And, we’re back. If you enjoyed part one, you’ll really enjoy part two. I saved the fun-filled controversial items for today, but keep in mind that Dave Harvey, VP of Southwest Business can only speak to these from the sales perspective. We combined that with a host of other more conventional topics to round out the discussion.
Brett Snyder, Cranky Flier: The network during the pandemic, it’s gotten broader, but it’s also gotten a little flatter. There’s less frequency, right? Have you heard anything from your accounts that are saying, “we really need these frequencies back,” or they just not at that point yet where they care?
Dave Harvey, VP, Southwest Business: No, we definitely are starting to hear it. Incrementally, we were on about a 5% month over month sequential ramp. When you go back all the way to Jan and Feb, we were down more than 90% compared to 2019 levels and then March we finally had a heartbeat, we kind of got off the mat. And you saw some nice acceleration all the way through July. With this latest wave, a little bit of a dip now, the good news is we flatlined. It wasn’t like other waves where things continued to drop off the cliff.
The exciting thing is now network planning, they’ve done a fabulous job throughout the pandemic on what I’ll call gap and compression. If you look at the frequency throughout the day — it may have been an intra-Texas market that had 14 flights a day and in the trough it went to three or four — they space those three or four as best they could throughout the day to give that pattern and give as much flexibility. So now as they’re bringing it back, we’re not to 12 or 14, but we are turning the corner; we’re back to seven or eight. And then with all the aircraft coming in 2022, if if the demand warrants it, they’ll be able to go back to pre-pandemic or equivalent to pre-pandemic frequencies next year.
Cranky: Have you seen any recent acceleration in business travel at all or is it still just fairly flat?
Dave: There were folks out there calling it a domestic business renaissance post Labor Day. The current wave had other plans for us, so I would say nothing like the significant bump, the hockey stick. I will say there’s a lot of focus and energy coming off the holidays in January. We spend a ton of time with travel managers — we actually just hosted a bunch of our influential travel managers for a big event a couple weeks ago in San Antonio — and we heard that loud and clear for January. So I would just say we’re encouraged with some of the momentum coming off of Labor Day but nothing like if we had had this conversation 70 days ago.
Cranky: So the hope now is that the the return will resume after the holidays and between now and then it’s gonna be a little middling I guess?
Dave: Absolutely. It’s very choppy. What you’re hearing a lot of travel managers say is because there’s so much uncertainty with international, especially long haul international, we’re sitting here on 18, better part of 24 months and we haven’t been able to do relationships. We haven’t been able to sell.
One of the drivers for the January comment is everyone’s going through their budgets right now and clearly a lot of budgets will be down. But they’re actually are industry sectors where they think budgets are going to be up in 2022 over 2019. They’ve got to get back out there seeing the whites of people’s eyes. If your competitor’s doing it and you’re still sitting behind the screen, the first time they win one of your customers will be the last time. That’s why there’s a lot of people kind of circling that week or two after the holiday, so we’ve heard that a lot.
Cranky: I tend to believe that too. I know Scott Kirby at United has been someone who has been shouting since that if you’re not out there, someone else will be. It needs to happen, so that’s kind of how you’re believing about the business travel recovery. Are you expecting to be back at 100% or above it relatively quick?
Dave: Everybody’s looking into the crystal ball. I think 2022, that’s too aggressive to say it’s back. Maybe there’s a month or two the back half of the year where you’re at a run rate equivalent, but a lot of folks are measuring this by calendar year, and it’s still going to be a few years before you get back to the calendar year 2019 demand levels. Definitely as you get into the spring of 2023… and I am making a little bit more of a domestic comment versus international. Of course, whatever you think about domestic, I think you almost add at least a year if not 18 months on the back end of that for some of the long-haul international which is less relevant for us.
Cranky: We do have to to talk about the operation. You mentioned it earlier; the importance of on-time reliability. You guys had a… I don’t know if you’d call it a meltdown in June, but it was not a good time. And now we’re in the middle, hopefully coming out, of an even worse one right now that has, I think, shaken some faith that’s out there. You can’t control the operation, but what are you hearing from the corporates and what are their concerns? How do you alleviate those?
Dave: Yeah, at the highest level for the business traveler, time is what matters most. Depending on what survey data you’re looking at, it’s usually the schedule followed by loyalty then price where on the leisure side of the equation it’s usually price, schedule, then loyalty. So it’s critically important that you run an on-time operation that is reliable, that you can trust, and is safe. That’s priority one.
Cranky: Are you hearing from your big corporates right now? I’m sure they’re yelling.
Dave: Yeah. Because this happened — and it’s very unfortunate — just take Sunday, of the thousand flights that were impacted, we impacted a lot of customers, unfortunately. The rest of the network that ran, actually ran pretty clean. But then specifically the business customer, because it happened on a weekend, it was less impactful to the business segment. But clearly a lot of folks were impacted so we were absolutely having a lot of conversations, not only with travel managers but with specific travelers that are heavy business customers that may have been flying for leisure. We are going above and beyond to help them, make sure that they’re well taken care of. And that they understand what happened and what we’re doing going forward. So you’ve got to take these items and learn from them and get stronger and get better.
Cranky: Yes it was on the weekend, but everyone’s watching the news and so even if it doesn’t directly impact them, they still have this in the back of their minds that… can I can I trust this? Is this gonna be okay? And I think the first communication I saw from Southwest was from Southwest Business.
Dave: It was. There was an email that went out yesterday. At 5am we got a letter out…. It was the highest open rate we’ve ever seen really. Nine in ten emails were opened.
Cranky: You should put that subject on all your emails.
Dave: **laughing** It’s amazing how much feedback we got all over the spectrum, but there was a little bit of a sense of “thank you for owning it, getting out there, taking your lumps. We appreciate that.” We cannot rest on our laurels, we’ve got a good brand and some equity with customers, and we may have dipped into that bank significantly with the two incidents that you’re referring to back in the summer and then over the weekend, but I think trying to be as transparent and communicative and proactive has definitely helped here in the first day or two.
Cranky: I guess this couldn’t have been done a couple years ago because you’ve been building up a team, right? A couple years ago, they would have just been on their own.
Dave: Literally, just even the capability to communicate like we did yesterday morning didn’t exist a year ago.
Dave: Well, broad scale, a level of personalization… to be able to do a lot of these things. And actually you you mentioning email, it sounds so basic. All we did was get a letter out, but because we hadn’t invested in the channels and our backbone… our customer relationship management tool was very manual and a lot of hand-holding by account managers. If I’m an account manager and I’m managing 50 accounts… Just over a year ago that’s 50 individual transactions where now they can streamline and do a lot of their correspondence and it’s all customized behind the scenes to the specific travel manager or to the account.
Cranky: All right, so you’ve got the network in a good place, you need more frequency, you’re seeing the benefits of all these new cities starting to come, you’ve built out your infrastructure, you’re in the GDSs, even Sabre now, so what’s what are the next priorities? Where do you need to go from there?
Dave: There’s a few big things that we’re looking at. One is around [travel] data, and the transfer and sharing of data, to just take that off the plate of the travel manager so we can look at industry data and have meaningful conversations about their travel patterns and how Southwest can best service those.
Cranky: You’re not doing much of that now?
Dave: There are a few industry solutions, PRISM being the largest. There’s another, ARC is coming to market with a product that United is kind of leading the charge on, so we continue to explore. It’s an investment of money and resources and just time to implement, so we’ve got a roadmap and you’ve got to weave these things in.
Another big priority for us is a self-service travel portal. Most of our competitors already have a self-service portal for the travel managers and the TMCs where today all of the correspondence [with us] still has to go back and forth between your account manager and you as the client or the the customer. In a future world, assuming we greenlight and keep going down this path, a lot of what I’ll call blocking and tackling, running reports, duty of care, managing some of your waivers and favors, that’ll be at your fingertips.
Cranky: I’ll throw this one at you, the grenade at the end here. Have you heard anything from corporates about a vaccine mandate and does that matter to them?
Dave: In general, they’re all going through the exact same thing for their employees. There’s really the two paths. There’s the OSHA path and then the government contract path. Clearly we’re government contractors, that was the new news a week ago Monday that we’re following through on the mandate by December 8th [Ed note: this has since been extended by the feds to January 4]. In general most of the travel managers and travelers have at least gotten on a plane the last 18 months, so even before the mandate, they’re like “we get it. It’s safe to travel. You guys are doing great compliance on the masks, the HEPA filters.” So now this vaccine mandate does make sense to them where they say that’s just one more thing from a peace of mind standpoint where I know if I travel after December 8th, anybody that I touch on the front line, I can look at them and I know they’re vaccinated. Nobody has pushed back on us, and they generally support it saying that’s going to be better for my travel experience.
I hope you enjoyed our talk. I’ll be back on Monday with a regular episode of Skeds of air Lines as usual.