How Southwest Airlines became America’s largest domestic carrier

OPINION:

An idea scribbled on the back of a cocktail napkin is part of the lore of several of the greatest ideas of mid-20th century America: the Laffer Curve, the automatic fire-hose nozzle, the Space Needle in Seattle. Important concepts, simply presented.

Another famous piece of cocktail napkin lore is the original concept for Southwest Airlines — a simple triangle connecting Texas’ three largest cities: Dallas, Houston and San Antonio. As the legend goes, pilot and businessman Rollin King and lawyer Herb Kelleher drew up the route map in a San Antonio bar for an airline that would eventually become America’s largest domestic carrier: Southwest.

The cocktail napkin story is just that, but the conversation and the plan really did take shape. In 1967, interstate routes and fares were regulated — and prices were high — but Texas was a large enough market that an airline could fly solely intrastate and undercut larger airlines without the burden of Civil Aeronautics Board price regulation. Mr. Kelleher’s concept was such a threat to other Texas-based airlines that they tied Southwest up in court for nearly four years before the budget airline even took to the sky.

While Mr. Kelleher was not appointed Southwest’s permanent CEO until 1981, he was a critical player in the early years, planning the airline’s legal strategy, lobbying Congress to keep its Dallas home base Love Field open.

In Southwest’s early years, its competitors collaborated to kill the upstart with below-cost fares; Mr. Kelleher, a Wild Turkey bourbon aficionado, offered a successful counter offer. A customer could buy a ticket matching the fare-war levels, or he could pay quite a bit extra and get a free fifth of liquor. (Businessmen on travel expense accounts liked the idea of getting free liquor bundled into the fares their employers were already willing to pay.) For a time, Southwest became the largest whiskey distributor in Texas.

Southwest became famous for several of its tactics, including a “10-minute turn” designed to make the most of their aircraft time, no assigned seating, a single aircraft type, serving secondary airports and offering more point-to-point destinations. Airlines like Ryanair employ similar techniques, and they make the airline feel cheap (a perception its CEO doesn’t mind). While Mr. Kelleher didn’t develop all of these techniques himself, one of his great achievements was to create a culture that helped them come across not as penny-pinching but as fun and friendly.

Everyone I know has a story of a Southwest employee — whether at a call center, in an airport or on a plane — going above and beyond to help out a customer. Customers were “nuts about Southwest” because the employees were nuts about helping them, and Mr. Kelleher was nuts about the employees.

For example, Mr. Kelleher could be found alongside his team members: Answering the phones at Southwest, loading baggage, serving drinks onboard, checking passengers in. “If you honor, respect, care for, protect, and reward your employees they will treat each other and their customers with caring, respect, and hospitality,” he once said.

Southwest has never laid off or furloughed employees or cut their pay — even in the dark months and years after the 9/11 terrorist attacks, when multiple airlines declared bankruptcy, furloughed pilots and flight attendants, and negotiated concessionary contracts. They slashed hundreds of thousands of jobs, but Mr. Kelleher and the Southwest leadership team held firm.

And while other airline executives, such as American’s Don Carty, were paid substantial bonuses after winning billion-dollar concessions from their labor groups, Mr. Kelleher never increased his own salary as CEO. Instead, he focused on building a strong company and was rewarded by Southwest’s stock market performance. (The company’s value grew by roughly 2,500 percent during his years as CEO, and the company has been profitable in every year since 1972.)

Southwest’s success in bringing down fares in Texas also helped build the case for deregulation of routes and airfares. “Southwest Airlines supported deregulation of the airline industry throughout the 1970s,” Mr. Kelleher said — unlike the regulated airlines. A sign of deregulation’s success? When Southwest launched, only 15 percent of American adults had been on a commercial airline flight. Today, 85 percent have.

Herb Kelleher made Southwest not an airline but a customer-centric company that just happened to fly people in airplanes. The company’s mission isn’t travel; it’s this: “dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit.”

A decade ago, I attended Mr. Kelleher’s Lindbergh Lecture at the National Air and Space Museum. He said during his remarks that he was often approached by consultants offering to help Southwest “refresh” its mission statement. He preferred to stick with the one he had. “That’s like wanting to refresh Deuteronomy or Leviticus!”

• Evan Sparks is vice president for publications at the American Bankers Association. The views in this article are his alone and do not reflect employers past or current.