Southwest is hungry for greater share of the business travel pie, while first class nuts become a new online phenomenon

1 September, 2020

Just in case there was any doubt that business travel in the US remains nearly non existent, Southwest Airlines has just issued a reminder that there's little activity in the corporate travel sector. In a recent message to employees its CEO Gary Kelly stated that the airline was seeing some improvements in close in leisure demand in August, noting it could be driven by some schools in the country delaying the start of the school year or opting for virtual instruction.

Mr Kelly also noted a modest improvement in bookings for Sep-2020, a time of historically heavier business travel after the US Labour Day holiday; however, he remarked that Southwest is not seeing much activity in business travel.

Despite some improvements in bookings, "the bottom line is still terrible of course," said Mr Kelly. Previously, Southwest has stated it expects is revenue in Aug-2020 decrease between 70% and 75%, which is an improvement from previous projects of a decrease of 70% to 80%.

The airline has been forced to temper its expectations with respect to capacity expansion. Southwest expects a decrease in capacity of 40% in Sep-2020 versus previous projections of a drop of 20% to 25%. During Oct-2020, the airline expects capacity to fall 40% to 50% year-on-year. At one point, believed it could reach a point where it was just 25% smaller year-on-year by the end of 2020.

The airline should achieve a daily cash burn of USD20 million per day in the third quarter, an improvement from a prior projection of USD23 million. While Mr Kelly welcomed that improvement, he warned that Southwest needed business to double in order to break even.

It could be some time before airlines worldwide achieve a sense of normalcy, but during the slowdown in business travel Southwest has been engaging with TMCs and corporate travel managers across the country, airline president Thomas Nealon recently told analysts and investors. As business travel begins to recover, "the size of the market, the size of the pie may be smaller for a period of time, but we intend to have a bigger slice of that pie", he declared.

From pies to nuts. The snacks had long been part of Southwest's marketing campaigns and notably its "peanut fares". They were a key part of the airline's history and its DNA, but were discontinued in 2018 to safeguard passengers with peanut-related allergies. But many airlines continue to serve them, especially in the premium cabins, and they highlight how the impact of reduced air travel runs much deeper than airlines' bottom lines.

Companies have been forced to upend their business models during the Covid-19 pandemic, and one example is a small firm that supplied United Airlines with its nut mix for first class passengers. The upshot? Customers really missing the premium experience can now pay a small price to replicate part of the adventure at home.

GNS, a woman-owned, family run business based in the US state of Texas has been producing the nuts for United during the last two years. But one of the safety measures United adopted in Mar-2020 at the onset of the pandemic was removing the nuts from all flight to reduce contact between passengers and staff. There result was GNS was left with 30,000 pounds of excess nuts.

"Not only are we left with bags of mixes, we are also left with the raw ingredients and ingredient contracts from the suppliers," says GNS owner Kim Peacock. "We were asked to maintain United's costs on their mixes for one year. In order to do that, we had to sign raw ingredient contracts for one year. Now we're left with these contracts. If nut prices rise, then you can sell the contract at a profit. Unfortunately, that's not what happened. Nut prices fell, and the raw ingredient suppliers are looking to us to make up the difference!"

So what do you do with excess nuts? Well GNS has quickly adapted and is now selling its 'Elite Status Airline Nut Mixes' at near cost prices in its retail store and online. The nut mix features whole cashews and whole almonds, and the Hawaii mix adds macadamia nuts to the almonds and cashews. While business travel remains subdued we can still sit at home and enjoy first class snacks as we work, but we need to supply our own ramekins for that authentic airline experience.