Southwest Airlines lagged behind other U.S. aviation powers. However, the carrier managed to establish itself in the country’s prestigious “Big Four” club. Co-founder Herb Kelleher has been an integral part of the operator’s growth over the decades. Let’s take a look at the businessman’s approach during his time with the company.
Thinking outside the box.
The lawyer presented the airline model to his client, Rollin King, in a hotel bar in San Antonio in 1967. The original plan was drawn as a triangle drawn on a cocktail napkin. The image symbolized the connection between the Texas cities of San Antonio, Dallas and Houston. Kelleher invested $10,000 of his own money to start the company. He sought to create a cheaper airline that would fly between these three key locations in the state.
At the time, the Civil Aeronautics Board (CAB) oversaw market regulation across the country. However, some of these controls did not apply if the carrier operated only in Texas. Thus Southwest would be able to set lower prices and underestimate its potential competitors.
Existing airlines, however, were not as interested in allowing a new player to join the game. It subsequently took the company several years to get into the skies. Notably, Braniff, Trans-Texas Airways and Continental Airlines filed lawsuits against Southwest that delayed its launch.
Nevertheless, in 1970 the company overcame its challenges. The Texas Supreme Court affirmed the company’s right to fly to Texas. The following year it was launched as an in-state airline.
During the first decade, Kelleher fought hard to keep his company going. He then became president in 1978 and was promoted to CEO in early 1982. During that period, Southwest had only 27 planes, $270 million in revenue and 2,100 employees. It also flew to 14 cities. Under Kelleher’s leadership, however, the Dallas-based team grew into a multi-billion dollar company with a significant presence across North America.
Since 1973, when the company made its first profit, the company has not reported a full-year loss since Kelleher’s death on Jan. 3, 2019. This factor is exceptional in an industry that has faced a number of challenges for decades. In fact, the carrier even made some money during the Gulf War, while its competitors faced serious financial problems.
All about respect
The New York Times notes that Kelleher believed employees should be treated well. He sought to avoid layoffs and wanted to bring a spirit of fun to the company’s culture. Overall, he wanted to create an atmosphere of loyalty that he hoped to pass on to his customers.
As a result, Southwest has seen significant cost savings. Productivity levels were much higher than the industry as a whole. The company also managed to keep rates low and profits stable while increasing wages.
Kelleher chose efficiency over excess. However, this aspect did not mean that he wanted to sacrifice quality service.
“You have to treat your employees like your customers. When you treat them right, they will treat your outside customers right. That’s been a powerful competitive weapon for us,” Kelleher told Fortune.
“You have to take the time to listen to people’s ideas. If you just turn someone down, it’s an act of power and, in my opinion, an abuse of power. You don’t want to force people’s thoughts.”
Kelleher was proud of the way Southwestern treated its employees. Against the backdrop of the current health care crisis, it would have been interesting to see how he would have handled staffing issues.
“What I’d most like to see after I stop being CEO is layoffs at Southwest. Nothing kills your company culture like layoffs. No one has ever been fired here, and that’s unprecedented in the airline industry. It’s been a tremendous strength on our part,” Kelleher said, as reported by Fortune.
“We could have left several times and been more profitable, but I always thought it was shortsighted.”
Leaving a legacy
Overall, Kelleher thought it was important to show employees that you appreciate them. He said it’s not firing people that breeds loyalty, safety and trust. As Southwest faces difficult decisions about furloughs in a pandemic, managers will surely remember Kelleher’s words.
When Kelleher stepped down as president in 2008, he received a standing ovation. In addition, the Southwest pilots’ union published an ad in USA Today thanking him for his service. These moments celebrate the impact the visionary had on the company and the U.S. aviation industry as a whole.
There have been several global crises that have had serious consequences for the market. As a result, most of the major airlines in the United States declared bankruptcy at one point or another. Southwest, however, remained profitable for nearly half a century while Kelleher was a part of it. Consequently, his approach paid off.