Commentary: Southwest: After Kelleher, More Blue Skies

Southwest's model shone in an embattled industry--and it looks brighter than ever

By Wendy Zellner

In three decades of building low-fare legend Southwest Airlines Co. (LUV ), CEO Herbert D. Kelleher has made nary a misstep. His boisterous, Wild Turkey-swilling image aside, Kelleher has built one of the industry's fastest-growing and most profitable airlines. Until Mar. 19, the one chink in his armor appeared to be the question of how Southwest would replace him.

Finally, the answer: Two Southwest veterans steeped in the company's traditions will man the controls. Kelleher, 70, will stick around for at least three more years as chairman, focusing on long-range strategy and government affairs. "We wanted to be sure the culture of Southwest Airlines would continue," says Kelleher. In other words, if it ain't broke, don't fix it.

It ain't broke. Kelleher's battle plan has stood the test of time and competition. In a consolidating industry plagued by labor strife and disgruntled passengers, Kelleher's low-cost model of point-to-point flights looks stronger than ever. Who better to keep it going than Kelleher's closest confidants? On June 19, James F. Parker, 54, general counsel, and Colleen C. Barrett, 56, executive vice-president for customers, will become CEO and president, respectively. The two have worked together for 22 years.

Former Southwest executives and analysts applaud the pairing of Parker's strategic smarts and savvy in labor talks with Barrett's devotion to employees and customers. "The fact that they are working as a team should be underscored," says one relieved institutional investor. And as Parker and Barrett might tell you, they are inheriting a devilishly simple playbook.

-- Keep costs down. By boasting the lowest costs among the major airlines, Southwest can profitably offer low fares where others can't. When the nation's seventh-largest carrier enters a new market with fares that undercut prevailing rates by 50% or more, traffic explodes, and Southwest nabs many customers who might have driven before.

-- Focus on customers. In short, cheap doesn't mean crummy. Sure, there are no hot meals or fancy airport clubs. But Southwest's customer-service ethos is legendary. It's not unheard of for a gate agent to put a stranded passenger up for the night.

-- Keep employees happy. They keep customers happy. Parties celebrating almost anything are epidemic. Employee photos cover the walls at Dallas headquarters, leaving no doubt who's most important here.

The pep-rally culture has its purpose: Southwest employees are more productive than most others in the industry, for similar pay, so maintaining morale is critical.

-- Keep it simple. While Southwest has tweaked its formula over the years--adding more long-distance flights, for instance--it's still mainly a point-to-point, short-hop airline that uses one aircraft type to simplify training and maintenance.

For all his success, Kelleher faces one last challenge: managing the transition to his successors. Some management experts think it's a bad idea for a former CEO to remain as chairman of the board and the executive committee. A continued presence can undermine the new team or make things more difficult if change is needed. "There's a real question about who's in charge, and no company should have that doubt," warns Roger M. Kenny, managing partner of Boardroom Consultants. Which brings us to the last lesson

-- Screw conventional wisdom. That attitude has worked for Kelleher plenty of times before. He's counting on it one last time as he circles for retirement.

Dallas Bureau Chief Zellner covers Southwest.

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