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businesspeople complain about the length of time Because the airline industry was in the throes of
that it took to drive between the three cities and the a slump in the early 19705. Muse was able to
expense of flying the airlines currently serving them. a talented senior staff that included a number of vet-
His business concept for the airline was simple: At- eran executives from other carriers. He
tract passengers by flying convenient schedules, get sought out people who were innovative. wouldn'(
Sotlt11west Airlines: passengers to their destination on time, make sure
they have a good experience, and charge fares com-
shirk from doing things differently or unconvention-
ally, and were motivated by the
an airline from scratch. Muse wanted his
Culttlre, Values, and petitive with travel by automobile. Though skeptical
that King's business idea was viable, Kelleher dug
into the possibilities during the next few weeks and
team to be willing to think like mavericks and not
lulled into instituting practices at Southwest
vVclch: You can have a job if you mea- half-full plane wilhjuSl 60-65 passengers. Even taining copy saying Braniff was trying to run in costly overeapaclty. S<.Juthwest countered thelt Ib
"I\vo thollsand applicants responded, so, the 25-minute average turnaround times at Southwest out of business. The ad announced low fares would allow more peopk to l1y and gruv,
se leeted for interviews were asked to Southwest in 2002 were still shorter than the that Southwest would not only match Br:mitT's the market. Southwest and its views
dre,;sed ill hot pants to show off their 40-60-minute turnarounds typical at other ma- $13 fare but also give passengers the choice of about low fares expanding the market proved
eump:.my wanted to hire long-legged airlines.) buying a regular-priced ticket for $26 and re- rate. In the year before Southwest initiated sCfvice,
vllth personalities. Over 30 of
• In late November 1971, Lamar Muse came up ceiving a complimentary fifth of Chivas Regal 123,000 passengers tlew from Harlingen Airport 111
first class of 40 night at-
with the idea of offering a $10 fare to passengers scotch, Crown Royal Canadian whiskey, Of the Rio Grande Valley to Houston, Dallas, or San
of young women who were
on the Friday-night Houston-Dallas flight Even Smirnoff vodka (Of, for nondrinkers, a leather Antonio; in the 11 months SLluthweSI', ini-
and lllaJorettes in high school and
with no advertising, the 112-seat flight sold out ice bucket). Over 75 percent of Southwest's Dal- tial 325.000 passengers !lew to the same
in from of peo-
This led Muse to realize that Southwest was las-Houston passengers opted for the $26 fare, three cities.
serving two quite distinct types of travelers in although the percentage dropped as the two-
the Golden Triangle market: (l) business travel- month promotion wore on and corporate cun- III tactiCS to hart!ss
ers who were more time-sensitive than price- trolkrs began insisting that company
sensitIve and wanted weekday nights at times use the S13 fare. The local and national media what it cU!lsidered
suitable for conducting business and (2) pnce- up the story of Suuthwest's oiler, pru- predatory tac'tics b: ItS crlld' mals In
sensitive leisure travelers who wanted lower the buttle to be a David-versus-Goliath 1')75_ Bnnitr and Texas Imerrtlilional wellc'ted
and had more l1exibility about when to :i!nlggle in which the upstart Southwest did not by kdcrdl "i,md 11If\ lur to put Soutb-
He came up with a two-tier on-peak and stand much of a chance the much west uut of bllS1l1eSS II \ 10l:iUOIl ur
peak structure in which all seats on and lIlore wdl-establi"hed BrandT; grassromo
departing before 7 PM were sentiment in Texas swung tu S,lUthwest's side.
priced at $26 and all seats on other i1[,,,hts were
priced at $13 traffic Suutlmest reponed n5 first-ever anllual prufit til
esprit de corps among Southwest personnel and a (see Exhibit 1). Going into 2003, Southwest was the exhibit 1 Milestones at Southwest Airlines, 1983-2002
drive to survive and prosper despite the odds. With fourth largest U.S. commercial airline in terms of
newspaper and TV stories regularly reporting South- passengers flown and the sixth largest in terms of rev- 1983 additional Boeing Southwest flies over 9.5million passengers.
west's difficulties, employees were fully aware that enues. It had revenues in excess of $5 billion annu- 1984 Southlj\lest rankildfirst satisfaction among the U.S. ajrlfnes for the fourth straight
the airline's existence was constantly on the line. ally and 35,000 employees, and it operated 370 jets to 1985 Service begins LoiJis and Chicago Midway airports. Southwest names the Ronald McDonald House
Had the company been forced to move from Love 59 airports in 58 cities in 30 states. Southwest had as its primary chanty-the tie-in was the Jesuit of an effort by a Southwest pilot who lost a daughter to
leukemia and who believed that Ronald McDonald Houses were a worthy way to demonstrate
Field, it would most likely have gone under, an out- been profitable every year since 1973-in an indus-
Southwest's community spirit.
come that employees, Southwest's rivals, and local try noted for its vulnerability to economic cycles and
198.6 Southwest 13 million passengers.
government officials understood well. According to feast-or-famine profitability. During 1990-1994-
1988 Southwesf becomes thefirit. U.S.pirline t? win the (best fewest reports of
Southwest's president, Colleen Barrett, the obstacles when the airline industry had five straight money- mishandled complaints month.
thrown in Southwest's path by competitors and local losing years, laid off 120,000 employees, and lost a 1990 $l'biUion; Southwest is the. only majo'r U.S. airline to record both an operating profit and
officials were instrumental in building Herb Kelle- cumulative $13 billion-Southwest earned a profit a net profit. . ' ", / ' . ........... '. .., . '. .
her's passion for Southwest Airlines and ingraining a every quarter of every year. 1992 its first Tril?le Crpwn for best on-time record, best baggage handling, and fewest
combative, can-do spirit into the corporate culture: Exhibit 2 provides a five-year summary of customer complaints;forthe second year running, Southwest is the only major U.S. airline to record both
Southwest's financial and operating performance. prom and a net profit. .... .' ..... .
They would put twelve to fifteen lawyers on a case Exhibits 3 and 4 provide industrywide data on airline 1993 Soutrwe;t begirs ontpeEastCoast and .wins its second Triple Crown; revenues
and on our side there was Herb. They almost wore exceed $100 million. f0rthe third consecutive year; Southwest is the only
travel for the 1995-2002 period.
him to the ground. But the more arrogant they were, majorU.S,ilirlirie to record b?th profit and a .
the more determined Herb got that this airline was 1994 Southwestleadsthe if)dustry by ticketless travel in four cities; Southwest winsltsthird Triple
going to go into the air-and stay there. Crown and acquires Morris Air, based Citr:.. .
The warrior mentality, the very fight to survive, HERB KELLEHER 1995 TIcKetless travel becomes wide; SO!Jthwest wins fourth Triple Crown.
is truly what created our culture. 6 1996 servi6eto'Flofidabegins;. ... W.ii'lsmth consecutive Triple Crown; Southwest and its employees
Herb Kelleher majored in philosophy at Wesleyan contr,ibuteal rnClst$740,00.0 to help SUl?pori Ronald inclu?ing $34,000 in cash
University in Middletown, Connecticut, graduating $302,500 in free air travel for families staying at Ronald McDonald
The Start of the Herb with honors. He earned his law degree at New York incities ,served .bySouthwest '.'
Kelleher Era University, again graduating with honors and also 1997 to sou!h'N€ls;,s 50th. q!ty; over 50 million I?eople fly Southwest:..
serving as a member of the law review. After gradu- 1998 asthe best company to for in Amenca.
When Lamar Muse resigned in 1978, Southwest's ation, he clerked for a New Jersey Supreme Court 1999 Ser'lice illa..dde?to . .'
board wanted Herb Kelleher to take over as chair- justice for two years and then joined a law firm in 2000. ,. number ofpassergerson Southwest flights exceeds 'flomillion, and surpass the $5 billion
man and CEO. But Kelleher enjoyed practicing law Newark. Upon marrying a woman from Texas and .mark; the company its 28th ?onsecutive year of prClfitabilityand ninth year of
and, while he agreed to become chairman of the increased proms; Southwest becofl)esthefourth largest u.S; airline in terms. of carried.
becoming enamored with Texas, he moved to San
board, he insisted that someone else be CEO. South- 2001 the 30th consecutive year and the only U.S. airline to report a profit for 2001; a
Antonio, where he became a successful lawyer and re?ord 64.5 fly Southwest. ..' .
west's board appointed Howard Putnam, a group came to represent Rollin King's small aviation
vice president of marketing services at United Air- 2002 is ranked second among companies ac;rossaHinaustry groups,andfirst in the airline industry
company. in Fortune's America's MostAdmfred Companies.
lines, as Southwest's president and CEO in July When Herb Kelleher took on the role of South-
1978. Putnam asked Kelleher to become more in- west's CEO in 1981, he made a point of Visiting with
volved in Southwest's day-to-day operations, and maintenance personnel to check on how well the
over the next three years Kelleher got to know many planes were running and of talking with the flight at- secret of his love for drinking Wild Turkey whiskey eran employees, "If someone says they're going to
of the company's personnel and observe them in ac- tendants. Kelleher did not do much managing from and smoking. He loved to make jokes and engage in smack us in the face-knock them out, stomp them
tion. Putnam announced his resignation in the fall of his office, preferring instead to be out among the pranks and corporate antics, prompting some people out, boot them in the ditch, cover them over, and
1981 to become president and chief operating officer troops as much as he could. His style was to listen, move on to the next thing. That's the Southwest spirit
to refer to him as the "clown prince" ofthe airline in-
at Braniff International. This time, Southwest's board observe, and offer encouragement. Kelleher attended at work."8 On another occasion he said, "I love bat-
dustry. He once appeared at a company gathering
succeeded in persuading Kelleher to take on the ad- most graduation ceremonies of flight attendants dressed in an Elvis costume and had arm-wrestled a tles. I think it's part of the Irish in me. It's like what
ditional duties of CEO and president.
from "Southwest University," and he often appeared South Carolina company executive at a public event Patton said, 'War is hell and I love it so.' That's how
When Herb Kelleher took over in 1981, South- to help load bags on "Black Wednesday," the busy I feel. I've never gotten tired of fighting."9
in Dallas for rights to use "Just Plane Smart" as an
west had 27 planes, $270 million in revenues, 2,100 travel day before Thanksgiving. He knew the names advertising slogan. 7 Kelleher was well known inside While Southwest was deliberately combative
employees, and flights to 14 cities. Over the next two of thousands of Southwest employees, who held him and flamboyant in some aspects of its operations,
and outside the company for his combativeness, par-
decades, Southwest Airlines prospered, racking up in the highest regard. When he attended a Southwest ticularly when it came to beating back competitors.
many industry firsts and expanding geographically employee function, he was swarmed like a celebrity. On one occasion he reportedly told a group of vet- 8Quoted in the Dallas Morning News, March 20, 2001.
Kelleher had an affinity for bold-print Hawaiian 'Quoted in Katrina Brooks, "The Chairman of the Board Looks
6Ibid., pp. 26-27. shirts, owned a tricked-out motorcycle, and made no 'Ibid., pp. 246-47. Back," Fortune, May 28, 2001, p. 64.
C-642 Cases in Crafting and Executing Strategy Case 35 I Southwest Airlines: Culture, Value, and Operating Practices C-643
Summary of Southwest Airlines' Financial and Operating exhibit 3 Commercial Airline Revenues, Scheduled Revenue Passenger Miles,
Performance, 1998-2002 (in thousands except per share amounts) and Overall Load Factor for Major U.S, Airline Carriers, 1995-2002
2002 2001 2000 1999 1998 Total Scheduled Revenue Operating L.oad
Year Revenues Passenger Miles' Profit Factort
Financial data
Operating revenues $5,521,771 $5,555,174 $5,649,560 $4,735,587 $4,163,980 1995 $73.5 billion 509.6 billion $4.92 billion 67.3%
Operating expenses 5,104,433 4,924,052 4,628,415 3,954,011 3,480,369 1996 78.5 534.7 5.27 69.8
" 1997 83.5 570.0 7.52 70.8
Operating income 417,338 631,122 1,021,1.45 781,576 683,611
1998 84.6 583.0 7.47 71.3
Other expenses (income), net 24,656 (196,537) 3,781 7,965 (21,501)
1999 89.6 616.8 6.00 71.4
Income before income taxes .392,682 827,659 1m7,364 773,611 705,112 2000 98.1 651.8 72.8
5.50
Provision for income taxes 151,713 316,512 392,140 299,233 271,681 2001 85.4 606.7 (10.2) 70.3
Net income $ 240,969 $ 511,147 $625,224 $474,378 $433,431 2002 75.4 585.0 (9.6) 72.0
Net income per share, basic $0.31 $0.67 $0.84 $0.63 $0.58 'Scheduled revenue passenger miles is the total number of miles flown by all passengers on all scheduled flights.
Net income per share, diluted $0:30 $0.63 $0.79 $0.59 $0.55 tLoad factor is the total number of passengers boarded as a percentage of total seats available.
Cash qividends pef share $0'.0180 $0.0180 $0:0147 $0.0143 $0.0126 Source: Airline Quarterly Financial Review, Majors, Department of Transportation; Office of Aviation Analysis, Fourth Quarters 1995-2002.
TO!E\I assets ,at period-end . .' $8,997,141 . $6,669,572 . $5,653,703 $4,715,996
Cash and cash equivalents at end 01 year $1,815,352 $2,279,861 '$522,995 $<1-18,819 $378,511
Current assets at .end (jfyear , . $2,231,,960 .$2,520,219
Operating Revenues of the Major U.S. Commercial Airlines,
$831,536 $632,595 $574,155
at end of year .: $1,433,828 $1,298,403 $962,056 $850,653
1996-2002 (in millions of dollars)
end.ofyear :$1,552,781 ,$1,327, 1 $760;992 $871,717 $623,309
Airline 2002 2001 2000 1999 1998 1997 1996
Stockholders'equity at end of year $4,421,617. $4,0'14,053 $3,451,326 $2,835,788 $2,397,918
Operllting data American $15,870.6 $15,638.8 $18,117.1 $16,085.5 $16,298.8 $15,855.8 $15,125.7
Revenue passengers carried ! 57,500,213 52,586,400 United" 13,915;6 16,087A 19,331.3 17,966.7 17,517.5 ·17,335.2 16,316.7
. Revenue passenger miles (OOOs) 36,479,322 ' 31,419,110 Delta 1.2,410A 13,211.2 15,320.9 14,901.4 14,629.8 14,203.9 13,317.7
Avai,lilble seatmiles (OOOs) 59,909;965 52,855,467 47,543,515 Northwest 9,151.6 9,591.8 10,956.6 9,868.1 8,706.7 9,983.7 9,751A
L.oad factor* f35.9% 68.1% US Airwaysb 6,914.9 8,253.4 9,18t.2 8:1\60.4 8,555.7 8,501.5 7,704.1
.70.5% 69.0% 66.1%
passenger haul (miles)' 720 Continental 7,407.9 '" 8,199.7 9,449.2 8,381.5 7,907.7 7,089.9 6,264.4
690 >663 634 597
Tripsf!own 947,331 940,426 Southwest 5,521.8 5,555.2 5,649.6 4,735.6 4,164.0 3,817.0 3,407.4
1303,754 846,823 806,822
TWAc 2,632.8 3,584.6 3,308.7 3,259.1 3,330.3 3,554.4
Average passenger fare $84.72 $83.46 :$85.87 $79.35 $76.26
America West 2,021.0 2,305.5 2,309.3 , 2,164.0 1,983.0 1,887.1 1,751.8
revenue per mile 11.77¢ 12.09¢ 12.95¢ 12.51¢ 1.2.76¢
Alaska 1,832.4 1,763.1 1,762.6 1,695.6 1,581.3 1,457.4 1,306.6
Operating revenue per seat mile 8.02¢ 8.51¢ 9.43¢ 8.96¢ 8.76¢
Operating expenses per seat mile 7.41¢ 7.54¢ 7.73¢ 7.48¢ 7.32¢
'Filed for Chapter 11 l>ankruptcy protection in December 2002.
Number of employees at year-end 33,705 31,580 29,274 27,653 "25,844 bFiled for Chapter 11 bankruptcy protection in August 2002.
Size of fleet at year-endt 375 355 344 312 280 'Acquired by American Airlines in 2001; data for 2002 included in figures for American Airlines.
Source: Airline Quarterly Financial Review, Majors, Department of Transportation, Office of Aviation Analysis, Fourth Quarters 1995-2001
'Revenue passenger miles divided by available seat miles, and Second Quarter 2002.
tlnciudes leased aircraft
Source: 2001 10K report and company press releases. You have to treat your employees like your cus- Another indication of the importance that Kelle-
tomers. When you treat them right, then they will her placed on employees was the message he penned
when it came to the financial side of the business straitjacket that becomes disabling in an industry treat your outside customers right. That has been a in 1990 and had prominently displayed in the lobby
Kelleher insisted on fiscal conservatism, a strong where things change radically from one day to the very powerful competitive weapon for us. You've got of Southwest's headquarters in Dallas:
balance sheet, comparatively low levels of debt, and next." Kelleher wanted Southwest managers to think to take the time to listen to people's ideas. If you just
tell somebody no, that's an act of power and, in my The people of Southwest Airlines are "the creators"
zealous attention to bottom-line profitability. While ahead, have contingency plans, and be ready to act
opinion, an abuse of power. You don't want to con- of what we have become-and of what we will be.
believing strongly in being prepared for adversity, when it appeared that the future held significant Our people transformed an idea into a legend.
strain people in their thinking. 10
Kelleher had an aversion to formal strategic plans, risks or when new conditions suddenly appeared and That legeud will continue to grow only so long as it is
saying, "Reality is chaotic; planning is ordered and demanded prompt responses. nourished-by our people's indomitable spirit,
logical. The meticulous nit-picking that goes on in Kelleher was a strong believer in the principle boundless energy, immense goodwill, and burning
most strategic planning processes creates a mental that employees-not customers-come first: "Ibid., p. 72. desire to exceL
C-644 Cases in Crafting and Executing Strategy Case 35 I Southwest Airlines: Culture, Value, and Operating Practices C-645
OUf thanks-and our love-to the people of leading carrier in intrastate air travel in California, exhibit 5 Airports and Cities Served by Southwest Airlines, Fall 2002
Southwest Airlines fOf creating a marvelous family Texas, and Florida.
and a wondrous airline. Southwest's Top 10 Airports
Southwest's Drive to Achieve Daily Departures Number of Gates Nonstop Cities Served
6 Southwest's Aircraft Fleet as of Fall 2002 • Southwest offered passengers no baggage trans- While Southwest had built up quite a reputation
fer services to other carriers-passengers with presenting a happy face to passengers and displaying
Type of Aircraft Number Seats Comments checked baggage who were connecting to other a fun-loving attitude, the company had on occasion
7gHOO 27 122 carriers to reach their destination were responsi- encouraged some of its not-so-pleasant customers to
Boeing 737-300 194 137 S()uthwest was Boeirlg's launch customer for this model. ble for picking up their luggage at Southwest's patronize other carriers. One woman who flew
Boeing 737-500 25 122 Southwest was Boeing's launch customer for this model. baggage claim and then getting it to the check-in Southwest frequently became known as "Pen Pal"
Boeing 737-700 124 137 Southwest was Boeing's launch customer for this model. facilities of the connecting carrier. (Southwest because she wrote in a complaint after almost every
booked tickets involving its own flights only; flight; her complaints were eventually bumped up to
Other Facts customers connecting to flights on other carriers Herb Kelleher, who quickly penned a short note:
had to book their connecting tickets through ei- "Dear Mrs. Crabapple, We will miss you. Love
Average age of aircraft fleet-close to 9 years
ther travel agents or the connecting airline.) Herb."" Kelleher made a point of sending congratu-
Average aircraft trip length-540.miles; average duration-96 minutes
• In mid-200 I Southwest implemented use of new latory notes to those employees customers singled
A\ierage aircraft utilization in 2002-,7.2 flights per day and about 12 hours of flight time
software that significantly decreased the time re- out in complimentary letters; complaint letters were
Fleet size-1990: 106; 1995: 224;.2000: 344; 2002: 370
quired to generate optimal crew schedules and seen as learning opportunities for employees and
Firm orders for new aircraft-2003: 21; 2004: 23; 2005: 24; 2006: 22; 2007: 25
help improve on-time performance. reasons to consider making adjustments. Colleen
• Starting in 2001, Southwest began converting Barrett, Southwest's president, had articulated the
from cloth to leather seats; the team of South- company's policy some years earlier:
systems used by rival airlines. Hub-and-spoke checked in at the boarding gate. Passengers then west employees who investigated the economics No Employee will ever be punished for using good
systems involved passengers on many different boarded in groups of 30, according to the color of the conversion concluded that an all-leather judgment and good old common sense when trying to
flights coming in from spoke locations (or per- and number on their card, sitting in whatever interior would be durable and easy to,maintain, accommodate a Customer-no matter what our rules
haps another hub) to a central hub airport within seat was open when they got on the plane-a thus more than justifying the high costs. are. Let's start leaning towards our Customers
a short span of time and then connecting with an procedure described by some as a "cattle call." again-not away from them. Let's start encouraging
Southwest's operating costs as a percentage of its our line employees to be a little more flexible and to
outgoing flight to their destination-a spoke lo- Passengers who were particular about where revenues were consistently the lowest in the industry take that extra minute to accommodate special needs.
cation or another hub. Most flights arrived and they sat had to arrive at the gate early to get a (see Exhibit 7). Exhibit 8 shows a detailed break- Let's start encouraging our Supervisors to give our
departed a hub across a two-hour window, creat- low number on their boarding cards and then down of Southwest's operating costs for the period Customers the benefit of the doubt.'2
ing big peak-valley swings in airport personnel had to push up to the front when it was their 1995-2002.
workloads and gate utilization-airport personnel group's turn to board. In 2002, Southwest Southwest was convinced that conveying the South-
and gate areas were very busy when hub opera- streamlined the system further by simply print- west spirit to customers was the key to competitive
tions were in full swing and then were underuti- ing a big, bold A, B, or C on the boarding pass Southwest's Focus on advantage; as one Southwest manager put it, "Our
lized in the interval awaiting the next round of when the passenger checked in at the ticket fares can be matched; our airplanes and routes can
counter; passengers then boarded in groups ac-
Customers and Customer be copied. But we pride ourselves on our customer
inbound!outbound flights. In contrast, South-
west's point-to-point routes permitted scheduling cording to the letter on their boarding pass. Sa tis/action service."13
aircraft so as to minimize the time aircraft were at • Southwest flight attendants were responsible for Southwest went all out to make sure passengers had
the gate-currently approximately 25 minutes- cleaning up trash left by deplaning"passengers a positive, fun flying experience. Gate personnel Marketing and Promotion
thereby reducing the number of aircraft and gate and otherwise getting the plane presentable for were cheery and witty, sometimes entertaining those
facilities that would otherwise be required. Fur- passengers to board for the next flight. (Other Southwest was continually on the lookout for novel
in the gate area with trivia questions or contests such ways to tell its story, make its distinctive persona
thermore, with a relatively even flow of incom- carriers had cleaning crews come on board to as "Who has the biggest hole in his or her sock?"
ing/outgoing flights and gate traffic, Southwest perform this function.) come alive, and strike a chord in the minds of air
Casually dressed flight attendants greeted passen- travelers. Many of its ads and billboards were delib-
could staff its terminal operations to handle a • Southwest did not have a first -class section on gers coming onto planes and offered friendly advice
fairly steady workload across a day, whereas hub- erately unconventional and attention-getting so as to
any of its planes and had no fancy clubs for its to customers looking for open seats. Flight atten- create and reinforce the company's maverick, fun-
and-spoke operators had to staff their operations frequent flyers to relax in at terminals. No meals dants were encouraged to let their personalities
to serve peak-period requirements. loving, and combative image. Others promoted the
were served on flights, even long ones; passen- show, to joke with passengers, and even to play gags. company's performance as "The Low-Fare Airline"
To economize on the amount of time it took ter- gers were offered beverages and snacks-in On some flights, attendants played harmonicas and
minal personnel to check passengers in and to 2002, Southwest provided passengers with sang announcements to passengers on takeoff and
simplify the whole task of making reservations, 162.4 million packages of peanuts, 51.3 million landing. On one flight while passengers were board-
Southwest dispensed with the practice of assign- packages of other snacks, 9.9 million alcoholic ing, an attendant with bunny ears popped out of an "Freiberg and Freiberg, NUTS', pp. 269-70.
ing each passenger a reserved seat. Instead, for beverages, and 44.5 million cans of nonalco- overhead bin exclaiming "Surprise!" The entertain- "Ibid., p. 288.
many years, passengers were given color-coded holic beverages. Serving no meals made repro- ment repertoires varied from flight crew to flight "Brenda Paik Sunoo, "How Fun Flies at Southwest Airlines;'
plastic cards with numbers on them when they visioning planes simple and quick. crew. Personnel Journal 74, no. 6 (June 1995), p. 70.
Case 35 I Southwest Airlines: Culture, Value, and Operating Practices C-649
C-648 Cases in Crafting and Executing Strategy
0.74
3.49
2000 1.48 0.60 0.78
4.53 11.89
2001 4.55 1.57 0.47 0.87
3.75 11.12
2002' 0.40 4.97 1.33 0.35
3 ..10¢ 7.89¢ 1.17¢
Alaska 1995 0.31¢ 2.60¢ 1.07¢ 0.55¢ 1.08
3.72 10.25
2000 0.29 3.53 1.76 0.38 1.07
10.17
2001 0.31 3.81 1.45 0.35 1.02
9.95
2002' 0.32 3.83 1.21 0.30
8.67¢ 1.20¢
Continental 1995 0.22¢ 2.45¢ 1.11¢ 0.74¢ 1.23
4.21 10.20
2000 0.28 3.30 1.62 0.54 1.32
4.52
2001 0.27 3.44 1.39 0.37 1.42
0.25 5.18
2002' 0.26 3.52 1.10 0.28
3.06¢ 8.86¢ 0.81.¢
Delta 1995 0.26¢ 3.25¢ 1.11¢ 0.85¢ 0.20¢ 0.13¢
3.51 9.43 0.72
2000 0.27 3.73 1.27 0.42 0.16 0.08
10.02 0.76
0.16 0;1l 3.81
2001 0.28 4.10 1.20 0.36 0.81
0.10 4.03 10.30
2002' 0.25 4.37 1.10 0.28 0.18
'Y.29¢ 1.30¢
0.16¢ 3.07¢
America West 1995 0.19¢ 2.08¢ 0.96¢ 0.64¢ 1.58
4.17 8.57
2000 0.12 2.21 1.54 0.32 0.13 1.72
4.50 8.86
2001 0.10 2.42 1.35 0.28 0.15 0.06
4.67 8,61 1.56
2002' 0.06 2.36 1.09 0.19 0.16
9.15¢ 0.70¢
Northwest 1995 0.28¢ 3.47¢ 1.24¢ 0.93¢ 2.80¢
3.24 (:).96 0.67
2000 0.29 3.65 1.80 0.61 0.70
10.52
2001 0.27 4.15 1.73 0.45 0.77
2002' 0.24 4.18 1.40 0.36
0.71¢
Southwest 1995 0.02¢ 2.56¢ 1.0l¢ 0.39¢ 0.55
2000 0.03 2.99 1.38 0.30 0.54
7.48
2001 . 0.03 3.01 1.29 0.18
7.36 0.55
2002' 0.03 3.02 1.17 0.10
8.89¢ 0.94¢
United 1995 0.37¢ 3.34¢ 1.06¢ 0.93¢ 0.88
10.60
2000 0.38 4.16 1.43 0.59 0.90
12.02
2001 0.37 4.73 1.50 0.43 1.07
4.27 11.35
2002' 0.35 4.87 1.21 0.32
11.61¢ 1.16¢
4.18¢
US Airways 1995 0.25¢ 4.93¢ 1.04¢ 0.90¢ 1.11
5.73 13.88
2000 0.28 5.35 1.72 0.51 1.31
0:08 6.00 14.13
2001 0.28 5.62 1.56 0.39 0.20 1.30
6.57 14.45
2002' 0.21 5.93 1.20 0.25 0.23 0.06
exhibit 8 Trends in Southwest Airlines' Operating Expenses per Average exhibit 9 Four Sample Southwest Ads
1995-2002
Expense Category 2002 2001 2000 1999 1998 1997 1996 1995
benefits 2:56¢ 2.51¢ 2.41¢ 'e.39¢2.35¢ 2.26¢ 2.22¢ 2.17¢ Affer lellgtlny Jclihcl'll tiGll.
ErnploYEle retirement plans ..33 .33 040 .,36 .35
Fuel ana 6il . .
.30 .23 .23 at flat) highes1 clI.ocuiiyc bela,
1..11 U8 1.34 ,82 1.11 1.19 .1.01
;57 ,61 1J..l}& clItenalYC cl):IlsliIl1atioll
.63 ]0 :64 .58 .62 :60
., ,16 :27 :30 .33 ,35 .35 .:34 'with 01113' legal dl):p.a1'il11el1'i,
.. .rentals .29 .33 .38 .43 .45 .47 ,.47 '\'\'e hilwe a'i
fees ana other rentals A8 .44 .46' .45 .46 .46 .44
Depreciation .49 047 .47
tul ofndal corpOl'atc 1"CSjponse
.47 .44 .45 .43
expenses 1.49 1.44 1A9· 1.48 1.51 1.38 to NOl'thwn8f Airlines' claim
Total 7.54¢ 7.73¢ 7.48¢ T.32¢ 7.40¢ be nlilmber one
7.50¢ 7.0T¢
Note: Figures in this exhibit differ slightly from those for Southwest in Exhibit 7 due to an assortment of differences in Southwest's internal
in Cmst:9l1llCl'
accounting for its expenses and the Department of Transportation's expense category definitions and reporting for all commercial airlines.
Source: Company annual reports and 10-K reports,
"Liiu\ till!'. Pallts Oil
exbibit 10 Southwest's New Look reflected management's belief that delivering supe- Management believed that delivering superior ser-
rior service required employees who not only were vice came from having employees who genuinely
passionate about their jobs but also knew the com- believed that customers were important and that
pany was genuinely concerned for their well-being treating them warmly and courteously was the right
and committed to providing them with job security. thing to do, not from training employees to act like
Southwest's thesis was simple: Keep employees customers are important. The belief at Southwest
happy-then they will keep customers happy. was that superior, hospitable service and a fun-
What Southwest management thought about the loving spirit flowed from the heart and soul of
importance of Southwest's people and their role is employees who themselves were fun-loving and spir-
reflected in the following excerpt from the com- ited, who liked their jobs and the company they
pany's 2000 annual report: worked for, and who were also confident and em-
powered to do their jobs as they saw fit (rather than
Our people are warm, caring and compassionate, and
willing to do whatever it takes to bring the Freedom being governed by strict rules and procedures).
to Fly to their fellow Americans. They take pride in Southwest recruited employees by means of
Old New newspaper ads, career fairs, and Internet job listings;
doing well for themselves by doing good for others.
They have built a unique and powerful culture that a number of candidates applied because of South-
demonstrates that the only way to accomplish our west's Fortune listings as one of the best companies
November 1990, Southwest moved in overnight • Putting st1'Ong emphasis on safety, high-quality mission to make air travel affordable for others, while to work for in America and because they were im-
and quickly instituted flights to Chicago's Mid- maintenance, and reliable operations. In the 31 ensuring ample profitability, job security, and plenti- pressed by their experiences as a customer on South-
way Airport. When American Airlines closed its years it had been flying, Southwest had never ful Profitsharing for ourselves, is to our costs west flights. Recruitment ads were designed to
hubs in Nashville and San Jose, Southwest im- had a plane crash. Southwest had one of the most low and Customer Service quality high;;' capture the attention of people thought to possess
mediately increased the number of its flights At Southwest, our People are our greatest assets, Southwest's "personality profile." For instance, one
extensive and thorough maintenance programs in
into and out of both locations. During the first which is why we devote so much time and energy to
the commercial airline industry. The company's ad showed Herb Kelleher impersonating Elvis Pres-
hiring great People with winning attitudes. Because
half of 2002, as air traffic showed some signs of state-of-the-art flight dispatch system helped we are well known as an excellent place to wm;k with ley and read as follows:
picking up, Southwest was a first-mover in minimize weather and operational delays. great career opportunities and a secure future, lots of Work In A Place Where Elvis Has Been Spotted. The
adding flights on routes where rivals had cut People want to work for Southwest ... Once hired,
According to Southwest management, the company's qualifications? It helps to be outgoing. Maybe even a
their offerings following the September 11, we provide a nurturing and supportive work environ- oit off center. And be prepared to stay for a while. Af-
2001, terrorist attacks. strategy of low-cost, no-frills flights and reliable,
ment that gives our Employees the freedom to be cre- ter all, we have the lowest employee turnover rate in
friendly service delivered "more value for less ative, have fun, and make 1< positive difference.
• An attractive Fequent flier program. Southwest's money" to customers rather than "less value for less me industry. If this sounds good to you, just phone
Rapid Rewards members received a free round- Although we offer competitive compensation pack- our jobline or send your resume. Attention Elvis. 16
money." Kelleher said, "Everybody values a very ages, it's our Employees' sense of ownership, pride in
trip ticket, good for travel anywhere on South- good service provided at a very reasonable price."14 team accomplishments, and enhanced job satisfaction All job applications were processed through the Peo-
west's system for up to one year, after purchasing
that keep our Culture and Southwest Spirit alive and ple Department.
and flying eight round-trips. There were no re- why we continue to produce winning seasons.
strictions on the number of free Rapid Rewards Screening Candidates In hiring for jobs that
seats on a particular flight and very few blackout SOUTHWEST'S PEOPLE The company changed the personnel department's involved personal contact with passengers, the com-
dates around holidays. Southwest was considered name to the People Department in 1989. pany looked for people-oriented applicants who
to have the most generous frequent flier program
MANAGEMENT were extroverted and had a good sense of humor. It
in the industry, winning awards for best award re- PRACTICES AND Recruiting, Screening, tried to identify candidates with a knack for reading
demption, best bonus promotion, and best cus- people's emotions and responding in a genuinely car-
tomer service among all frequent flier programs. CULTURE and Hiring ing, empathetic manner. Southwest wanted employ-
• Adding longer nonstop flights to the route sys- ees to deliver the kind of service that showed they
Whereas the litany at many companies was that cus- Southwest hired employees for attitude and trained
tem. Although over 85 percent of Southwest's truly enjoyed meeting people, being around passen-
tomers come first, at Southwest the operative princi- them for skills. Kelleher explained:
flights involved actual in-air flight times of less gers, and doing their job, as opposed to delivering
ple was that "employees come first and customers We can train people to do things where skills are con- the kind of service that came across as being forced
than 90 minutes, the company was judiciously
come second." The importance placed on employees cerned. But there is one capability we do not have and or taught. According to Kelleher, "We are interested
adding nonstop flights to more distant destina-
that is to change a person's attitude. So we prefer an in people who externalize, who focus on other peo-
tions at those airports where its classic low fares
i4Statement made in a 1993 Harvard Business School video and unskilled person with a good attitude ... [to1a highly ple, who are motivated to help other people. We are
could generate sufficient passenger traffic to skilled person with a bad attitude15
achieve high enough load factors and revenues to quoted in Roger Hallowell, "Southwest Airlines; ACase Study
Linking Employee Needs Satisfaction and Organizational Capa- "Quoted in James Campbell Quick, "Crafting an Organiza-
be profitable. Most of the flights that the com- bilities to Competitive Advantage," Human Resource Manage- tional Structure; Herb's Hand at Southwest Airlines," Organiza- 16Southwest Airlines; and Sunoo, "How Fun Flies at Southwest
pany added in 2002 were longer than750.miles __. . ment35, no. 4.(Winter 1996), p. 517. tional Dynamics 21, no. 2 (Autumn 1992), p. 51. Airlines," pp. 64-65.
C-654 Cases in Crafting and Executing Strategy Case 35 I Southwest Airlines: Culture, Value, and Operating Practices C-655
not interested in navel gazers."17 Southwest was In 2002, the company reviewed 243,657 re- One of Southwest's supervisory training pro- Southwest introduced a profit-sharing plan for
drawn to candidates who, in addition to having a sumes and hired 5,042 new employees. grams involved three teams; one member of each senior employees in 1973, the first such plan in the
"whistle while you work" attitude, appeared likely to team was blindfolded and asked to throw a ball into airline industry. By the mid-l 990s the plan had been
exercise initiative, work harmoniously with fellow a bucket. Unknown to the throwers, the other mem- extended to cover most Southwest employees. As of
employees, and be community spirited. bers on one team could say nothing about where the 2001, Southwest had 12 different stock option pro-
Southwest did not use personality tests to screen
Training
bucket was, members of the second team were in- grams for various employee groups, a 401(k) em-
candidates, nor did it ask candidates what they Apart from the Federal Aviation Administration's structed to say only "Good job" or "Keep trying," ployee savings plan that included company-matching
would or should do in certain hypothetical situations. mandated training for certain employees, training ac- and the third group was allowed to give its thrower contributions, and a profit-sharing plan that covered
Rather, the hiring staff at Southwest analyzed each tlVlt1es at Southwest were designed and conducted detailed information about where the bucket was. virtually all employees and consisted of a money
job category to determine the specific behaviors, by Southwest's University for People, a part of the Not surprisingly, the third group's thrower had the purchase defined contribution plan and an employee
knowledge, and motivations that job holders needed company's People Department. The curriculum in- most success-an outcome that was intended to stock purchase plan. Company contributions to em-
and then tried to find candidates with the desired cluded courses for new recruits, employees, and demonstrate the value of good coaching on the part ployee 410(k) and profit-sharing plans totaled
traits-a process called targeted selection. A trait leadership training programs for both new and expe- of supervisors and good listening on the part of $167.1 million in 1998, $192.0 million in 1999,
common to all job categories was teamwork; a trait nenced managers. Leadership courses emphasized a supervisees. $241.5 million in 2000, $214.6 million in 2001, and
deemed critical for pilots and flight attendants was management style based on coaching and encourag- $155.6 million in 2002. In recent years, these pay-
judgment. In exploring an applicant's aptitude for mg, rather than supervising or enforcing rules and ments had represented 8 to 12 percent of base pay.
teamwork, interviewers often asked applicants to tell regulations. All employees who came into contact Promotion Employees participating in stock purchases via
them about a time in a prior job when they went out with customers, including pilots, received customer Approximately 80 to 90 percent of Southwest's su- payroll deduction bought I million shares in 2000;
of their way to help a coworker or to explain how care training. There were also courses on safety, pervisory positions were filled internally, reflecting 1 million shares in 2001; and 1.4 million shares in
they had handled conflict with a coworker. Another communications, stress management, career devel- management's belief that people who _had "been 2002-at prices equal to 90 percent of the market
frequent question was "What was your most embar- opment, performance appraisal, decision making, there and done that" would be the likely to value at each payroll period. Southwest employees
rassing moment?" Southwest believed that having and employee relations. From time to time supervi- appreciate and understand the demands that people owned about 10 percent of Southwest's outstanding
applicants talk about their past behaviors provided sors and executives attended courses on corporate under them were experiencing-and also most likely shares and held options to buy some 138 million ad-
good clues about their future behaviors. culture that were intended to help instill, ingrain, and to enjoy the respect of their peers and higher-level ditional shares over the next 10 years.
To test for unselfishness, Southwest interview- nurture such cultural themes as teamwork, trust, har- managers. Employees could either apply for supervi-
ing teams typically gave a group of potential em- mony, and diversity. sory positions or be recommended by their present
ployees ample time to prepare five-minute Depending on the influx of new employees, ori- supervisor. New appointees for low-level manage-
Employee Relations
presentations about themselves; during the presenta- entation courses were conducted two to five times a ment positions attended a three-day "Leading with About 80 percent of Southwest's 35,000 employees
tions, which took place in an informal conversational week for between 20 and 100 new recruits. The ori- Integrity" class aimed at developing leadership and belonged to a union, making it one of the most
setting, interviewers watched the audience to see entation program included videos on Southwest's communication skills. Employees being considered highly unionized U.S. airlines. The Teamsters Union
who was absorbed in polishing their own presenta- history, an overview of the airline industry and the for managerial positions of large operations (Up and represented Southwest's airline mechanics, stock
tions and who was listening attentively, enjoying the competitive challenges that Southwest faced, and an Coming Leaders) received training in every depart- clerks, and aircraft cleaners; the Transport Workers
stories being told, and applauding the efforts of the introduction to Southwest's culture and management ment of the company over a six-month period in Union (TWU) represented flight attendants; Local
presenters. Those who were emotionally engaged in practices. One of the program's highlights was a which they continued to perform their current job. At 555 of the TWU represented baggage handlers,
hearing the presenters and giving encouragement video called the Southwest Shuffle, whieh featured the end of the six-month period, candidates were ground crews, and provisioning employees; and the
were deemed more apt to be team players than those hundreds of Southwest employees rapping about the provided with 360-degree feedback from department International Association of Machinists represented
who were focused on looking good themselves. All fun they had on their jobs. Orientation programs at heads, peers, and subordinates; representatives of the the customer service and reservation employees.
applicants for flight attendant positions were put the Dallas headquarters typically included exercises People Department analyzed the feedback in decid- There was one in-house union-the Southwest Air-
through such a presentation exercise before an inter- designed to demonstrate the role of creativity and ing on the specific assignment of each candidate. 18 line Pilots Association, which represented pilots. De-
view panel consisting of customers, experienced teamwork and a scavenger hunt in which new hires spite having sometimes spirited disagreements over
flight attendants, and members of the People Depart- were given a time line with specific dates in South- particular issues, Southwest's relationships with the
ment. Flight attendant candidates who got through west's history and were asked to fill in the missing
Compensation unions representing its employee groups were for the
the group presentation interviews then had to com- details by viewing the memorabilia decorating the Southwest's pay scales were at levels close to the in- most part harmonious and nonadversarial-the com-
plete a three-on-one interview conducted by a re- corridors and getting information from people work- dustry average and its benefit packages were good l pany had experienced only one brief strike by ma-
cruiter, a supervisor from the hiring section of the ing in various offices. Much of the indoctrination of relative to other airlines. According to a 1997-98 chinists in the early 1980s.
People Department, and a Southwest flight atten- new employees into the company's culture was done survey, Southwest's pilots earned, on average, about Management encouraged union members and
dant; following this interview, the three-person panel by coworkers and the employee's supervisor. South- 10 percent above the industry average; however, negotiators to research their pressing issues and to
tried to reach a consensus on whether to recommend west made active use of a one-year probationary em- flew an average of 85 hours per month versus an in-"-- conduct employee surveys before each contract
or drop the candidate. ployment period to help ensure that new employees dustry average of 80.2 hours. negotiation. Southwest's contracts with the unions
fit in with its culture and adequately embraced the representing its employees were relatively free of
I7Quick, "Crafting an Organizational Structure," p. 52. -company's cultural values. 18Sunoo , "How Fun Flies at Southwest Airlines," p. 72. restrictive work rules and narrow job classifications
C-656 Cases in Crafting and Executing Strategy Case 35 I Southwest Airlines: Culture, Value, and Operating Practices C-657
,that might impede worker productivity. All of the underdog status were said to feel entitled to "big air- failure as a manager?" Our theory is, if you have to on their own. They can take individual responsibility
put up a box so people can write down their ideas and for it and know they will not be crucified if it doesn't
contracts allowed any qualified employee to perform line" pay now that Southwest had emerged as a ma-
toss them in, it means you are not doing what you are work out. Our leanness requires people to be com-
any function-thus, pilots, ticket agents, and gate j or U. S. carrier.20
supposed to be doing. You are supposed to be setting fortable in making their own decisions and undertak-
personnel could help load and unload baggage when ing their own efforts. 23
your people up to be winners. To do that, you should
needed and flight attendants could pick up trash and
be there listening to them and available to them in
make flight cabins more presentable for passengers The No-Layoff Policy person, not via a suggestion box. For the most part, I
From time to time, there were candid meetings
boarding the next flight. think we have a very good sense of this at Southwest. offrontline employees and managers where operat-
Southwest Airlines had never laid off or furloughed ing problems and issues between or among workers
In 2000-2001 the company had contentious ne- I think that most people employed here know that
any of its employees since the company began oper- and departments were acknowledged, openly dis-
gotiations with Local 555 of the TWU (representing they can call anyone of our vice presidents on the
ations in 1971. The company's no-layoff policy was cussed, and resolved.24 Informal problem avoidance
about 5,300 Southwest employees) over a new wage telephone and get heard, almost immediately.
seen as integral both to how the company treated its The suggestion box gives managers an out; it re- and rapid problem resolution were seen as manager-
and benefits package; the previous contract had be-
employees and to management efforts to sustain and linquishes their responsibility to be accessible to their ial virtues.
come open for renegotiation in December 1999, and
nurture the culture. According to Kelleher, people, and that's when we have gotten in trouble at
a tentative agreement reached at the end of2000 was
rejected by 64 percent of the union members who Nothing kills your company's culture like layoffs. No- Southwest-when we can no longer be responsive to
voted. A memo from Kelleher to TWU representa- body has ever been furloughed here, and that is un- our flight attendants or customer service agents, Southwest's Core Values
tives said, "The cost and structure of the TWU 555 precedented in the airline industry. It's been a huge when they can't gain access to somebody who can Two core values-LUV and fun-permeated the
negotiating committee's proposal would seriously strength of ours. It's certainly helped negotiate our give them resources and answers.22 work environment at Southwest. LUV was much
undermine the competitive strength of Southwest union contracts ... We could have furloughed at var- Company executives were very approachable, more than the company's ticker symbol or a recur-
Airlines; endanger our ability to grow; threaten the ious times and been more profitable, but I always insisting on being called by their first names. At new ring theme in Southwest's advertising campaigns.
value of our employees' profit-sharing; require us to thought that was shortsighted. You want to show your Over the years, LUV grew into Southwest's code
employee orientations, people were told, '.'We do not
people you value them and you're not going to hurt
contract out work in order to remain competitive; them just to get a little more money in the short term. call the company chairman Mr. Kellebr; we call word for treating individuals-fellow employees and
and threaten our 29-year history of job security for Not furloughing people breeds loyalty. It breeds a him Herb." Managers and executives had an open- customers-with dignity and respect and demon-
our employees." In a union newsletter in early 2001, sense of security. It breeds a sense oftrUSt. 21 door policy, actively listening to employee concerns, strating a caring, loving attitude. The word LUVand
the president of the TWU said, "We asked for a de- opinions, and suggestions for reducing costs and im- red hearts commonly appeared on banners and
cent living wage and benefits to support our fami- Southwest had built up considerable goodwill with proving efficiency. posters at company facilities, as reminders of the
lies, and were told of how unworthy and how greedy its unions over the years by avoiding layoffs. Employee-led initiatives were common. South- compassion that was expected toward customers and
we were." The ongoing dispute resulted in informa- west's pilots had been instrumental in developing other employees. Practicing the Golden Rule, inter-
tional picket lines in March 2001 at several South- new protocols for takeoffs and landings that con- nally 'imd externally, was expected of all employees.
west locations, the first picketing since 1980. Later Management Style served fuel. Another frontline ttmployee had sug- Employees who had to struggle to live up to these
in 2001, with the help of the National Mediation At Southwest, management strived to do things in a gested not putting the company logos on trash bags, expectations were subjected to considerable peer
Board, Southwest and the TWU reached an agree- manner that would make Southwest employees saving an estimated $250,000 annually. Rather than pressure and usually were asked to seek employment
ment covering Southwest's ramp, operations, and proud of the company and its workforce practices. buy 800 computers for a new reservations center in . elsewhere if they did not soon leave of their own
provisioning employees. Managers were expected to spend at least one-third Albuquerque, company employees determined that volition.
Prior to September 11, 2001, Southwest's pilots of their time out of the office, walking around the fa- they could buy the parts and assemble the PCs them- Fun at Southwest meant exactly what the word
were somewhat restive about their base pay relative cilities under their supervision, observirl:g firsthand selves for half the price of a new PC, saving the implies. Fun occurred throughout the company in
to pilots at other U.S. airlines. The maximum pay for what was going on, listening to employees and being company $1 million. It was Southwest clerks who the form of the generally entertaining behavior of
Southwest's 3,700-plus pilots (before profit-sharing responsive to their concerns. A former director of came up with the idea of doing away with paper tick- employees in performing their jobs, the ongoing
bonuses) was $148,000, versus maximums of people development at Southwest told of a conver- ets and shifting to e-tickets. pranks and jokes, and frequent company-sponsored
$290,000 for United's pilots; $262,000 for Delta's pi- sation he had with one of Southwest's terminal There were only four layers of management be- parties and celebrations. On holidays, employees
lots; $206,000 for American's pilots; and $199,000 managers: tween a frontline supervisor and the CEO. South- were encouraged to dress in costumes. There were
for Continental's pilots. 19 Moreover, some veteran west's employees enjoyed substantial authority and charity benefit games, chili cook-offs, Halloween
Southwest employees were grumbling about staff While I was out in the field visiting one of our sta- decision-making power. According to Kelleher: parties, new Ronald McDonald House dedications,
shortages in certain locations (to hold down labor tions, one of our managers mentioned to me that he and other special events of one kind or another at
costs) and cracks in the company's close-knit family wanted to put up a suggestion box. I responded by We've tried to create an environment where people one location or another ahnost every week. Accord-
saying, "Sure-why don't you put up a suggestion are able to, in effect, bypass even the fairly lean struc-
culture due to the influx of so many new employees tures that we have so that they don't have to convene ing to one manager, "We're kind of a big family here,
box right here on this wall and then admit you are a
over the past several years. A number of employees a meeting of the sages in order to get something and family members have fun together."
who had accepted lower pay because of Southwest's done. In many cases, they can just go ahead and do it
20Melanie Trottrnan, "Amid Crippled Rivals, Southwest Tries to
Spread Its Wings," The Wall Street Journal, October 11,2001,
"Shawn Tully, "From Bad to Worse," Fortune, October 15, p.AIO. 23Ibid., p. 76,
2001, p. 124. 2IBrooks, "The Chairman of the Board Looks Back;' p. 72. "Freiberg and Freiberg, NUTS!, p. 273. "Hallowell, "Southwest Airlines: A Case Study," p. 524.
C-658 Cases in Crafting and Executing Strategy
Case 35 I Southwest Airlines: Culture, Value, and Operating Practices C-659
The Culture Committee Southwest's monthly newsletter, LUV Lines, of- health care, and insurance benefits. In 2000, South- Barrett, 56, Southwest's executive vice president
Southwest formed a Culture Committee in 1990 to ten spotlighted the experiences and deeds of particu- west's labor productivity compared favorably WIth customers and self-described keeper of Southwest s
promote "Positively Outrageous Service" and devise lar employees, reprinted letters of praise from the average of its eight biggest U.S. rivals: pep-rally corporate culture, became president and
tributes, contests, and celebrations intended to nur- customers, and reported company celebrations of chief operating officer. Kelleher stayed on as chaIr-
ture and perpetuate the "Southwest Spirit." The com- milestones. A quarterly news video, As the Plane man of Southwest's board of directors and the head of
mittee, chaired by Colleen Barrett, was composed of Turns, was sent to all facilities to keep employees Average of the board's executive committee and continued to be
up-to-date on company happenings, provide clips of Southwest's
up to 100 employees representing a cross-section of in charge of strategy, expansion to new cities and air-
special events, and share messages from customers, Productivity Eight
departments and locations; members served a two- Measure Southwest U.S. Rivals craft scheduling, and governmental and af-
year term. Members, chosen for their zeal in exhibit- employees, and executives. The company had pub- fairs' his contract called for him to remam m those
ing the Southwest Spirit and their commitment to lished a book for employees describing "outrageous" Passengers enplaned
role; through December 2003 at an annual salary of
Southwest's mission and values, functioned as cul- acts of service. Sometimes important infonnation per employee 2,145 1,119
Employees per plane 83.4 121.7
$450,000, plus bonuses and stock options. Many ob-
tural ambassadors, missionaries, and storytellers. was circulated to employees in "fun" packages such servers and longtime employees did not expect Kelle-
The committee had four all-day meetings annually; as Cracker Jack boxes.
her to ever fully remove himself from management of
ad hoc subcommittees, formed throughout the year, Southwest executives believed that the com- the company as long as his health held up-Kelleher
met more frequently. Over the years, the committee pany's growth was primarily a function of the rate at Awards, Recognition, and had undergone treatment for prostate cancer in 1999.
had sponsored and supported hundreds of ways to which it could hire and train people to fit into its cul-
promote and ingrain the Southwest Spirit, with ture and mirror the Southwest Spirit. With about 150 Operating Performance
members showing up at a facility to serve pizza or cities annually petitioning Southwest to initiate ser- Comparisons James Parker
ice cream to employees or to remodel and decorate vice to their airports, management believed that the Southwest's new CEO, James Parker, had an associ-
an employee break room. Kelleher indicated, "We're company's growth was not constrained by a lack of Southwest's strategy and approaches to conducting its
business had resulted in numerous over the ation with Herb Kelleher going back 23 years to the
not big on committees at Southwest, but of the com- market opportunities to expand into other geo- time when they were colleagues at Kelleher's old law
mittees we do have, the Culture Committee is the graphic locations. About 15,000 of Southwest's years. Southwest ranked number one sat-
isfaction among U.S. major airlines every year from firm. Parker moved over to Southwest from the law
most important."25 35,000 employees had been hired since 1995. firm in February 1986. Parker's profile inside the
1991 though 2000. In Fortune magazine
Efforts to Nurture the Southwest Culture Southwest had been ranked as the most admlr7d aIr- company as Southwest's vice president and general
Apart from the Culture Committee, Southwest rein- Employee Productivity line in the world every year since 1997. In 1998, For- counsel had been relatively low, but he was
forced its core values and culture via such efforts as a tune named Southwest number 1 in its listing of the west's chief labor negotiator and much of the credit
Management was convinced that the company's for Southwest's good relations with employee unIOns
CoHearts mentOling program; a Day in the Field pro- strategy, culture, esprit de corps, and people man- 100 best companies to work for in America;. South-
gram, in which employees spent time working in an- west was ranked number 4 in 1999, number 2 m 2000, beldnged to him. Prior to his appointment ,as CEO,
agement practices fostered high labor productivity Parker had been a member of the company s execu-
other area of the company's operations; a Helping and contributed to Southwest's low labor costs com- and number 4 in 2001-the company elected not to
Hands program, in which volunteers from around the go through the screening process for the awards gIven tive planning committee; his experie?ces
pared to other airlines (see again Exhibit 7). When a from properties and facilities to techmcal serVIces
system traveled to work two weekend shifts at other Southwest flight pulled up to the gate, ground crews, out in early 2002. Southwest's Web site had top
Southwest facilities that were temporarily short- gate personnel, and flight attendants hustled to per- awards from both Business Week and PC Magazme. In . team to the company's alliances with vendors
handed or expeliencing heavy workloads; and peri- partners. Parker and Kelleher were saId to thmk
form all the tasks requisite to turn the plane 2001, Business Ethics included Southwest Alrlmes on
odic Culture Exchange meetings to celebrate the much alike and Parker was regarded as havmg a
quickly-employees took pride in doing their part to its "100 Best Corporate Citizens" list. ..
good sense' of humor, although he did not have as
Southwest Spirit and company milestones. Almost achieve good on-time performance. Southwest's av- Exhibit II provides comparative statIstIcs on
every event at Southwest was videotaped, which pro- colorful and flamboyant a personality as Kelleher.
erage turnaround times were about two-thirds the in- Southwest's performance versus that of other major
vided footage for creating such multipurpose videos Parker was seen as an honest, straight-arrow kmd of
dustry average. One study found that Southwest had commercial airlines during the 1998-2002 penod.
person who had a strong grasp of Southwest's culture
as Keepin' the Spirit Alive that could be used in train- an average of2.2 station personnel per 1,000 passen- and market niche and who could be mce or tough,
ing courses and shown at company events all over the gers in 1994 versus an industry average of about depending on the situation. When his appointment
system. Many of the committee's activities revolved 4.2.26 According to the Air Transport Association, la- SOUTHWEST'S NEW was announced, Parker said:
around promoting the use of red hearts and the word
LUV to embody the spirit of Southwest employees
bor costs were the airlines' biggest cost component,
accounting for 38 percent of operating costs in 2002;
LEADERSHIP TEAM There is going to be no change of course insofar as
caring about each other and Southwest's customers. the average airline employee had an estimated cost Southwest is concerned. We have a very expenenced
The concepts ofLUV and fun were spotlighted in all In June 2001 Southwest Airlines, responding to anx- leadership team. We've all worked together for a long
of$75,200 in 2002, including pension, payroll taxes, ious investor concerns about the company's leader-
of the company's training manuals and videos. There time. There will be evolutionary changes m South-
was an annual "Heroes of the Heart Award." ship succession plans, began an orderly t:ansfer of west, just as there have always been in our hIstory.
26J. H. Gittell, "Cross-Functional Coordination and Human Re- power and responsibilities from Its longtIme CEO We're going to stay true to our busmess model of be-
source Systems: Evidence from the Airline Industry," doctoral and cofounder, Herb Kelleher, age 70, to two of hIS ing a low-cost, low-fare airline 27
25Freiberg and Freiberg, NUTS', p. 165. dissertation, Massachusetts Institute ofTechnology, cited in most trusted proteges. James F. Parker, 54, South-
Hallowell, "Southwest Airlines: A Case Study," p. 527. west's general counsel, was elevated to CEO. Colleen "Quoted in the Seattle Times, March 20, 2001, p. C3.
C-660 Cases in Crafting and Executing Strategy
Case 35 I Southwest Airlines: Culture, Value, and Operating Practices C-661
exhibit 11 On-Time Flights, Mishandled Baggage, Oversales, and Passenger exhibit II (continued)
Complaints for Major U.S. Airlines, 1998-2002
Involuntary Denied Boardings per 10,000 Passengers Due to Oversold Flights
Percentage of Scheduled Flights Arriving within 15 Minutes of the Scheduled Time
Carrier Jan.-Sept. 2002 2001 2000 1999 1998
Carner
.
Jan.-Sept 2002 2001 2000
1. 1m Alaska Airlines 1.24 1.36 1.53 0.99 1.49
Alaska Airlines 75.8% 69.0% 68.1% 71.0% 72.0% America West 0.21 0.38 1.27 1.38 1.12
America West 78.5 74.8 65.5 69.5 68.5 American 0.22 0.36 0.44 0.42 0.42
American 78.9 75.9 72.9 73.5 80.1 Continental 0.93 1.51 1.44 0.28 0.13
. Continental 78.7 80.7 78.1 76.6 77.3 Delta 0.87 0.77 0.34 1.98 1.24
Delta 77.5 78.0 75.3 78.0 79.6 Northwest 0.53 0.45 0.43 0.20 0.33
Northwest 79.7 79.7 77.4 79.9 70.6 Southwest 1.06 1.50 1.84 1.40 1.84
. Southwest 82.3 81.7 75.2 80.0 80.8 TWA' 1.83 2.76 0.88 1,69
TWA' 80.8 76.9 80.9 78.3 United 0.65 0.92 1.64 0.69 0.59
United 75.5 73.5 61.4 74.4 73.8 US Airways 0.26 0.34 0.67 0.57 0.23
US Airways 78.4 78.2 72.3 71.4 78.9
Complaints per 100,000 Passengers Boarded
Mishandled Baggage Reports per 1 000 Passengers
Carrier Jan.-Sept. 2002 2001 2000 1999 1998
Carner Jan.-Sept. 2002 2001 2000 1999 1998
Alaska Airlines Alaska Airlines 1.02 1.27 2.04 1.64 0.54
2.68 3.00 3.48 5.75 7.27 America West 1.88 3.72 7.51 3.72 2.11
America West 3.47 4.22 6.62 4.52 3.88 American 1.41 2.51 3.54 3.49 1.14
American 4.32 4.60 5,50 5.21 4.40 Continental 1.46 2.23 2.84
Continental 2.62 1.02
3.06 4.29 5.35
Delta 4.42 4.06 Delta 1.51 2.16 2.01 1.81 0.79
3.61 4.11 4.49
Northwest 4.39 4.27 Northwest 1.60 1.97 2.61 2.92 2.21
4.79 4.19 5.24
Southwest 4.81 6.63 Southwest 0.37 0.38 0.47 0.40 0.25
3.54 4.77 5.00
TWA* 4.22 4.53 TWA' 2.54 3.47 3.44 1.29
6.35 6.06 5.38
United 5.39 United 1.90 3.24 5.3 2.65 1.28
3.69 5.07 6.57
US Airways 7.01 7.79 US Airways 1.24 1.81 2.59 3.13 0.84
3.01 3.86 4.76 5.08 4.09
•Acquired by American Airlines in 2001; TWA data for 2002 included in American Airlines statistics.
Source: Office of Aviation Enforcement and Proceedings, Air Travel Consumer Report, multiple issues.
Colleen Barrett of company events and trying to create a family at- line. In October 2001, Fortune included Colleen Bar- tember 11, 2001, the commercial air travel system in
Barrett began working with Kelleher as his legal sec- mosphere at the company. Believing it was"important rett on its list of the 50 most powerful women in the United States was suddenly and unexpectedly in
retary III 1967 and had been with Southwest since to make employees feel cared about and important American business (she was ranked number 20). shambles. The unprecedented three-day shutdown of
1978. As executive vice president of customers Bar- Barrett had put together a network of contacts flights, the sudden erosion of passenger traffic, and
rett had a high profile among Southwest the company to help her stay in touch with what was strict new security measures threw maj or airlines
and spent most of her time on culture building, happening with employees and their families. When into a financial crunch of huge proportions and trig-
morale bU!ldlllg, and customer service. She and network members learned about events that were CRISIS CONDITIONS gered a struggle to revamp flight schedules and re-
Kelleher were regarded as Southwest's guiding worthy of acknowledgment, word quickly got to Bar-
rett-the information went into a database and an
STRIKE THE AIRLINE spond to sharply lower passenger travel. During the
hghts, and some analysts said she was essentially three days that flights were suspended by the Federal
functlOmng as the company's chief operating officer appropriate greeting card or gift was sent. Barrett INDUSTRY: THE Aviation Administration, airlines burned through an
had a remarkable ability to give individualized gifts estimated $220 million a day in cash to cover ongo-
pnor to her fonnal appointment. Much of the credit
for the company's strong record of customer service that connected her to the recipient. 28 AFTERMATH OF ing expenses.
and its strong culture belonged to Barrett. Barrett :vas the first woman appointed as presi- SEPTEMBER 11 On the first day of trading after the terrorist at-
Barrett had been the driving force behind lining dent and chIef operating office of a major U.S. air- tacks, investor worries about almost empty flights,
the hallways at Southwest's headquarters with photos In the days and weeks following the terrorist attacks higher costs from added security measures, and a
28Freiberg and Freiberg, NUTSi, p. 163.
on the World Trade Center and the Pentagon on Sep- clouded financial future for the whole airline industry
C-662
Cases in Crafting and Executing Strategy
Case 35 I Southwest Airlines: Culture, Value, and Operating Practices C-663
att Atkinson, ranch manager at Benziger had been the primary participants developing the sys-