LOW-COST passenger operators are not normally associated with air cargo, so it comes as a surprise to learn that the carrier that invented the low-cost model – Southwest – has had a cargo business right from the beginning.
Now, as it absorbs rival AirTran, it is looking at applying its unique cargo philosophy to the international market, albeit only on short- to medium-haul flights out of the USA.
Southwest was established in 1967, though adopted its current name and business model in 1971. It has always used B737s, and in the early days, remembers Matt Buckley, vice-president cargo and charters, turnaround times on flights were as little as 10 minutes. (They are now as much as 30 minutes).
For that reason cargo in the first 18 years was limited to envelopes and small packages carried in a product called Rush Priority Freight, a 24-hour guaranteed product.
In 1990, however, the carrier was looking at new ways to maximise revenue, and Buckley remembers using transparencies on an overhead projector to present to legendary Southwest founder Herb Kelleher – then president and chief executive officer – a plan to boost the cargo business. Kelleher agreed, and a cargo management group was set up, with its own sales force and call centre.
Today the carrier offers three cargo products: Rush, Next Flight Guaranteed, and a general freight product. Weight limits – just 100 lbs in the early days – are now 200 lbs. Cargoes include high value, time-sensitive and perishables shipments, such as electrical equipment, organs for transplant, flowers, seafood, airline parts for AOG situations, and human remains.
The business is growing steadily too, despite a wider decline in the US domestic airfreight business. Mostly that is due to network growth, and partly it is because Southwest Airlines Cargo is at the opposite end of the scale to the kind of less urgent cargo that is being lost to US trucking.
In the past decade, Southwest routes have also tended to get longer, as the hassle factor of security checks made shorter-haul flying less attractive for passengers.
But Buckley reckons the main reason for success is down to Southwest’s razor sharp focus on service. “Anecdotal evidence is that we are pretty good at what we do,” he says.
“I wish I could tell you an elaborate strategy, but we simply try to win customers by moving the shipment better than anyone else in the industry. We are selling speed and relentless reliability. We are committed to the cargo business, and customers have taken notice of that.”
Southwest also ensures that its own staff sell and handle the cargo wherever possible. It does not use GSAs, instead relying on its own sales force, and it has its own cargo facilities at 53 of the 72 cities it serves. Buckley points to the fact that Southwest has never had any lay-offs, meaning that employees feel a genuine commitment to the carrier.
“That is not to knock contractors, but our own employees have a stake in the business and so are able to provide a better service,” he says.
Since all its aircraft are B737s, there is no containerisation and all shipments are loose-loaded. The secret here – and the way the airline achieves those fast turnarounds – is that cargo is handled just like baggage on the ramp.
“We work hard to ensure that a box is seen as just as important as a bag,” says Buckley. “Cargo is a sub-set of our ground operations department, and station managers are held to account for cargo performance measures such as moved as manifested, or recovery times on arrival, just as much as for other activities.”
Moving cargo like baggage means that a lot of tail-to-tail transfers can be performed, and that – with a few exceptions, where cargo facilities are a long way from the gate – cargo is ready for pick-up just 30 minutes after arrival, with cut-off times before departure the same.
It is easy to see why that makes Southwest competitive when compared with other domestic rivals with their two-to-four-hour cut-offs.
Surprisingly, the efficient ramp hand-ling is mana-ged without planeside scanning: instead ground staff just read the labels on boxes, though shipments are, of course, manifested on the carrier’s capacity management system. Buckley says hand scanners are now being tested in a few markets, however.
Even more surprisingly for the carrier credited with having the first airline website in 1995 and which gets more bookings off the web than any other, South-west does not have an e-bookings capability for cargo.
Buckley explains that this is because freight is seen very much as a relationship business. “Our sales team prides itself on knowing its customers, and it is the way we grow,” he says.
That being said, the airline is now looking at process automation for cargo as part of its move into international routes, and that should lay the ground for internet bookings.
The new international routes have come from the acquisition of AirTran, which ope-rates out of Atlanta – a deal completed in May 2011, with the two carriers coming under one AOC in March this year.
AirTran adds 22 destinations to the Southwest network, among them exciting routes to Mexico and the Caribbean, and Southwest has also indicated that it plans to expand to other international routes near the USA from around 2015.
In addition, it is now looking at building interline connections with some overseas carriers, who – says Buckley – are “clamouring to get access to our domestic network”.
While there is no plan to change the Southwest cargo product and philosophy on international routes, Buckley does admit that they will require some changes – dealing with house airwaybills as well as master airwaybills, for example.
The carrier will also have to open up its IT system to talk to those of other companies, and to allow foreign carriers to book on its capacity, all of which should lead naturally on to e-bookings.
Meanwhile a more immediate priority is bringing the former AirTran destinations into the Southwest Airlines Cargo family, as the Atlanta carrier did not carry cargo prior to the merger.
Post-merger, Southwest now has a fleet of 621 B737s with 398 orders (including 150 as launch customer for the new B737 MAX), though will be leasing out to Delta the 88 B717s it inherited from AirTran.
The carrier also recently took delivery of the first B737-800s, which offer 65 per cent more hold space than the B737-700, with obvious cargo potential.
It has not been all uphill, however, with cargo taking a sharp dip from November 2008 onwards, as happened with many other airlines worldwide. Buckley admits that cargo revenue has only just returned to October 2008 levels, though he also points out that 2008 and 2002 were the only years in the airline’s history where cargo takings were down over the previous year.
Looking forward he sees no sign of a double-dip recess-ion, despite the uncertain state of the world economy. “Our business is growing in double digits and we are pleased with our progress this year,” he says. “We have high expectations for the future as well. All the indicators for us are looking good.”
Dedicated though it is to its cargo product – Southwest advertisements like to boast that [CEO] Gary Kelly likes cargo. A lot – Buckley has to admit that cargo remains a small percentage of the air-line’s total revenue, but he insists it is an important business nevertheless.
“We view it as a great source of ancillary revenue, just like the frequent-flyer scheme or vacations or charters are,” he says. “The plane is going anyway, so we aim to maximise the revenue on each flight. I wouldn’t put it any bigger than that, but in the days when every airline is flipping over every rock to offset high fuel prices, cargo is one of those sources.”