Wednesday, May 23, 2007
Southwest is a changin'
Southwest Airlines, that stable, low-cost airline that sticks to what it knows best and is consistently rewarded financially for doing so, has decided to make a sweeping change to its distribution policy. The airline has traditionally relied on its own distribution channels, which today means the Internet, which accounts for nearly 70% of all tickets sold. However, the airline has stressed that it is finding it increasingly challening to meet its targets and now it wants to get some better paying passengers into its seats. That means business travellers. Business travellers book closer to departure when there are fewer seats. My economics teacher in high school taught me that if supply is limited and there is a demand we can expect a higher price. So, business travellers are good for Southwest. There is only one caveat. Business travellers usually don't book their tickets themselves, they use travel managers. And since travel managers have to make a lot of bookings they use the global distribution systems because they don't have time to surf the Internet like we do when we go on vacation. To be visible in GDSs requires that airlines pay a fee, which is what all the other GDS-present airlines have been trying to lower. Southwest, being a low-cost airline, has been reluctant to be visible in GDSs because it adds cost, complexity, and it relinguishes some pricing control. In the past though Southwest has been present in the GDSs via a GDS bridge, but it was limited access. Now, the airline has done an aboutface and signed a 10-year content agreement with Galileo which will eventually see the airline in the Apollo system. The agreement excludes Southwest's web specials, promotions and Ding offerings, which is unique in that all other airlines have full-content agreements. GDSs more or less demand that airlines make all their fares visible, including those cheap web fares, but not Southwest. That's how much pull the airline over GDSs right now. In addition, Galileo is not authorized to pass the information on to third-party sites. So, what we are seeing is a partly a response to JetBlue's GDS agreement as Southwest is experiencing increased competition and an imitative strategy of those nasty network carriers on the other end. Southwest is exposing itself to more and more full-service networks by entering markets such as Denver and San Francisco, which increases competition with those carriers. To be competitive Southwest places itself in GDSs to capture some of the network carriers' customer base with their lower fares. It makes for interesting watching.