Southwest Airlines Co. has been profitable for 40 straight years.
Unlike every other major carrier, it has never filed bankruptcy. It has never sacked employees with layoffs, furloughs or pay cuts. It is also the airline with the fewest complaints--just 0.25 per 100,000 passengers last year, according to the Department of Transportation.
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There are plenty of theories as to how Southwest succeeds where most other carriers fail. But Gary Kelly, who has been CEO since 2004, says it comes down to love.
"Love is part of the fabric at Southwest Airlines," he said. "Love Field is our headquarters in Dallas. LUV is our three-letter symbol on the New York Stock Exchange. It's a word that we're not embarrassed to use about how we feel about the company, our employees and our customers."
I interviewed Mr. Kelly for nearly an hour and then heard him speak at the University of Denver last week. His formula is so basic, yet so seldom applied: Take care of employees, employees will take care of customers, customers will take care of the company and its investors.
"People want to come work for Southwest Airlines because they have an awareness of what I'm describing here," he said. "They want to work for a great company."
Mr. Kelly is living proof that the airline industry doesn't have to run the way it does, cutting fares to steal market share and then sticking investors, creditors and employees with all the losses in bankruptcy court.
Serial bankruptcies prove the industry has been pretty much run by jerks: Self-dealing executives, incompetent managers, overreaching union reps, hatchet men, lawyers, accountants and money-grubbing consultants. It is not an industry run on love.
If you love someone, you don't gamble away their livelihoods. "How can you say you care about your employees if you allow your company to become unprofitable?" Mr. Kelly said. "What kind of job security do you have to offer there?"
If you love someone, you don't charge them a fee for taking a bag on a trip. "We want you to bring a bag with you," he said. "Why should there be a penalty?"
If you love someone, you don't put them on a scale and charge them by the pound. (This, by the way, is an idea I satirically proposed in a 2006 column to deal with both the obesity crisis and rising airline losses. Samoan Airlines made headlines earlier this year when it actually adopted this approach.) "I just think that's crazy," Mr. Kelly said. "We want the travel experience to be good... Who wants to talk about their weight? .. Some propeller-head invented this. It's just a bad idea."
The U.S. airline industry has now consolidated into three major players, all wrung through the bankruptcy process, and each now approaching $40 billion in annual revenues: American/U.S. Airways, Delta/Northwest and United/Continental.
Southwest which is completing its integration with AirTran Airways, has more than $17 billion in annual revenue. It carries more domestic traffic than each of the so-called majors and calls itself the largest U.S. airline. It still has labor unions to contend with. It still has steep fuel costs. It still has competition and all the other challenges of running an airline, but it also has love.
Jeff Potter, former CEO of Denver-based Frontier Airlines, remembers a time when many observers thought the only reason Southwest wasn't going bankrupt was because it got lucky hedging fuel prices as oil soared to about $150 a barrel in 2008. Southwest, however, has simply proven itself more adept at managing costs and risks, and providing better customer service, than its competitors, he told me.
"They adapt to whatever is presented, and in the airline business you're presented with a lot of challenges," said Mr. Potter, who is now CEO of Evergreen, Colo.-based aviation consulting firm, Boyd Group International.
Southwest reported record revenues for the first quarter of this year, but profits slipped. "I'm nervous. I'm very cautious," Mr. Kelly said, regarding his outlook for the economy in the months ahead. He suspects federal budget cuts and higher taxes are softening consumer spending.
He also doesn't expect jet fuel prices to decline. It was 30 cents a gallon when he joined Southwest in the 1980s. Now it's more than $3.20. But on the plus side, he expects prices to stabilize here, making the operations of all airlines more predictable. He also expects the economy, despite its sluggishness, to continue growing.
The rest of the industry, meantime, is doing something Southwest is not: Earning as much as $3 billion a year in bag fees, according to some estimates. That's a figure that should infuriate the traveling public.
"They do get angry and they come over to Southwest," Mr. Kelly said. "Our market share has gone up 2 percentage points since all this nickel and diming started in 2008."
For running a profitable airline where "Bags Fly Free," Mr. Kelly made more than $4 million in compensation last year.
By contrast, Tom Horton, CEO of the company that owns bag-charging American Airlines, expects a $20 million severance package for dragging his airline through bankruptcy court, slashing thousands of jobs since the November 2011 filing.
A federal bankruptcy judge recently denied this amount, calling it excessive, but the judge also noted the airline can pay Mr. Horton whatever it wants once it emerges from bankruptcy. Isn't that how it goes? Where is the love?
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. The column is published each Tuesday and Thursday at 9 a.m. ET. Contact Al at firstname.lastname@example.org or tellittoal.com)