Flipping the industry trend: Southwest Airlines’ shift to indirect distribution

Southwest Airlines has been our partner for 26 years, so we’ve seen up-close how the airline has grown and transformed over the years. Kevin Crissey, VP Investor Relations for Sabre, recently sat down for a virtual conversation with Southwest Airlines Chief Commercial Officer, Andrew Watterson, to talk about their distribution strategy and where it’s headed. Kevin Crissey: Andrew, talk to us about how Southwest is managing through the COVID crisis. It’s obviously been the biggest impact in the industry’s history. Andrew Watterson: Yeah, obviously we’ve had a lot of ups and downs with COVID, and so what we’ve been focused on is in the short term, managing our business in like 30-, 60-, 90-day chunks, we can understand where demand is, and what the right level of capacity we need to deploy against that demand, for, you know, the best financial outcome, with an eye towards getting to the cash-burn break-even, you know, as quickly as possible. At the same time, we had to tamp down a lot of our expenses, discretionary expenses, during this time, but we were keen to make sure we didn’t, kind of mortgage the futures or some of our big initiatives that we had undergoing. We kept them going–like our work with Sabre. KC: How does your expanded partnership with Sabre fit into your distribution strategy? AW: Yeah, so we’ve been doing business with Sabre for a while, and across multiple different product lines, and we had a basic participation in their GDS, which served some purpose. But it created a lot of friction and we felt like that, for the largest corporations, travel is, kind of, one of their purchase services, and they don’t spend a lot of time thinking about it, and they have their standard processes and technology they want to use to book travel, and since we were doing our own way, they would only use us kind of, you know, when necessary. When there’s really no other choice, and when there was choice, that we were too much of a hassle to do business with. And so what we want to do is work in an industry standard way, and since Sabre is the industry leader, it was a natural partnership for us to participate fully in their GDS systems, so we could put our product on the shelf for the largest corporations. And we’ll go live here, you know, not too distant future and we expect a good return from it. KC: So, Andrew, how has Southwest’s distribution strategy changed, other than the advancement with an increased participation with Sabre? AW: Oh, that’s actually a really big change for us, we’ve been direct to consumer for quite a long time, and we were direct to business, as well, and that was a point of pride and a point of cost savings for us. And so, this idea that we would distribute indirectly through the GDSs at full participation levels is a fundamental shift in our in our distribution strategy, and was really unanticipated by the marketplace, and so this, I think is a big opportunity for us and for the GDSs, because we’re kind of going the opposite way from a lot of airlines. A lot of airlines distribute indirectly, are then trying to push up their direct. We’ve already had a substantial book of business doing direct business on a B2B basis and now, going towards indirect is really a landmark change, and counter to industry trends. KC: Yeah, I can see that. How do you see the distribution landscape changing over the next few years, for both yourself, and maybe just more structurally? AW: Well, we obviously will continue this play we have with going through the GDSs and working in a more you know, collaborative manner with the TMCs, but people have been predicting, you know, earthquakes and distribution business for a while, and really we see just incremental change. You definitely see some more technology options coming into the marketplace, and you see the NDC came in with plans for, you know, our promises for big changes and really it looks like it’s led to incremental changes for improvements on how to distribute you know, ancillary revenue and such. So I would think we would see this continued you know, technology progress, but I don’t anticipate kind of a fundamental shift in the industry in like a short period of time, just this continuous improvement if you will. KC: Terrific. Andrew, is there anything you’d like to conclude with? AW: You know, I would say that I appreciate the invitation to be here and I appreciate what Sabre is doing in the marketplace. You know, I think we’ve had through this, a constructive relationship with Sabre, we find that valuable. Negotiations can be tough, but we came to something that was mutually agreeable and I think it will help both of us in the marketplace, and we’re looking forward to, you know, an airline and GDS partnership and going to market together this Fall. KC: Terrific. Thank you so much for your time, Andrew. Watch their full conversation here: