Southwest is More Than Just a Money Maker

By Robert Mark on May 19th, 2008

Evan Spark’s ran an interesting post the other day about Southwest Airlines and Herb Kelleher, the company’s chairman. Take a look if only to watch this great video of Herb starring in a Southwest commercial 30 years ago. It’s clear why he spent so much of his career as their point man. He’s always been good in front of crowd. But so are most of the people that work at Southwest from what I’ve experienced and that element is a major competitive advantage for the airline.

mh_logoEvan’s post also offers an important contrast that looks deeper into where people fit at Southwest versus its competitors. Sparks began by posting a link to Southwest’s mission statement.

Allow me to quote Southwest president Colleen Barrett… “our goal of serving you [the customer] with a sense of warmth, friendliness, individual pride, and company spirit is not just what comes naturally to our Employees. It’s also the pledge we’re committed to honoring each and every day.”

Barrett apparently well recalls the message Herb has promoted for 30 years as well as she says, “Our Customer Service package is totally dependent upon [our] Employees. Without Employees—and without the right Employees—we would have at best poor Customer Service, and poor service means no more Customers.” At Southwest, the company priorities are simple, Employees, Customers, then Shareholders, completely upside down from the legacy airlines.

When I look back to the aviation companies I’ve worked for over the years, I now see why so many of my pilot buddies went to Southwest when Midway failed in 1991. They were the really smart people. Think of the free peanuts I’d have now after 17 years.

Just to be fair though, I tried combing through a few of the other airline sites for their mission statements. Nothing much about what drives them and certainly nothing about employees to be found, although American does have a page where they plead for customer patience when things go wrong.

Go figure. Southwest treats their employees like gold and the company is successful. The mega-carriers treat their employees like dog poop and most have had at least one run through bankruptcy.

Naw … must be a coincidence.

Seriously, everyone knows that Southwest is not just one of the few carriers making money today. Southwest is the airline that set and still maintains the operational and customer service standards the other airlines have been unable to duplicate.

And BTW, if you haven’t seen Southwest’s new blog – video, photos and a generally high-energy, ambitious, yet fun feel especially with their Day in the Life series – click over to Nuts About Southwest. I’m really envious.

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12 Responses to “Southwest is More Than Just a Money Maker”

  1. Bill Says:

    While it’s great that Southwest treats their employees with respect, though not originally among the best paid in the industry, an important key factor to their current profitability is their fuel hedging.
    However, you could argue that Southwest has been able to hedge of fuel (an expensive gamble) because of their loyal customer base has kept them in good financial condition. Did they get “lucky”, did they “know” the price of oil would triple? The majors got to a point where they couldn’t afford to hedge, turns out they couldn’t afford not to. But Southwest’s fuel hedges won’t last forever, and when they expire, they’ll be facing the same outrageous oil prices the rest of the nation is struggling to cope with.

  2. Robert Mark Says:

    The subject of fuel hedge always comes up in any good discussion of Southwest Bill, as well it should. And Southwest just borrowed $600 million against their airplanes, so as you say, they’re not immune to the economics.

    What I do strongly believe though is that when you have good employees pulling together, an airline has a much greater opportunity to succeed than when the employees are just along for the ride.

    For me at least, even when the Southwest people make me mad for a late flight – which out of Midway isn’t often I must admit – they make me laugh too.

    That’s one of those intangible pieces of Southwest culture that’s tough to show on the balance sheet, but it has quite a bit to do with their success.

  3. Impacted... Says:

    You can’t point to just one thing that makes Southwest who they are. People argue the hedge, but I applaud an excellent decision/gamble by upper management. While other airlines were steaming blindly ahead, Southwest actually took a close look at oil futures and saw the writing on the wall. That’s why they are still in the black. For how long, who knows? But at least they are, as compared to the others who are lining up outside bankruptcy court.

  4. Robert Mark Says:

    My guess is when Southwest is hedging at $107 a barrel, the legacies will still be complaining it’s all about oil.

    Your point is well taken, whether it is people or planes or fuel. Everything has to come together in the right proportions to make an airline successful.

    No one believes it is simply luck at Southwest.

  5. Steve Says:

    The stuff of the Kelleher era (employee luv/loyalty, low operating prices) are merely WNCOs lore — a thing of the past. As much as it still works to portray itself as this warm-n-fuzzy downhome airline, it’s not: it contracts more and more work out to agencies that undercut the cost and quality of its original employees, systematically targets and slashes its senior workforce, and closes facilities so to leverage employees out through facility closure and relocation techniques.

    Those actions make it just like every other company in corporate America: gluttonous to make even more profit to fatten the short-term company need and to h*ll with the folks that’ve committed years to helping SWA get there.

  6. Robert Mark Says:

    This is a very interesting comment Steve. Every company needs to make money to stay in business. I don’t think anyone would argue about that.

    The price that passengers and employees pay in order to keep shareholders happy is what this post was all about.

    Is Southwest perfect? I doubt it. But of course, what would perfect mean anyway?

    Realize that you as an employee are going to see the company much differently than those of us on the outside.

    The American Customer Satisfaction Index released the other day shows Southwest nearly 20 points ahead of other airlines in terms of what those of us in the back think.

    Again, that’s how we measure it.

    For you though, I’m curious what kind of things are happening that are making SWA such a bad experience.

    Even the flight attendants union gave old Herb a big cheer the other day.

  7. Adam Webster Says:

    Rob,

    A well timed and amazing post. The confluence of the timing on your post and the increasing tenor of the Jet-A cry babies has my attention.

    The fuel whining (whether you are hedged or not) is actually the biggest load of s–t I’ve seen in awhile. The air taxi industry is beginning to separate it out of their cost altogether.. and the passengers just pay for fuel on a separate line item. The airlines will have to do this too.. it is just a cost that is part of the ticket price, albeit a large part.

    It is not a reason to lay people off, it can’t be blamed for shrinking your profit, it is simply evidence that you SUCK AT PLANNING.

    Admittedly, in the air taxi world anyway, the line item is vague, marked up, and in many cases has more to do with the greed of the FBO or fuel wholesaler than the user or provider of the commodity. Remember, when Exxon moves it out of the war torn jungle to your local pump, they are doing it at a price that is governed by what people will pay, not some arbitrary secret enrichment formula, that is why it is called a COMMODITY.

    The trend on Jet-A prices will probably shrink soon (slow economy, more resources being found, increased refining capacity, etc…) In a parallel universe, I used seriously worry about the Canadian dollar going into the stratosphere (we operate out of Canada too) and just when people started saying “oh my God.. it will go to $2 to the USD!!!” it went back to being on par. In other words, when chicken little hits the street, you know that the storm has passed.

    The lesson here is simple: RUN A SOLID COMPANY THAT GENERATES CASH AND YOU WILL CRUSH EVERYONE ELSE.
    When you have money you can:
    a) think
    b) plan
    c) rest
    d) hedge when necessary
    e) wait to see if you need to hedge again
    f) build hydrogen engines that can be slapped on the ole 737 by STC!
    (of… f) is stretch)

    Having money in your pocket and not being hostage to short term thinking, politics or policy makes for great enterprise. Herb and the gang knew that from day one and they built the foundation accordingly.

    Curious: Steve, you sound bitter. What happened? Are you ex-Southwest? No company, as Rob says, is perfect, but phazing out “the older folks” is done by the State Police in Maine (and just about every other State I know.) I am sure there are some heartless moments in policy shaping at Southwest, but remember, you have to pick the “lesser of the two evils” when looking at companies or airlines.

    Southwest earns my respect daily for that reason, they create a living, vibrant and thriving model for future entrepreneurs to point to and say … hey .. look we CAN make money too. And with an airplane for f–k’s sake!

  8. rc Says:

    As long as they take care of the maintenance.

  9. JEFF Martin Says:

    Rob, you ask “Is Southwest perfect? ” No. At a minimum, I would like to see them comply with ADs. They completely blow off airframe inspections (with a wink and nod from the FAA) and that doesn’t even get mentioned as one of the ways they “manage” costs?

  10. Robert Mark Says:

    My guess is that no airline intentionally blows off ADs. That’s just asking for trouble.

    But having worked with the Feds for many years, I can tell you that what they say in person may not always be what they tell their bosses, especially if someone is in trouble.

    Of course, info on the Southwest or American issues I’m getting purely second hand.

  11. Adam Webster Says:

    Gary Kelly gives a good interview a couple of weeks back in AWST that addresses the AD thing. You are right re: ADs.

    One interesting thing to note was how fast everything was dealt with though once the accusations were made, very quick turnaround and minimal disruption to service.

    That alone speaks volumes of their ethic and culture. (I’ll try and find the Gary Kelly piece it was good.. and addressed the FAA thing.)

  12. Adam Webster Says:

    Jeff,

    It is possible, but unlikely. Managing costs doesn’t mean short term planning. Managing costs means making massive investments now, so that they don’t bite you later. For example the fuel hedge.

    The ADs are comparatively cheap for them to manage properly. IMHO it just doesn’t make sense that they elect to “manage” that way.

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