Southwest boosts cargo
Cargo at Southwest Airlines is in expansion mode, with an eye toward entering overseas markets.
During the remainder of this year, the U.S. carrier will begin converting international flights serviced under the AirTran banner as part of the final steps of the Southwest-AirTran merger. Once technical upgrades are conducted on these flights, Southwest will expand its shipping offerings to these overseas destinations, according to Wally Devereaux, the carrier’s senior director of cargo and charters. These flights will mark the initial steps of Southwest’s international cargo play.
Southwest first began shipping cargo on the AirTran network — introducing cargo service to Charlotte, Rochester and Richmond — in April 2013.
The introduction of the international changes will be in mid-2015, but Southwest officials have already been gearing up for the additions. On May 1, Michael Basoco joined Southwest as its new director of cargo sales. Basoco had previously spent three years running the Americas cargo business for Saudi Airlines, where he helped U.S. freight forwarders connect to Saudi’s international flights.
Devereaux said the goal, for now, is for Southwest to not carry all cargo for all people, like its domestic competitors, but instead carve out a niche in the market. Southwest operates a narrow-body fleet and doesn’t carry per-piece cargo of more than 200 pounds, but Devereaux noted the carrier is starting to add specialty services, such as the transportation of human remains, to its offerings.
“We’re trying to broaden some of our products to carry some additional things that we haven’t carried historically, provide a little more capacity and some additional destinations, and obviously, make sure our service levels remain high,” he said.
On the domestic front, Southwest has taken control of new airport slots at New York’s LaGuardia airport and Washington-Reagan airport in the District of Columbia that were once owned by American Airlines. These slots had to be given up before the government would approve the merger between American and US Airways, a marriage that has shrunk Southwest’s main domestic cargo competition down to three carriers. Deveraux said cargo will see “some benefit” in LaGuardia, but the more immediate impact will happen in Washington.
At the end of April, Southwest opened a new cargo facility at Washington-Reagan (DCA), hoping to increase its cargo presence at an airport where it currently operates 44 daily flights.
“DCA, at this point in time, is not a huge cargo market, but I think with that flight schedule and as we get our shippers accustomed to using us in and out of there, I think we’ll do very well,” he said.
By its first-quarter numbers, Southwest is one of the minor players among domestic carriers. Delta’s cargo revenue dropped nine points, year-over-year, to $217 million. United saw cargo operating revenue fall by 7.9 percent to $209 million, as American finished the first quarter with cargo operating revenues of $206 million, a 32.2 percent increase.
At Southwest, cargo operating revenue ticked up 2.6 percent, year-over-year, to $40 million. Devereaux said those numbers reflect a poor January and February, but March brought a significant improvement. He added though the domestic cargo market is still soft, things are slowly turning around.
“We cancelled quite a few flights in the months of January and February related to the difficult weather, and so actually, in March we really started to see things turn the corner a bit,” he said. “We saw a nice improvement in our volumes, we saw a nice improvement in our revenue, and that seems to be carrying into April as well.”
He added a domestic uptake in retail and consumer confidence has him thinking that the remainder of the year will go well for domestic cargo. Challenges do remain, however, and Devereaux sees modal shift as one of the main hindrances to domestic air cargo’s health. Shippers who can wait for their cargo have been trading down to slower air cargo services or moving to trucking to save money. One of the big questions is if these shippers, who have become accustomed to paying less for transportation and have shifted their supply chains to fit with slower transport times, will return to air cargo.
“I think they will come back,” he said, noting the onset of new trucking regulations and an impending driver shortage is worrying shippers. “I think what you’ll see over time is the price of trucking services will come up a bit. As a result, I think you could see some shippers actually shift back toward air cargo going forward because they’ll find maybe that the savings aren’t there.”
Southwest will have to move forward in this still uncertain market without the benefit of additional planes. The Wall Street Journal recently reported that the carrier is extending its moratorium on fleet expansion from the end of 2014 to the end of next year, implying that the carrier won’t be growing. The line from Southwest officials is the carrier will “manage to a baseline of 695 aircraft, which was our combined fleet at the time of the AirTran acquisition.” However, Devereaux said the carrier is enhancing its ability to transport cargo.
“While the number of aircraft isn’t growing,” he said, “we are actually increasing our capacity a bit through those larger airplanes and being a little more efficient with our aircraft.“
But through it all, Devereaux maintains Southwest will stay competitive, carving out a niche for itself and asserting its independence in the domestic, and later international, market. The merger of American and US Airways, which seems to have pushed Southwest farther down the list in terms of market share, hasn’t changed how the carrier goes about its business, Devereaux said.
“We’ve been competing with the likes of American and United and Delta for many, many years,” he said. “I don’t think things will change much going forward.”
This article was published in the June 2014 issue of American Shipper.