Southwest’s Andrew Watterson discusses:
- A surprise rebound in convention/meeting business
- Channel shift from Southwest’s GDS strategy
- Getting operations beyond “acceptable” levels
Southwest Airlines last week celebrated the 15th anniversary of its launch of operations in Denver, which since has grown into one of the largest centers of business for the carrier. Southwest EVP and chief commercial officer Andrew Watterson spoke with BTN transportation editor Michael B. Baker during the event about the effect Southwest’s growth in Denver has had on corporate travel, the carrier’s strategy to recover from recent operational challenges and his outlook for corporate travel recovery.
BTN: Airline executives generally have said they expect slower business travel growth this year and then acceleration next year. Is that what you expect?
Andrew Watterson: That’s the current supposition, though predictions for business travel return have been erroneous for a year and a half now, but it’s a clear, steady, upward trend that we’re seeing. [Small and medium-sized businesses] were first to get back out on the road, but we’re seeing the supermajority of our accounts are active. It’s the travelers per account that’s really depressed, but for the travelers who are traveling, their rate of travel is down only about 10 percent.
A year or so ago, people would say conventions and internal travel are not coming back, but we’re seeing a lot of meetings and convention business, because those are open. People are traveling on business to Las Vegas or Orlando to have a convention or meeting and interact with others, and we’re seeing a lot of companies, especially professional services companies, getting together in their offices. They can’t go to a client site, so they’ll fly their teams to a centralized office, work there a couple of days a week and then go back to their home office. That has been a surprise, because if you’d asked anybody 12 to 15 months ago, they’d say those would be the last things to come back, but they’ve been the first things.
BTN: Will it ultimately return to pre-pandemic levels?
Watterson: A lot of times people get overly focused on whether we’ll get to 100 percent of travel demand. The business travel community just being back to 80 percent or 85 percent is material. There will be different types of business travel. While I don’t minimize that, it’s true with every recession. If you go back to the Great Recession or 9/11, those changed the nature of business travel, so it’s common for an economic downturn to result in a change of busines travel perception. After 9/11, we had the security hassle, which put a damper on short-haul flying. During the Great Recession, a lot of the big conventions were vilified, and so there was a stigma on conventions that lasted a few years.
BTN: After your recent announcement of capacity adjustments, are you confident that Southwest will be ready for the upcoming holiday demand?
Watterson: You never know what the weather is going to be like. What we’re seeing is that with summertime, we had ramped up our capacity, and we didn’t lay anybody off or furlough anybody, but we did have people on extended leave. We were calling them back, and then we were hiring more people, and just like the rest of the economy, we found out we couldn’t hire people as fast as we used to be able to hire, and some people who came back from leave for whatever reason would turn around and ask for unpaid leave. A combination of coming up short in hiring goals and unpaid leaves meant staffing wasn’t right this summer. So, we immediately adjusted for capacity and brought down our capacity. We won’t be back to the same levels we were this summer until the earliest March or perhaps later on, so that gives us more time to ramp up the hiring we need. There will be less flights this holiday season versus the summer, and more people we’ve been hiring, which puts us in a good position.
BTN: Outside of that one weekend, how has Southwest’s operational performance been in recent months?
Watterson: Since we did the immediate reduction we started in September and beyond, we’ve had acceptable on-time performance. We’d like to do better than that, but it’s good enough. We’re not getting complaint letters from it. We know the day-to-day recoverability will be helped by a more dense network that we get each month that goes by. Right now, the reliability is at an acceptable level, but it needs to be better than that. We generally had timed the increase in our depth for the return of business travel, which we expect to be during 2022.
We won’t be back to the same levels we were this summer until the earliest March or perhaps later on, so that gives us more time to ramp up the hiring we need. There will be less flights this holiday season versus the summer, and more people we’ve been hiring, which puts us in a good position.”
BTN: What feedback have you gotten from corporate customers regarding the new destinations Southwest has added?
Watterson: A good portion of them are leisure, and for business travelers, they like that, because they can use the points they earn on business to fly leisure. The one that have a direct business benefit are the bigger city airports, like Chicago O’Hare, Bush Intercontinental and Miami, but we also have medium-sized city airports like Colorado Springs, Fresno and Bozeman, (Mont.,) where there’s business going on there as well and corporations located there or that send people there are happy. We see in big metro areas, where we’re in multiple airports, that gives people choices.
Denver is a big focus for us. It’s our largest airport. We entered 15 years ago in a modest fashion and then, as we’ve seen an increasingly robust response, we’ve ramped up to be what we are now. We are getting 16 more gates as they finish our concourse, which is a total of 40 fights, so we’ll have ample opportunity to fly to new destinations and add more frequencies. We find Denver is a market where air travel is essential to doing business. If you think about big cities, in most you can drive to another big city. We’re based in Dallas, and you can drive to Austin if you want or Houston if you want. If you live in New York, you can drive to Boston or Philly or take a train. But Denver, the big cities aren’t within driving distance, so you need to fly to do business. It’s brought a greater utility to the business community in Denver, especially with our flexibility in and out. We keep adding more people here and more flights here, and we’re grateful to have been embraced by the city and business community.
BTN: Now that you are live with all the major global distribution system suppliers, have you seen much channel shift?
Watterson: We’re seeing definitely incremental business from being in the three GDSs with full functionality. We know there’s some shift, and when we did the business case and plan for doing this, we counted on the big shift. What we are seeing now is that corporations will still use multiple channels for different purposes. There may be a senior group that gets high-touch support from the travel management company and goes through the GDS, and there may be a self-service, stand-alone business unit that uses Swabiz. Something in between might use a direct connect. The ultimate channel shift will depend on what the travel purpose is for each of those segments.
BTN: What response have you seen to the recent announcement of a new Rapid Rewards Business program?
Watterson: We’ve been doing beta for quite a while just to get the kinks out. We had a real surge of interest once we went public on it, and we’ve seen lots of sign-ups. It’s a way for corporations that aren’t big enough to have a negotiated discount but still want to favor us with some activity to de facto to get a discount, in terms of earning points they can redeem for company travel. This is a way for them to earn a discount through demonstrated performance.
BTN: What about your recent announcements on sustainability?
Watterson: We’re allowing multiple options for corporations, depending on their sentiment and how they want to engage. If your company is large enough that you can fund acquisition of sustainable aviation fuel, we can work together to get a direct line for that for you, all the way down to the lower end, as an individual or company, where we offer to offset a particular flight you are taking. We will give you Rapid Rewards points for that and match your gift, so we end up contributing more than you.
BTN: Is codesharing or interlining with other carriers still something Southwest is considering?
Watterson: It’s on our radar. Each year we look at our tech budget to see what to spend it on. Things like [Extended-range Twin-engine Operational Performance Standards] to fly to Hawaii, the GDS or refreshing Swabiz. We also just went live with a brand-new maintenance system. You can also use it for something like codeshare and interlines, so that had not yet made it into that short list to do. It’s something we still want to do moving forward. We think it’s a good financial benefit as well as offering travelers extra options, but it’s the icing, not the cake, for us.