccine mandates, and other completely non-controversial topics.