February 6th, 2009
Southwest Airlines' Next Competitor? Cisco Systems.
Southwest Airlines likes to tell Americans of all stripes that they are “free to move about the country” because of its cheap fares.
But Gary Kelly (at left, in 2004 Halloween costume) and his low-cost airline, born with the mini-skirted stewardesses, still charges $359 to get someone from its headquarters in Dallas at Love Field to San Jose, where John Chambers’ Cisco Systems is based. And another $359 to get back again. Oh, and add $20 to get each way if you choose its “business select” service, which entitles you to boarding priority — and a free drink.
Southwest, which generates about $11 billion in annual revenue, has been able to successfully stick it in the gut of much larger airlines, such as hometown rival American Airlines ($24.5 billion, most recent four quarters) and Atlanta’s Delta Airlines ($20.2 billion), by flying the same airplane on short routes and just minding its Ps and Qs. Oh, and its hedges its fuel costs really well.
But it can’t hedge Web 2.0 particularly well. There’s no way that Gary Kelly can beat Cisco if John Chambers just manages to convince CEOs to keep employees in their seats at the home or branch offices — and travel half as much as they are accustomed to.
Chambers is clearly using Cisco and its own employees as an incubator for this. In the past year, he said on the company’s earnings call earlier this week, the 64,000-worker company has over the last year:
• Increased its used of online collaboration technology by 3,100 percent. The technology? Its WebEx interactive meeting service, of course.
• Conducted 4,000 video conferences, internally, every week. This is its TelePresence technology, that it likes to promote with tie-ins in the Fox series “24,” to solve national security threats. But, first, it solves corporate budget threats. Use of TelePresence has cut — listen, Gary — Cisco’s run rate in travel expenses from $750 million to $350 million. That’s a 53% cut.
* Seen use of its discussion forums jump 1,600 percent. Talking online is a lot cheaper than jumping on a 737 and flying to Houston or New Orleans.
• Watched its own YouTube flourish. Cisco’s video-sharing service is called C Vision. You may not want to see how to fix or market an Aggregation Services Router. But Cisco’s internal use of video as a communications mechanism went up 2,300%.
Maybe business travel is only a quarter of all airline industry revenue. But it’s the only part of the business where airlines make money. Already, the general economy has created havoc for the big airlines.
And even Southwest has hit headwinds for the first time, reporting losses in each of the last two quarters.
It’s not immune to being sucked under, if business travel is cut in half.
And as previously reported, Cisco, which has 63,000 or 64,000 employees and $39.5 billion in annual revenue, proves that you really can conduct internal meetings without anyone leaving their home offices — Southwest will have to train its guns on router makers in San Jose. Not loyalty miles marketers at DFW International Airport.
Oh, yeah. Chambers says he’s cut per-employee travel expense at Cisco from $7,900 per employee per year to $3,400. And he’s not going to let it come back up.
Why should he? And if you’re the CEO of any profit-challenged company elsewhere (and there are more than a couple of those), isn’t cutting travel expense in half something you ought to be able to promise your board of directors?
Next up: Convention organizers organize to defeat John Chambers.
Tom Steinert-Threlkeld is editor-in-chief of Securities Industry News, as well as a long-time media, technology and business journalist. See his full profile and disclosure of his industry affiliations.
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