From the Archives: Slow Climb to New Heights

UPDATED: June 10, 2011
PUBLISHED: June 10, 2011

SUCCESS featured Southwest Airlines in October 1996, the year the airline celebrated its 25th anniversary and 23rd straight year of profitably. The airline continues to fly profitably today and transports more passengers than any other U.S. carrier, with more than 3,100 flights a day coast to coast. The following is the complete article from the SUCCESS archives.

The 4:00 p.m. flight from Houston to Dallas is full. As last-minute passengers wedge carryons beneath the seats in front of them, flight attendants pad down the aisle in sneakers to check overhead bins and straighten seat backs.

Marilyn, a sunny middle-aged attendant, takes the mike. “Could y’all lean in a little toward the center aisle, please?” Confused, passengers look around and then back at Marilyn. “Just a bit, please,” she says. “That’s it. No, the other way, sir. Thanks.

“You see, the pilot has to pull out of this space here, and he needs to be able to check the rearview mirrors.”

A dazed silence, then laughter. Marilyn smiles, pleased with her joke, then launches into the safety precautions speech. Well, it’s not a speech, exactly. The other attendants go through the emergency-exits-and-oxygen masks pantomime with straight faces as Marilyn raps the routine instructions.

“Federal regulations say you must comply/If you don’t, you can kiss your seatmate goodbye? Chhh-ch-ch-chhh—ch-ch…”

By the time the applause dies down. Southwest Airlines Flight 40 has been cleared for takeoff. It’s just one of 69 flights today between Houston and Dallas, one of more than 2,200 flights Southwest makes across the U.S. every day. In a conservative industry where one airline is pretty much just like another, Southwest is a maverick. This year marks its 25th year of business, and Southwest is celebrating as only it can.

Now the fifth-largest U.S. airline in terms of passengers boarded, Southwest redefined air travel with its short-haul, low-fare, no-frills flights. Its outrageous reputation has snowballed into the stuff of legends: planes painted like killer whales, industry disputes settled with fifth-grade acts of machismo, a bourbon-swilling chairman, and, of course, the smartass but good-natured flight attendants. Southwest Airlines has never had a crash. It has never laid off employees. The people of Southwest enjoy a casual, lovey-dovey work environment that is often praised publicly but seldom duplicated (at least, not outside religious cults or the set of Barney & Friends).

Most remarkably, Southwest has remained profitable for an unprecedented 23 years in a row. In 1995, revenues were just shy of $3 billion.

Herb Kelleher boasts about Southwest’s style and its often unorthodox approach to business. As the outspoken co-founder, president, and CEO of Southwest, Herb (“Mr. Kelleher” to no one) insists on a disciplined, fiscally prudent formula for growth. Southwest started with a three-city intrastate schedule. Kelleher has marched the company slowly and methodically across the southwestern states into California, the Midwest, and the Northwest. Florida is the latest target; the East Coast – currently served only in Baltimore and Providence, R.I. – is next. Southwest’s business philosophy: Keep air travel affordable, provide job security for employers, and make a profit.

Almost Grounded

Kelleher came to San Antonio almost four decades ago. The New Jersey native was tired of being an East Coast lawyer and intrigued with the business environment shaping up in his wife’s home state. In 1966, as he was practicing law at his own San Antonio firm, a client approached him with an idea. Rollin King was an investment adviser. The former college flyboy also ran an unprofitable air charter service between small Texas cities. At that time, most Americans who travelled by air were high-powered businessmen or wealthy pleasure seekers. One day at lunch, King’s banker, John Parker, made a suggestion: Why not fly just between the three biggest cities in the state? Parker reasoned that the market was ripe – he could never get a seat on the airlines that currently flew those routes – and besides, prices were too high.

King knew his little airline wasn’t up to the task. “So I decided to start a bigger one,” he recalls. He put together a feasibility study and a business plan. He raised $100,000 in pocket money, then went to Kelleher.

Kelleher was skeptical, but as King’s lawyer, he did the necessary paperwork to create Air Southwest Co. (later Southwest Airlines Co.). Together, they built up second-tier capital and some political support. On Feb. 20, 1968, the Texas Aeronautics Commission approved Southwest’s petition to fly between the three cities. On Feb. 21, competing airlines – Braniff, Trans Texas, and Continental – blocked the approval with a temporary restraining order.

Kelleher, his enthusiasm for the airline ignited by the efforts to quash it, put his litigation skills to work. The competition argued that Texas didn’t need a new carrier. It took a three-and-a-half-year legal dogfight, including three trips to three courts, for Southwest to prove otherwise.

Meanwhile, the company needed someone to run it. King wanted a CEO with both airline experience and entrepreneurial moxie to put his strategy of short hauls, point-to-point setup, frequent service, and low fares into practice. He hired Lamar Muse, a brash former executive from Universal Airlines. King stepped into the role of executive vice president of operations and chief pilot.

“Lamar was exactly the right person to get Southwest Airlines off the ground,” says Kelleher, “because of his experience, but also because he had an unconventional mind. He made a superb CEO for us because he was tough, he was imaginative, and he was determined.”

When Muse came on board, Southwest was flat broke and deep in debt. He raised more than $1 million, bought three brand-new Boeing 737s for a steal (Boeing had overproduced in an airline slump), and hired a crack team of seasoned professionals as company officers. He took the company public in June 1971, which brought Southwest’s coffers us to $7 million.

It wasn’t enough. The company lost $3.7 million that year, and the situation stayed bleak for another year and a half. Southwest was trying to keep costs down and attract customers without compromising its original goals. From these lean circumstances, many of the company’s hallmarks were born.

Peak and off-peak airline pricing was one such innovation. Another was the 10-minute turnaround, made possible by Southwest’s point-to-point (rather than hub-and-spoke) routing system. After landing, each plane would pull into the gate, get checked by maintenance, unload passengers, reload, and leave the gate within 10 minutes. The industry average today on hour-long flights is 45 minutes. The 10-minute turnaround allowed the three-plane airline to maintain a busy schedule and improve its on-time performance.

Budget constraints had a big impact on Southwest’s marketing style as well. To promote as much word of mouth as possible, the company decided to cultivate a sensational, of-the-wall image. Enter the Love Flights.

Catering to the industry’s predominantly male clientele, Southwest outfitted its stewardesses in hot pants and go-go boots. The company’s campaign slogan – “Now there’s somebody else up there who loves you” – was backed up with the love potions (drinks) and love bites (peanuts) that the stewardesses lavished on their charges. Southwest used this campaign to promote its service in the three-city… um… Love Triangle.

In 1973, Southwest turned its first profit. Kelleher and King both remember those early days, and the few years that followed, as the time Southwest’s much-heralded employee culture first developed.

“We were in a battle for survival since day one,” says King. “Right away, we adopted a philosophy that we wouldn’t hide anything, not any of our problems, from the employees. At one point, we likened ourselves to the defenders of the Alamo – we thought our chances were about as good as theirs.”

“Our people were perfectly aware that our company could cease to exist at any given time,” Kelleher adds. “In that kind of environment, you tend to come together as a band of warriors.”

Showdown Leads to a Shake-up

Having fought for profitability and finally won, Southwest started to climb its way up in the industry. By 1978, it was one of the country’s most profitable airlines. Muse’s shrewd cost-controlling measures and increasingly popular high-frequency, low-cost flights were killing the competition. On the inside, however, Southwest was heading for a shake-up.

That spring, Muse was abruptly ousted in a board decision led by Rollin King. Only sketchy details of the event and the appointment of Muse’s successor are available. For more than 15 years, Kelleher has flatly refused to discuss it.

But at the time of the ouster, Muse complained loudly that King had not liked him from the start. King has said that Muse constantly tried to undercut him with the board. In 1974, King left his post as executive vice president but stayed on as a senior captain and board member.

By 1975, Southwest had expanded its flight schedule to eight more cities in Texas, and Muse was ready to push further. He aggressively campaigned to start a commuter airline service out of Midway Airport in Chicago. It was a gamble that would require a huge investment.

Most of Southwest’s board – including King and Kelleher – were against it. In March 1978, Muse made his feelings clear: The board wasn’t big enough for both him and King. The board accepted Muse’s resignation. As Kelleher told Forbes magazine a year later: “Midway isn’t going to be a second home, but a second point to serve. Texas will remain our home.”

With Must out, King entertained hopes of finally running the company he had started. But when the dust settled, it was Kelleher who landed on top. Howard Putnam was hired away from United to be the new president and CEO, while Kelleher was appointed chairman. When Putnam bolted three years later to head up Braniff, Kelleher stepped into those roles as well. Only then did he give up his outside law practice.

“Herb had never been anything but a lawyer up until then, but he’s smarter that hell,” says King, still a board member for Southwest. “You don’t have to be an airline guy to run an airline; it’s not rocket science. And Herb’s done a tremendous job.”

Under Kelleher’s leadership – and a little event called the Airline Deregulation Act – Southwest expanded flights into other states while preserving its unique culture and services. The Wright Amendment of 1979 added a wrinkle to Southwest’s plans. Under its terms, flights running out of Dallas’s Love Field (Southwest’s headquarters) were restricted to destinations within Texas or to the four bordering states: Louisiana, Arkansas, New Mexico, and Oklahoma. To get around the Wright Amendment, Southwest simply initiated flights from some of the other airports it served. The setup still exists today. It’s a quirky system that means passengers beyond those five states have to switch flights – often several times – to get to and from Dallas.

 Through the ‘80s and ‘90s, Kelleher took broad steps to put the stamp of his own gregarious personality on Southwest’s business and marketing style. Standing just over six feet tall, he looks surprisingly healthy for a chain-smoking, workaholic party animal. His straight white hair is combed back from a ruddy face beaded with alert, mischievous eyes. From his wild smile flows a deep voice as smooth as his beloved Wild Turkey.

“Recently, another airline suggested you might be embarrassed to fly Southwest Airlines,” the voice said in a TV commercial a few years ago. A paper-bag mask covered his head. “Well, if you’re embarrassed… we’ll give you this bag.”

Kelleher removed the mask to reveal what is now a well-recognized mug. For years he appeared in many such ads – wearing a referee uniform in one and a hat shaped like an Arkansas Razorback in another – playing up Southwest’s fun, relaxed attitude. In 1992, he made the spotlight with an event touted as “Malice in Dallas,” the result of a dispute over Southwest’s “Just Plane Smart” slogan. Stevens Aviation, a small airline sales company in South Carolina, was using the slogan “Plane Smart.” Instead of suing to protect its trademark, the company suggested an arm-wrestling competition between the two chairmen. Kelleher gleefully accepted, lost amid much fanfare, and was carried out on a stretcher while a “trainer” fed him shot of whiskey. Stevens Aviation let him use the slogan anyway. Both companies benefited from the publicity bonanza.

In 1982, when US Air pulled out of three California cities, Kelleher moved fast to get Southwest into those routes. Today, Southwest is California’s largest intrastate carrier. Ten years later, when Midway Airlines tanked, Kelleher negotiated a lucrative deal to take over its gates at Midway Airport. Southwest staffers were manning the gates and providing service almost instantaneously. The move gave Southwest a stronghold in the Midwestern market (ironically fulfilling the vision that Lamar Muse had fought for and lost).

“The airline industry changes so quickly, you can’t predict what’s going to happen five years from now,” Kelleher says. “I used to joke that my first responsibility when I come to work is to peek through the blinds – to see whose planes may have arrived at our gates during the night. It’s that kind of business.”

Chaos, and Loving It

It’s June 17, one day before the 25th anniversary of Southwest Airline’s first flight. At 11:25 a.m., there’s a huge line of customers at the ticket counter for the 12:30 p.m. flight from Chicago to Nashville. Dozens more occupy the waiting-area seats, clutching green plastic boarding passes emblazoned with block-letter numbers. The number indicates the order in which you board the plane. There are no assigned seats.

“Is this how it always is?” an attractive, fortyish woman wonders aloud. Her mother nods absently. “So you never know what seat you’re going to get? Boy, that would drive me nuts!”

For the most part, the growing group of businesspeople and families seem unfazed. The children – there are lots of them – bat around errant balloons from a huge red, yellow, and orange display. To celebrate the anniversary, the gate is decked out with construction-paper confetti taped to the walls and a window painting of T.J. Luv, Southwest’s cartoon airplane mascot.

When the plane finally begins boarding, 30 passengers at a time, the crowd presses toward the entrance. The last on board are stuck with center seats and no overhead storage. Once airborne, everyone gets the same in-flight meal: a beverage of choice and a small bag of peanuts marked “Frills.”

All is as it should be. The chaos and the total lack of luxury and formality are Southwest’s modus operandi. Yet Southwest has had fewer customer complaints than any other airline for the past four years. It has won the same distinction for baggage handling and on-time flight performance.

The 10-minute turnaround is no longer feasible, but its current 20-minute version still beats the industry average. “It always amazes me,” says a slight, dark-haired passenger in the Nashville flight, “how fast they always load the plane and get moving!”

The passenger is Steven Gelb, president of a Chicago-based company that makes specialty software for hotel and rental-car companies. Formerly, Gelb was a strategic planner for United Airlines during the 1980s. “There is tremendous respect for Southwest within the airline industry,” he says. “Respect combined with envy. And recently, a little bit of fear.”

In most cases, Gelb continues, new airlines that have tried to duplicate Southwest’s have failed. “Ultimately, they get one part of the equation wrong,” he says. “It’s usually overexpansion; too much, too fast. Or they try to compete with Southwest directly in its big markets.”

People Who Need People

Fear or no fear, the big boys are getting into the act. Continental, Delta, and United have all added short-haul, cheaper flights to their schedules. The no-frills airline business has heated up, and the competitors are starting to get the hang of it.

Kelleher thinks he’s got an ace in the hole. “They can imitate the airplanes. They can imitate our ticket counters and all the other hardware,” he says. “But they can’t duplicate the people of Southwest and their attitudes.”

He mentions often the company’s early struggles and how they shaped the loyalty and love among employees. As their numbers have swelled, from the original 195 to 23,000 this year, Kelleher has made it a priority to nurture that culture. “It used to be a business conundrum: ‘Who comes first? The employees, customers, or shareholders?’ “ he says. “That’s never been an issue to me. The employees come first.”

“If they’re happy, satisfied, dedicated, and energetic, they’ll take real good care of the customers. When the customers are happy, they come back. And that makes the shareholders happy.”

Every day is casual day at Southwest, whether you’re on-flight staff (the hot pants have given way to shorts and cotton polo shirts) or an executive. The company’s profit-sharing plan was the first in the airline industry. If you’re “Southwest material,” you are also guaranteed job security.

But you’d better have a sense of humor. If you don’t, you’ll never make it past the first interview. Southwest receives thousands and thousands of job applications every year. Of all the bizarre ways people have tried to get noticed – résumés printed on Wild Turkey bottles, for instance – one of Kelleher’s favorites came from a pilot from Sacramento. “He spelled out marketing messages for Southwest Airlines using hay in a huge field,” he says. “You could read them from the air.” The pilot was hired.

Southwest employees make the company – and Kelleher – sound too good to be true. “Yeah, I know it seems pretty ‘apple pie,’ “ admits Sonny Childers, a Southwest pilot for 13 years. “But it really starts with Herb. We all pitch in and help one another with things; I’ve seen Herb hand out peanuts on flights. He’ll go out the Wednesday before Thanksgiving and load bags onto planes. We know he’d never ask us to do anything he wouldn’t do himself.”

On Father’s Day, Southwest flight attendant manager Maurice Alexander was at Southwest’s Chicago hangar, serving drinks to guests at one of the company’s legendary parties. He was there as a volunteer.

“I had to drive all the way out to Evanston to be with my family, then come all the way back to do this,” Alexander says. “But I’m happy to be here. The whole attitude is just different – even though I’m just a ‘lowly’ manager, Herb knows my name without looking at my I.D.”

Despite the competition, despite recent U.S. airplane crashes, and despite its unconventional style, Southwest remains strong. Other airlines scramble to compete every time Southwest enters a market. Kelleher recently signed another five-year contract as CEO and has no intention of retiring. One of America’s most admired corporations, Southwest will not be deterred from its original course.

“We’d be kidding ourselves if we tried to plan, in a meticulous way, how many flights we’re going to have in Kansas City in 10 years,” Kelleher says. “We’ll do strategic planning, which is defining who we are and who we want to be. When we’re fit, lean, and ready, we can take on anything that comes up.”