Let's play ball
How Southwest's math whizes in revenue managment confound the competition

[Published in the February 1999 edition of Reporting Point, the monthly newsletter of the Southwest Airlines Pilots' Association.]

By David Stewart
Deep down inside lies a fierce competitor, but outside Keith Taylor is soft-spoken and down-to-earth, just as his Montana roots would suggest.
Yes, Taylor loves to battle the other airlines. But as vice president of revenue management, Taylor first likes to talk about the productivity of his analysts.
In 1991, the revenue management department employed 16 analysts to work the airline’s 900 daily departures. Another group of analysts handled pricing. (In those days, the revenue management department was known as the LIDS because their primary responsibility was to keep a lid on overbooking.)
Today, 12 analysts handle the airline’s 2,500 total daily departures and all pricing. The new name, SWARM (SWA Revenue Management), probably represents the way other airlines feel.
With up to 180 days of future schedule/inventory available for sale, a single analyst is responsible for 35,000-40,000 flights at any one time.
“We do have a little help in the form of a nearly $1 million computer system called PROS (Passenger Revenue Optimization System),” said Taylor. “We try not to talk much about this state-of-the-art system. But this system helps us to be very productive.”
The system handles most flights so the analysts can focus their attention on flights that require analyst intervention. “It is truly management by exception,” Taylor said proudly.
The computer spits out those flights that do not fit the set patterns. For example, if demand in Albuquerque jumps, the computer will alert the analyst who in turn may call marketing and find that there is a hot air balloon festival in town.

So who are these whiz kid analysts? Most graduate in the top of their college class in math or science-related majors and come directly to Southwest out of school.
They are in for a busy first year. In addition to their jobs at headquarters, the analysts take trips to stations to learn other parts of the business, from ground ops to reservations.
These trips frequently produce input they would never receive in Dallas. They spot tight gates that would make it difficult for agents to accommodate a large groups of ticketholders, all of whom expect to make the flight.
Armed with such an experience, an analyst might reduce the number of tickets authorized for any one flight at that station, thereby reducing the stress level of the gate agents.
“In one year on the job in this department, analysts pack in about four years worth of airline experience,” Taylor insisted. “They have to work with a lot of departments on a wide variety of issues to keep the planes full, the prices competitive and the denied boardings to a minimum.”
They work with Ground Ops, Customer Relations, Reservations, Marketing and Schedule Planning on issues from oversales to special events.
The breadth of knowledge that an analyst gains in revenue management can catapult them into a variety of other sectors of the company.
They are a tight knit group that takes their job very seriously. But they also find time to recreate together, as they did last year at a gathering at Keith Taylor’s place in Glacier National Park in Montana.

But let’s get back to the competitive side of Keith Taylor and his group. “On a daily basis, the analysts in the revenue management department are responsible for seeing that Southwest fares are competitive,” Taylor explained.
“If we can keep them [folks at the other airlines] awake at night that’s fine with me. That’s part of what we try to do, to be as competitive as we can.”
Taylor and his staff of 21 analysts, supervisors and managers love to play ball and it shows.
Every day, the revenue analysts monitor the “Changes Report” from the Airline Tariff Publish Company. This report includes virtually every carrier’s fares.
The analysts study every single fare change for their markets to ensure that SWA’s core fares are competitive.
If an airline is undercutting Southwest, the analysts examine the type of equipment, scheduled times, service, restrictions and number of seats available at the discount price to determine whether a price change is warranted.
For example, if United offers a special discount from ABQ to LAX for $69, the analyst may check and discover that the flight requires a stop in Denver, where Southwest’s non-stop to LA is $99. The analyst may determine that no pricing change is warranted.
[Occasionally, these discount fares come back to haunt an airline. In the example of Albuquerque to LA through Denver on United, the fare of $69 may be lower than the fare from Albuquerque to Denver. Wise passengers to Denver may book a flight to LA and deplane in Denver. That is known as buying long and riding short.]
It is tough to fool these wily young aviation experts. That’s why they are recognized as one of the best revenue management teams in the industry.
“We really do enjoy the competition,” Taylor insisted. “Competition is healthy.” SWA competitors might disagree.

Next month, we’ll take a look at how revenue management analysts strive for “Big Bucks — No Whammies” (i.e., maximizing revenue while minimizing denied boardings).