CEO: Secrets of Southwest's Success

Share
Copy

Last Friday, I sat down for a special one-on-one interview with Southwest Airlines CEO Gary Kelly, and I thought I'd share some of it with you -- words of wisdom, pride and frustration from the man behind the country's only major domestic airline that's making any money.

Southwest has come a long way from its start-up days, when the "little airline that could" was luring business travelers with $26 fares and a free bottle of Chivas Regal.

Kelly told me, with justifiable pride: "We have money in the bank, have very little debt and, after 37 years, we still have the lowest cost structure."

But the lanky Texan isn't blind to what's going on in the industry; he expects to have to raise prices.

Kelly insisted, however, that Southwest's fares will always be a bargain and he'll never change the carrier's DNA.

"We're not trying to be a premium airline with china and onboard meals in first class," Kelly said. "That's just not who we are and not what our customers want from us."

Just don't call Southwest "cheap."

"Our customers don't have low expectations," Kelly said with just a touch of exasperation. "They have the right expectations."

Besides, he said, what with all the other carriers dropping their so-called frills left and right, the flying experience for most of us these days is pretty similar no matter what airline we fly (or, as Kelly put it, "coach is coach").

But there's still something of a mystique to Southwest's determinedly cheerful and unabashedly frugal functionality -- its fans are passionate and they come from all walks of life.

Just this past Sunday on "Meet the Press," after Tom Brokaw gently teased Al Gore about all those carbon foot-prints (wing-prints?) left behind from Gore's private jet flights, the former vice president proudly stated: "I'm flying on Southwest Airlines again today."

So what is the future of Southwest and, indeed, what is the entire airline industry going to look like? According to Kelly, it's going to look a lot like … Southwest. The strong (and the lean and the efficient) will survive: "It's not such a dire scenario, but you are going to need more 'Southwest-like' carriers out there and … it may be that all the inefficient carriers and all the high-cost structures get purged from the U.S."

That wouldn't surprise a lot of people; after all, betting on the next airline's demise has become the water cooler talk of the financial community. One thing for sure, it won't be Southwest. According to Fitch Ratings, the airline "has ensured its position as the 'last airline standing' in any far-reaching industry shakeout linked to a prolonged and extreme fuel shock scenario."

And that's because much of Southwest's "magic" is based on fuel hedging. But wait a minute. Why is Southwest the only one with the foresight to do that? Why were the other airlines caught with their pants down when it came to hedging? Why didn't they do it?

Well, they did, Kelly said, and airline execs who say otherwise are being "disingenuous."

"They've all hedged, they've all hedged," he said. "We had two of the bankrupt airlines that had equal hedging positions this decade to ours, and they decided to liquidate them."

OK, so they hedged but, obviously, didn't do it long enough.

So how did Southwest come to hedging? Easy, Kelly said; he and another executive followed proper risk management fundamentals -- partly, it seems, because they didn't know any better.

Page
  • 1
  • |
  • 2
  • |
  • 3
Join the Discussion
You are using an outdated version of Internet Explorer. Please click here to upgrade your browser in order to comment.
blog comments powered by Disqus
 
You Might Also Like...