REPORT BY DAVID FIELD IN DALLAS / PHOTOGRAPHY BY DANNY TURNER
Shortly after his airline turned 30, Southwest's Herb Kelleher left two of his old friends and colleagues as guardians of the low-cost carrier's famous culture and business model
Southwest Airlines is rapidly approaching middle age. While it may once have been the little guy, the upstart who had to try harder, today the eternal underdog is a national institution which passed its 30th birthday last year. Not only has it out-lasted old giants such as Pan Am and TWA, but its post-September 11 market capitalisation at $17 billion exceeded that of American, Delta and United combined. With age has come maturity, and with maturity a move away from reliance on the founder Herb Kelleher and his legendary charisma. In his place come executives who have grown up within the airline, and who have the very clear duties of institutionalising the two things that have served Southwest so well: its business model and its corporate culture. Both were a creation of Kelleher.
The chain-smoking, bourbon-sipping New Jerseyite headed west to Texas to start an airline over three decades ago and made himself a legend in the process. Undertaking tireless self-promotion stunts such as arm-wrestling another company's chief executive for the rights to an advertising slogan and dressing up like Elvis Presley, Kelleher's well-known and oft-told story is in the books, and his signature is on the airline. But the next few chapters are not his to write.
After years of heavy smoking and drinking (and boasting about it), Kelleher suffered a brief health scare in 1999, after which it became clear he would name a successor. Retaining the element of surprise as usual, the then 70-year-old Kelleher did not name a single successor but the first man-and-woman team to run a major airline.
The airline's chief executive was to be James Parker, Kelleher's general counsel and friend since 1979. Parker, who joined Southwest in 1986, also became vice-chairman of the board of directors. Assuming the role of president and chief operating officer was Colleen Barrett. An associate of Kelleher's since 1967, Barrett had long been the linchpin of Southwest's inner circle. "Jim" and "Colleen" as they are always known were appointed the day the airline turned 30.
Without Kelleher running the airline on a day-to-day basis, Southwest has developed an almost dual-personality management team with Barrett the heart and Parker the brain. Barrett's passion is well known within the company. She has personally greeted almost every new recruit, and created staff training programmes encouraging a humorous and informal approach to calm and charm passengers, for which Southwest has become renowned.
Though both possess a wide repertoire of jokes and quips, they are still far more reserved than the irrepressible Kelleher. Barrett's personality is well known, says Florida-based airline consultant Stuart Klaskin. He adds: "Parker is almost like a middle child, between Herb and Colleen; he's quiet. On the other hand, maybe it's good for Southwest to have someone a little low key now that Herb is chairman."
Professor Charles O'Reilly of the Graduate School of Business at Stanford University agrees, saying Parker and Barrett "have been central in creating Southwest and, because of that, in a sense, it is a good thing that neither of them is quite [like] Herb". They are crucial, he adds, in moving the airline away from a cultural identity too closely associated with one individual.
Keeping the culture
While every airline speaks of corporate culture, Southwest is one of the few to have integrated it into its basic corporate structure - which has been designed not so much to protect and defend what has made Southwest unique as to extend it. Barrett is in charge of all that could be termed the airline's culture. Southwest's other essential element is its business structure - its route structure, quick turnaround, and its no-food, no-frills operation. The carrier has virtually invented the model for Europe's low-fares, short-haul, high-frequency start-ups. This is Parker's portfolio.
Parker is a lawyer - and a lawyer's personality lies beneath his southwestern informality. He thinks, pauses and reflects before he speaks - and, when he does, it is with legal precision. "We will remain the same airline," he says, almost as if the thought had just occurred to him. Two small previous acquisitions were "unique sets of circumstances. We are not desirous of acquiring another airline and it is my preference that we grow internally; that is best because we pick the people, we pick the airports and we fly the planes we want to." With that kind of control, "we can meter and measure our growth." The airline has demonstrated this ability with the gradual addition of planes and routes since the crisis. It will take 12 of the 19 Boeing 737 deliveries it deferred in the autumn, with one this month and two in May. It will add a route this month and another in May - but probably will not add any new cities this year. In fact, Parker says he is uncertain if Southwest will be profitable in the quarter. But he adds: "Sometimes when Wall Street analysts question me about our stock's price and our price/earnings ratio, I tell them we are about the only major carrier that has earnings."
To protect the basic Southwest model, Parker's goal now is to "improve the airport experience," or in other words cutting down on the long lines and cattle herd-like queuing that had always been part of the Southwest experience, but which had got worse because of new security burdens imposed after September. Parker says: "To be candid, if we do not find a way improve the efficiency of our security procedures, air travel will be at a competitive disadvantage in the short-haul market." He insists that the airline has not had to pad or stretch its schedules but acknowledges that Southwest's need for on-time performance has been challenged.
Ray Neidl, a New York airline analyst with investment bank ABN AMRO, says this is a well-founded concern. "The security steps at the airports could drive some business away if it slows down the process, just as a new federally imposed security fee can discourage passengers from short-haul flights." To speed the airport loading process, Southwest will end the use of its trademark plastic boarding cards that give fliers a number specifying when in the waiting line they must stand and instead go to boarding passes. Passengers would be able to get their boarding passes when checking in or checking a bag at kerbside instead of doing each step separately and then waiting in another line to get the plastic paddle-like cards with a boarding number on it. But he says, "We will never have reserved seating. That would be more trouble than it is worth." The airline is also hiring almost 4,000 employees this year, most of them to work at the airport.
There is a longer-term challenge ahead for Parker and it is one for which he will need all his lawerly skills and poker face. That issue is labour relations. It is a challenge that would seem to be an easy one for Southwest, given its long history of industrial peace and image as a friendly employer. Yet its workforce, like those of every other US carrier, has been deeply aware of both the great leap upward in wages following the United Airlines pilots contract of 2000 and the labour turmoil since September 11. The airline is wholly unionised, with every major worker group represented by a trade union. At one point last year, Transport Workers Union members handed out leaflets and picketed at Southwest airport terminals, the first time such a demonstration has been seen. The airline suffered a brief strike in 1980 but has not experienced any labour disruptions since. That is not to say peace is assured, even given the record-setting 10-year contract that Parker negotiated in 1994 with the pilots.
Labour concerns
The Southwest Air Line Pilots' Association (SWAPA) enthusiastically endorsed both Parker and Barrett when they were appointed. The basic contract froze pilots' salaries for its first five years in return for profit sharing and stock options, although both features irk the pilots and have led the union to seek early revisions in the contract this year. The options plan that was part of the contract has been divisive because it does not adequately allow for seniority.
"The length of the contract is unfair in that Southwest has hired some 2,700 or more pilots since it was agreed, and none of them got to vote on it," says SWAPA president Jon Weaks. "We are not a little airline in Texas any more and the question now is how do you do things when you are this big". Southwest pilots lag far behind those on Boeing 737s on other airlines in both pay and benefits, he says. A Southwest pilot making just over $140 an hour compares with those making more than $200 at United or Delta, while Southwest's pay is per trip, not an hourly rate.
"That (pay basis) is an icon they are unwilling to give up but which is outdated and outmoded," he says warning of a possible "train wreck in 2004," when the contract expires. But Weaks, like other union leaders, speaks highly of Parker as "very methodical, personal, detail-oriented and hands-on". The union's differences are "nothing personal" says Weaks. "It's business. I am sure that the airline cares as much and probably more for its pilots than the majors do."
The few comments Southwest officials will make about the labour situation frame it as an issue "within the family". Many an airline has used that phrase to gloss over deep if not psychopathic relationships, but at Southwest, it is closer to the truth than at most. And that it can use such a phrase persuasively is in no small part the work of Colleen Barrett, the mother superior, headmistress and matriarch of the family.
Her basic sermon is this: "The company is based on people, and that means if you hire right you get on the right track. We hire for attitude - for personality - not for industry qualifications or experience." Barrett spends hours a week corresponding and communicating directly with employees, often writing to them on birthdays, anniversaries or during family emergencies and answering their correspondence. "We teach everyone here that they have customer even if it's not the passenger. For instance, for mechanical people, their customers are the pilots," she says, suggesting that management has a customer, too, namely the employees.
Barrett, who has been with the company since the pioneer days, believes the culture is more than just the jokes and Elvis outfits on which the public seems to fixate. "The important thing is keeping alive the warrior culture, reminding people that we have to stay focused on the customer. That is the way to stay alive," she says, warning against forgetting the lessons of the early pioneering spirit. "We have to remember how easily they [the majors] could have crushed us when we were a little company, and how they tried to crush us."
Cultural sensitivities
A central element of Southwest's culture has always been humour, but that is changing since 11 September. "At a time like this you really have to be careful," she says laughingly remembering such Southwest classics as the on-board safety briefing where the flight attendant advised passengers "in the unlikely event of water landing, you can use your seat cushion as a flotation device. Just remember: kick, kick, and use your arms as you head towards shore." Times naturally have changed. "That sort of line is funny but just would be out of place now. Humour is important, but I recently sent out a memo asking people to use common sense" when it comes to joke telling, she says.
Barrett talks about being shy but is known by everyone within the company as just "Colleen," the same way Kelleher was just "Herb." Barrett says she has "sometimes been compared to a nun who wants to save the world". Barrett sees her job as a secular one, even though it does require a calling: serving the Southwest that she, Jim Parker and Herb helped create.
With the Parker and Barrett in place, Southwest now has a management team who are "both accepted and have credibility within the family," in the words of Standford's Prof O'Reilly. "When I teach Southwest as a case to business school and executive students and ask them if they would they buy it without Herb, the answer is yes - as it should be." he adds.
Jim Parker
Jim Parker, now 55, started out at Kelleher's San Antonio law firm in 1979. He went to Southwest as general counsel in 1986 after having performed outside legal work for the airline. A native Texan, he had earlier been an assistant attorney general for the state and graduated from its state university and its law school.
Between Herb Kelleher - the man who made Southwest what it is - and Jim Parker, the chief executive and vice chairman man who now runs it, the differences are great. "Compared to his charisma, I once told Herb, I am just a 60-watt bulb," Parker recalls, adding, "Herb then turned to me and said 'just what makes you think you have 60 watts?'"
Parker's discussion of the division of labour between Southwest president and chief operating officer Colleen Barrett and himself, reflects the Southwest tradition that Herb created with his constant "smokin' an' drinkin'" banter. "Well," Parker says, "I'll do the drinkin' and Colleen will do the smokin'."
That may be a Texas-sized remark, though. Parker did not imbibe a drop while AB was visiting him in his modest and windowless office in Southwest headquarters next to Love Field. But then again, he has a Texas-size legacy.
Battles commence online
Southwest has always had to battle, reflects chief executive Jim Parker. Its early fight to win the right to use Love Field in Dallas are the revolutionary war of Southwest's cultural history, and Parker say that the little guy spirit is very much alive in new fields of battle. "Our large competitors can always find new weapons." Here he cites the Orbitz online distribution site set up by the network majors. Parker says that Orbitz is as much a competitive move as any capacity response.
Orbitz is backed by five major airlines - American, United, Delta, Northwest and Continental - and was a long-awaited response by the industry to the aggressive use by carriers of individual websites - such as Southwest's - and to externally run branded distribution sites such as Travelocity. Last year, the airline sued Orbitz, charging that it was displaying incorrect information about Southwest fares and schedules and not always showing the lowest fare. It later blocked the site from displaying any of its fares at all. Even though Southwest halted the litigation in November, it reserves the right to renew it.
Meanwhile, Southwest keeps driving traffic to its own website as a way to keep down costs. By late 2001, Deutsche Banc Alex.Brown analyst Susan Donofrio estimates that Southwest was booking 47% of its passenger revenues on line, compared to an industry average of 33%. This made it the number three site for revenue, right behind Travelocity and Orbitz, she says.
When it comes to the traditional weapons, though, the airline can be a Goliath and drive out competition when it enters a new market. It has done that on much of the East Coast, and has become the Goliath in markets such as at Baltimore/Washington International Airport, where US Airways was once dominant but is now in retreat. Parker insists "although we are a tough competitor, we have always been vulnerable to our larger competitors, even though we seek to stimulate new markets rather than 'steal' market share from anyone."
Colleen Barrett
Colleen Barrett, now 57, previously served as Southwest's executive vice-president for customers and corporate secretary. She played a key role in all of Southwest's legal and regulatory battles since the 1978, notably including the fight to win the right to use Dallas Love Field for interstate flights.
A 1979 law called the Wright Amendment (and its updates) restricts non-stop large-jet service from Love Field to the adjoining states plus Mississippi and Alabama.
Issues have always fascinated her. "All I wanted to be growing up dirt poor in Vermont was to work in a law office, to be a legal secretary. I just loved it. We were poor and I couldn't afford law school but my uncle was a lawyer," she recalls. Barrett came to Texas with her husband and landed a job at Kelleher's San Antonio law office, also the alma mater of Jim Parker.
"My job hasn't changed that much since Herb moved on to just being chairman. I attend all the operational meetings because to provide customer service I have to understand every aspect of the operations. I have a few more people reporting to me but it is in many ways the same job: keeping alive the culture."
Source: Airline Business
