Is this the perfect company or what?
From the minute you walk into the Southwest Airlines headquarters in Dallas--past the sand-filled volleyball court out front--you're just about bowled over with positive vibes. Everyone hugs. Herb Kelleher, the madcap, hard-charging, bourbon-swilling stuntman of a president, plants big wet kisses on the lips of his female employees and, sometimes, on those of his male ones. The walls are a family scrapbook, covered with so many photos of happy workers that five craftsmen must labor full time, year-round, just to keep them all in frames. In the lobby, etched into smoked glass like the Ten Commandments, is a tribute to the legend of Southwest Airlines, "nourished by our people's indomitable spirit, boundless energy, immense goodwill and burning desire to excel."
If you've ever flown them, you already know about their distinctive high-altitude high jinks, the flight instructions delivered as stand-up comedy, the welcoming announcements sung to "The Beverly Hillbillies" theme, the zingers about passing your plastic cups to the center aisle "so we can wash them out and use them for the next group of passengers." You won't get a meal or an assigned seat at Southwest's rock-bottom fares--the one-way average is just $62--but don't lump this company in with those other cut-rate airlines. Southwest boasts the youngest fleet and the best safety record in the business, not to mention top rankings from the U.S. Department of Transportation for on-time performance, baggage handling and customer service.
So how do they do it--win such high praise at such low prices and still make gobs of money? Look within the culture. It is Southwest's signature--a living, breathing esprit de corps--the most celebrated ingredient in a recipe for success that has defied the odds for 25 years.
Listening to the kudos, you'd almost think that Southwest was a corporate utopia, such is its blend of merrymaking and moneymaking in an industry beset by turmoil. The 1993 edition of "The 100 Best Companies to Work for in America" hailed Southwest's brio, noting that it may be the "only U.S. company that actually requires a sense of humor." In 1994, Fortune magazine put the Southwest president on the cover, jumping from a trampoline with arms spread in flight, asking: "Is Herb Kelleher America's Best CEO?" Today, his airline is so improbably successful--never a crash, a layoff or a serious labor dispute--that it must host biannual "Culture Days" to accommodate visiting executives who search for its secret as if hunting for the Holy Grail. "They've turned the capitalist system into something that's fun," says Steve Lewins, a Wall Street transportation analyst. "Even Karl Marx would be impressed."
But behind the mirth, there's a beauty queen's gleam to Southwest's smile, a calculated scheme to package and promote its "positively outrageous service." Since the late '80s, Southwest has more than tripled in size, swelling into a $3-billion-a-year behemoth with 22,000 employees in 48 cities coast-to-coast. No longer the scrappy upstart, it has fretted mightily about losing the organic flavor of its culture, about diluting the spunk that once sprang naturally from its audacious beginnings at Dallas' Love Field. As surely as if it was installing a new computer or radar system, Southwest is now on a quest to institutionalize its spirit, a self-conscious defense against the perfidies of growth and age.
It's obvious in just about every slice of Southwest life, from the training center christened "University for People" to the Elvis impersonator who presided over Southwest's "wedding" with Morris Air, the Utah-based carrier it acquired in 1993. New employees are treated to a video of rapping Southwest workers, including a leather-clad Kelleher, who lip-syncs: "My name is Herb/Big Daddy-O/You should all know me/I run this show." A company directory, dubbed "Our Colorful Leaders," features photos of top officers in their zaniest moments, along with childlike Crayola captions saluting everyone who "colors outside the lines." In homage to its 25th anniversary this year (and to the austerity of its in-flight cuisine), Southwest is plastering the country with billboards: "Still nuts after all these years.'
"Their culture is not an accident," says Don Valentine, a former Southwest vice president of marketing and sales. "It was identified and it was developed and it has been managed."
If the gimmickry strikes you as too cute, it's hard to dispute the bottom line. Southwest has revolutionized the industry, spawning a new generation of mimics and lowering fares across the country. It likes to say its business formula can be copied--high-frequency, short-haul, point-to-point flights--but that its culture cannot. "There's a psychic ownership here," says Libby Sartain, who holds the unlikely title of vice president/people. There's a shrewd commercial objective to all that feel-good psychology. Long before corporate America started rallying around buzzwords like "total quality management," Southwest discovered a simpler truth: "Fun" employees are not only friendlier but also less likely to grouse about hard work and mediocre pay--even with about 85% of them unionized.
That's not to suggest that all the levity at Southwest is part of some elaborate ruse. People really are happy here--so happy that you're often left wondering about the wellspring that feeds their devotion. In honor of Boss's Day--a bogus holiday if ever there was one--Southwest employees collected $60,000, buying a full-page ad in USA Today to thank Kelleher (whom everyone knows as Herb) "for being a friend, not just a boss." When gas prices soared during the Gulf War, employees volunteered through payroll deductions a total of $130,000 to help offset the skyrocketing cost of jet fuel. That commitment surely warms the hearts of Southwest's stockholders--many of them employees, by the way, thanks to a generous profit-sharing plan. Still, there's something else going on here: an almost mystical passion that keeps this place marching in unison--"an element of cultism," as Thomas Petzinger Jr. writes in "Hard Landing," his acclaimed 1995 account of the airline industry.
Or maybe it just looks that way because the rest of America is fraying at the seams. To most people, life feels a bit more confusing and fragmented these days, the search for meaning and identity a little less heartening. Folks don't vote or read newspapers or attend PTA meetings as they once did. They don't even bowl the same, as a Harvard professor told President Clinton, presenting the wane of blue-collar leagues as a metaphor for social decline. Southwest, although it may not appeal to our more individualistic traditions, has concocted an antidote for the '90s. Not only has it maintained the workplace as a stable environment--no small feat in this era of downsizing and mergers--but it has filled the void left by other ailing institutions. It's an extended family, a virtual community and, not least, an ersatz church.
Kelleher acknowledges "a patina of spirituality" at Southwest, which also is known as "the LUV airline." His No. 2, Executive Vice President Colleen Barrett, once considered becoming a nun. "It sounds corny, but it's almost like a cause for our people," she concedes. And what becomes of those rare individuals who defect to another airline, even if they later repent? "No one goes back to Southwest," says Tom Volz, who made the mistake of jumping ship for an ill-fated post at Continental. "It's like the monk leaving the monastery."
ON A SWELTERING DALLAS NIGHT, IN AN ALUMINUM AIRLINE hangar decorated with heart-shaped balloons, Herb Kelleher showed up for Southwest's 25th anniversary party last month with a bodyguard at his back. It's not because he was the target of threats or anticipated a hostile reaction from the sweaty, beer-drinking mob of pilots, mechanics, flight attendants and reservation agents packed into the cavernous shed. To the contrary, he needed an escort to protect him from the gush of adulation, lest one of his own employees blindside him with a little too much Southwest spirit.
"It's him!" a voice in the crowd shrieked.
"I love it, I love it, I love it," Kelleher bellowed.
In an instant, he was swamped, his pale blue eyes beaming in a sea of waiting lips, groping hands and flashing cameras. A live band began pumping out dance songs--"This is how we do it"--as a woman in a cocktail dress twirled into his arms. Another grabbed the back of his jeans, yanking him toward her for a smooch. By then, Kelleher's face was red with smeared lipstick.
"Oh my God," squealed a woman with a striking mane of kinky blond curls. Kelleher whispered into her ear, then ran his fingers through her locks.
"What'd he say?" everyone wanted to know.
"He told me, 'Don't ever change your hair,' " she sighed, delicately stroking her tresses as if she would never wash them again.
If a cultish intensity pervades Southwest, there's little doubt about who reigns as High Priest. Theatrical and obsessive, a man who once said "it's better to be Irish than smart," Kelleher is the embodiment of Southwest's culture, a lawyer by trade and a snake charmer by temperament.
He is a chain-smoker, sucking down six Merit Ultimas during a one-hour interview in his office, the blue carpet scattered with ash before he even got started. He is an unrepentant consumer of Wild Turkey, earning a birthday tribute last March from the master distiller himself: 65 bottles of Kentucky bourbon (with Kelleher's likeness emblazoned on each label) to mark his 65 years. Asked how long it would take him to polish off such a cache, Kelleher quipped: "Refresh my recollection, is March a 30- or 31-day month?"
Dressed in a tan shirt and khakis held up by the kind of colorfully woven belt you'd find in a Mexican village, Kelleher seems decidedly ill-suited for the meticulous rigors of running an airline, as though he'd rather regale you until last call than wrestle with the minutiae of timetables, fare structures and engine tolerances. It's at least partly an illusion, but one that helps keep the good times flowing at Southwest. Despite serving as president, CEO and chairman of the board, Kelleher's top job is just being himself--a manic father figure whose self-deprecating antics inspire the sort of allegiance that other companies spend millions trying to replicate.
"My parents really instilled in me the idea that everybody should be treated with dignity and respect and that titles, traditions, ranks, status and class didn't matter," says Kelleher, his swept-back silver hair framing a ruddy face and dimpled cheeks, transformed by age into deep crags.
The secret of Southwest, he maintains, is that there is no secret; all those executives who come seeking answers invariably miss that point. "When you tell them there isn't any real formula--except treating people nicely, as individuals, and having fun with them--they kind of say, 'Well, gee, that's not a business principle. Is there something else? You mean that's all?' " says Kelleher, erupting in raspy laughter.
Kelleher's sense of the absurd is legendary, a trait that not only entertains his own staff but adds to the Southwest mystique wherever he goes. How many other airline CEOs could--or would--serve in-flight snacks dressed as the Easter bunny? When asked to address an aviation meeting at a swank New York ballroom, Kelleher began by listing the talents of which he was proudest. "First," he said, "I am very good at projectile vomiting." He was at his vintage best a few years back, painting a Southwest jet to look like Shamu, Sea World's killer whale. "Just one question," his rival, American Airlines President Robert Crandall, called to ask. "What are you going to do with all the whale s - - -?" With instinctive aim, Kelleher whipped up a large tub of chocolate mousse and sent it to Crandall with a Shamu-shaped spoon stuck in the center.
"He's like our mascot," says Denise Limones, 26, a newly hired operations agent with the Southwest crew in Oakland. "I've been told that when you first meet him, he gives you a big ol' sloppy kiss--and I'm dying for my first one."
Like the rest of Southwest's wackiness, Kelleher's shtick conceals a cunning, take-no-prisoners approach to turning a profit, a strategy that has made him a millionaire many times over. No buffoon, he is a tireless worker, prodigious reader, New York University law school graduate and former New Jersey Supreme Court clerk. Born and raised in the Northeast, where his father was a Campbell Soup executive, Kelleher moved in 1960 to San Antonio, home to his wife, Joan, and her wealthy, politically connected clan.
His office in Dallas is stocked with military and historical memorabilia--an original $1.25 check from Orville Wright to the American Society of Mechanical Engineers, and a 250-pound bomb casing painted in the beige, orange and red tones of a Southwest jet. He peppers his speech with references to the heroes of his youth, Patton and Churchill, FDR and Truman. When he needs to unwind, he slips off to Conquistadores del Cielo, a secretive Wyoming retreat where top airline executives go every year to fish, shoot, gamble and live out their bohemian fantasies. But as a guest at the encampment once told Fortune magazine, "There is an unwritten rule that, if you don't want to stay up all night drinking and talking, then you stay the hell away from Herb."
If Kelleher is the personification of the Southwest spirit, then Colleen Barrett is its manager. The highest-ranking woman at a major U.S. airline, she is Kelleher's polar opposite, as structured and detail-oriented as he is slapstick and free-wheeling. Pour a few drinks into Kelleher and it's like flooring the gas pedal. "Give me a glass of wine," Barrett says, "and I've got to have a pillow." They recently took a Meyers-Briggs personality test together, though nobody was surprised by the results. "I was on the judgment side as high as you can get . . . you know, everything planned, all my little lists," Barrett says. And Kelleher? "The way he's lived," she said, "he really doesn't deserve to be alive."
They've been a team since 1967, when she started as his legal secretary. Barrett, a divorced, 51-year-old native of Vermont, still keeps Kelleher's schedule, cracking the whip to make sure he gets where he needs to be on time. He once called her his "beeper," telling Texas Monthly that she extended him all the freedom of a captive "in a North Korean prison camp." But her duties have evolved over the years, now encompassing perhaps the most crucial of Southwest's missions: She is the Den Mother, keeper of the flame, principal architect of all the contrivances designed to prevent the company's inimitable pluck from petering out.
It's her behind-the-scenes hand you see when Christmas and birthday cards arrive at each employee's home, signed simply, "Herb and Colleen." It's her voice urging co-workers to fill out a "LUV Report" every time they have an upbeat story to share. It is she who not only plasters the corridors with staff photos but also takes them down and reshuffles them every two years--so that "people feel like they're in a whole new environment." She also created the influential "Culture Committee," a team of more than 100 employees that continuously critiques Southwest's persona, devising all sorts of celebrations, tributes and incentives to fire up the troops. "Sometimes we've created a couple of imaginary battles just to keep the blood flowing."
Her effort serves a dual purpose, the most obvious being to retain the airline's small-fry identity, even as its work force balloons. The other isn't talked about as much. Despite having signed a new five-year contract that took effect Jan. 1, Kelleher is at an age usually associated with retirement. At a company so wholly a reflection of one man's personality, the future of Southwest may depend on preserving Kelleher's zest, an elixir for the inevitable day he is no longer there. If he can't be immortal, at least his spirit can still be floating around.
THIS IS HOW SOUTHWEST AIRLINES WAS BORN: HERB KELLEHER, bored with the tedious gentility of his San Antonio law firm, sat down at a bar in 1966 with a client, Rollin King, a prominent banker and pilot who ran a small charter airline ferrying hunters around Texas. As the drinks flowed, King chattered enthusiastically about PSA, then a California carrier that was shaking up the market with short, low-cost, intrastate flights.
Grabbing a cocktail napkin, King sketched out a triangle, its three corners representing Dallas, San Antonio and Houston. If they could duplicate PSAUs formula--avoiding the federal regulations of that era by never crossing state lines--King's little charter company might just grow up into a commercial airline.
"Rollin, you're crazy," Kelleher said. "Let's do it."
Well, maybe it didn't happen in a bar, and maybe Kelleher didn't exactly utter those words. Southwest tends to mythologize its past, repeating such legends like folk tales. But this much is true: Southwest entered the world with the odds undeniably stacked against it. Texas' other airlines--interstate carriers subject to federal price controls--refused to be undercut in their own backyard. For three years, they battled to keep Southwest on the ground, snaring the nascent airline in a legal morass that drained its start-up money and demoralized its investors. But Kelleher, acting as the company's attorney, clawed all the way to the U.S. Supreme Court and won the right to compete for a slice of Texas' skies. His struggle infused Southwest with an underdog's drive that guided it through some tough years it otherwise might not have survived.
There was the time, shortly after Southwest began service in 1971, that financial setbacks forced the company to sell off one of its four planes. To avoid layoffs, the crews simply hustled twice as fast between flights, keeping the same schedule with less equipment and creating a model of efficiency that remains the standard today. Not long after, Braniff tried to muscle Southwest out of the Texas market by offering $13 flights, half the going rate. Southwest not only matched that but offered a puckish alternative: For the full $26 fare, customers would be entitled to a free fifth of liquor. Overnight, Southwest became the top Chivas Regal distributor in the state.
"We just turned it around and stuck it to them with the free whiskey," says Lamar Muse, Southwest's colorful first president, who has since retired to the fifth hole of a La Quinta, Calif., country club. "Had they not fought us so hard, had they just ignored us, we probably wouldn't have made it."
But early on, Southwest also made some deliberate business moves, unsexy nuts-and-bolts decisions that had equally profound impacts. Almost from the beginning, it began buying and operating only one type of aircraft--Boeing 737s--a simple policy that resulted in immeasurable savings on parts, repairs and training. The airline also rejected the conventional hub-and-spoke approach to mapping routes, which requires planes to wait at a hub city for connecting flights to arrive. Other carriers use that system to help them fill seats, funneling passengers from diverse locales onto a single plane. Southwest saw that as an inefficient way to utilize equipment, which generates revenue only when it's in the air. Southwest instead adopted a point-to-point formula, selecting pairs of cities and saturating them with dozens of back-and-forth flights.
The convenience of that system, coupled with bargain-basement prices, put Southwest more directly in competition with the automobile than with any other airline. There are so many daily departures from, say, Los Angeles to Oakland--at least one an hour between 5:30 a.m. and 10 p.m.--that you can pretty much just show up at the airport without even knowing the schedule, plop down your $74 (no advance purchase or Saturday stay-overs required) and be on the next flight. Because seating is open, the stampede to the gate can be unseemly, giving rise to comparisons with a cattle car. It's also not the best situation for cross-country travel, unless you want to spend nine hours in the air, stopping several times and feeding only on peanuts. But then, Southwest long ago found its niche and stuck to it, never trying to compete with the Deltas or Uniteds in the first-class wide-body market.
"Southwest is very good at delivering exactly what they promise; they just don't promise a lot," says Dean Headley, a marketing professor at Wichita State University, whose annual Airline Quality Rating report for 1995 ranked Southwest as the nation's best overall carrier.
Without wavering from that no-frills formula, Southwest has grown into the country's fifth-largest airline, carrying some 45 million people a year on more than 2,100 daily flights. Although it's still tiny compared to the big-name carriers, Southwest has set the pace for an industry that's only now emerging from years of post-deregulation bitterness and bankruptcy. As the only major airline to make a profit between 1990 and 1992, Southwest was cited by a 1993 federal study as "the principal driving force" behind fundamental changes sweeping the business. Wherever it enters a market, fares plunge and traffic soars, earning South-west its distinction as the "Wal-Mart of the air."
That didn't matter as much a decade ago, when Southwest could be dismissed as a regional player. But in recent years, its tentacles have begun to reach nearly every corner of the country, winning the highest market share in 94 of the top 100 city-pairs that it serves. Because Southwest's low prices tend to expand the market, rather than steal from other carriers, communities across America are begging to be added to that list. A year after inaugurating service from Louisville to Chicago, for instance, the total number of travelers making that trip soared 154%. This year, Southwest expanded into Florida, adding 54 flights to Tampa, Orlando and Ft. Lauderdale. Its next big push is rumored to be in the Northeast--the last significant conquest on Southwest's battle map--with reports indicating that Connecticut, New Hampshire, Rhode Island and suburban New York were all being considered as possible sites.
"We don't do any long-range planning in the conventional sense," says Kel- leher, declining to discuss the specifics of any future moves. "Once you've defined your values . . . things flow pretty easily and pretty freely from that."
But the steady pace of expansion still poses daunting challenges for Southwest, which depends on exploiting secondary airports that are overpriced and underutilized. Until now, the company has avoided the Northeast, fearful that congestion and cold would hobble the quick turnarounds demanded by its hyperactive itinerary. (Service to Denver was actually discontinued a few years back because heavy snow created too many delays.) Southwest also is battling many imitators, from major-carrier clones like Shuttle by United in California to cheap knockoffs like ValuJet, a formidable opponent in Florida until one of its aging DC-9s plunged into the Everglades in May. In 1994, rapid growth and competition conspired to hand Southwest one of its worst financial quarters ever, cutting the value of its stock by more than half to a low of $15.50; it has since rebounded, now trading at about $30 a share.
These are the things industry analysts talk about when assessing Southwest's future. Southwest, though, is convinced that all the typical concerns of a corporation--capital, debt, assets, liquidity--can be ad- dressed without undue fuss. What will make or break this airline is something far less tangible, a question not often discussed in boardrooms, but which even the Southwest bean counters ask: How can we absorb 5,000 new employees a year without losing the essence of our culture? "We can go get the money," says Gary Kelly, the chief financial officer. "I'd be worried about getting the right kind of person if we moved too fast."
HEATHER, A BEAUTICIAN in a double-breasted navy blazer, told a story about slathering on too much hot wax while trimming a client's bikini line. "When I ripped off the fabric, her epidermis came with it," she said, though the damage was short-lived. "We gave her some ointment--and everything was fine."
John, a leasing agent with an athletic build and a slick red pompadour, recalled the time that he found himself making chit-chat with the matriarch at a traditional Italian wedding. As he struggled to strike a deferential pose, the other guests began crowding around, pointing and laughing. "The whole time," he later found out, "my tie was in my beer."
Finally, there was this gem from Patty, who discovered a novel technique for cutting the tension while out one night with a bickering couple. "I just started picking my nose," she said, adding that it quickly halted the argument.
Is this any way to get a job? Southwest thinks so, or else it wouldn't have asked these would-be flight attendants to stand up in a group and describe how they had used humor to their advantage. Although some responses were more embarrassing than funny, the exercise has become a trademark of Southwest's unorthodox hiring process --a tool for peeking into an applicant's psyche.
Southwest, after all, isn't just looking for workers. Any airline can find those. Only true believers can be entrusted with the spirit that has burned so brightly for 25 years. "I've always suspected they do DNA testing or something," says Volz, the former vice president who left Southwest in 1984. The competition is fierce. Southwest received 124,000 job applications last year, rejecting 96% of them. A fancy roum doesn't help, though some aspirants have pasted theirs on the label of a Wild Turkey bottle. Asked once whether he hires MBAs, Kelleher barked, "Not if I can help it." "Our culture," he said more recently, "comes from the heart, not from the head."
Southwest tells the story about a group of square-jawed pilots who showed up for their job interview in buttoned-down uniforms and spit-shined shoes. The recruiters friskily informed the aviators that there would be no appointment until they changed out of their uptight garb. T-shirts and shorts could be bought down the hall at the company store. It was no joke: Lose the suits or take off. Incredulous, a few of the pilots stormed out, but the others complied, enduring the entire interview with pale, bare legs exposed to the world.
Hoots of laughter invariably greet this parable: "We don't try to take ourselves too seriously," says Gary Kerans, president of the Southwest Airlines Pilots Assn. and a 17-year veteran of the company's cockpits. "If someone's not willing to let their hair down . . . they're probably not going to work out here." But the anecdote also reveals something about the subtle rule of conformity at Southwest that masquerades as playfulness. You're free to be yourself so long as you're wacky and terminally zealous. If you're not keeping the "LUV" alive, you're squelching it out. It may not be the most oppressive form of corporate control, but for a firm that snubs its nose at convention, Southwest talks a lot about finding workers who "fit the mold."
"It's a little bit like 'The Stepford Company,' " says Alison Barney, an L.A. financial consultant who vowed never to fly Southwest after a dispute over a missing ticket ended in a hostile exchange with several of the airline's employees. 'It almost seems as if they're given a script and they don't deviate."
When employees do stray, repercussions can be swift. Once, a secretarial temp on her first day of work made the mistake of jostling too aggressively for a parking spot in the crowded company lot. Witnesses wasted no time reporting her un-Southwesternly conduct. Before the temp could even get to her desk, she was sent home. "One of the neatest things that I think we have going for us is when somebody comes in as a new hire and they aren't real productive or they're just not, like, getting it . . . . the peer pressure is so heavy," says Barrett with maternal pride. "I've seen one worker take out another worker and say, 'Hey, Mack, you're not carrying your fair share of the load here, and if you don't want to be here, there's 100 other people that would love to have your job.' "
On the flip side, she's seen workers check out on their own, including a distraught executive who came to her only a few months after he'd been hired. "He said, 'I just made a big mistake, I just don't like this touchy-feely stuff and I feel like an absolute outcast,' " says Barrett. "It's almost like, if you don't fit into the mold, you know it yourself."
If that sort of uniformity gives you the willies, it's still a rather benevolent bargain by capitalistic standards. Consider the alternative: How many Americans grind away their lives in dead-end jobs without any guarantee that a pink slip won't beat them to retirement? "My last job--it was like going to do your prison term," says Rick McKinley, 37, a mechanic who had been working for a struggling airplane-maintenance firm before getting hired this year by Southwest. He not only gets job security now but a whole social network. His new company is home to 644 married couples. It offers bingo, chili cook-offs, softball teams and a charity golf tournament, as well as scholarships, discount travel packages and a "Hearts in Action" community service program. Employees celebrate every anniversary, holiday and milestone you can think of. And when misfortune befalls one of their own, the outpouring is spontaneous and immediate.
"I feel like I hit the lotto," McKinley says. He was sitting in a training room on the ground floor of company headquarters, one of about 50 recruits attending an orientation seminar dubbed, "You, Southwest & Success." For an entire day, they listened as their revved-up training instructor, Ted Johnson, preached. He told them that they were a chosen breed ("Nothing is sacred here at Southwest--except the people"); that they were on a mission ("There should be something burning inside you"); that the wages of sin were unemployment ("Folks, we're here today to learn about how to survive"), and that a link to posterity would be their reward ("When I'm dead and gone, I want this airline to be alive for my kids").
"Keepin' the spirit! Keepin' the spirit! Southwest spirit! Southwest spirit!" responded a hand-clapping, foot-stomping gospel choir in one of the motivational videos he later showed to the class, the chorus of voices soaring in harmonious ecstasy.