Southwest CEO to Step Down; Successor Named

Herb Kelleher, the Southwest Airlines Co. co-founder who painted jetliners to look like killer whales and arm-wrestled a rival to settle a business dispute, will step down as the carrier’s chief executive in June, the company said Monday.

James Parker, the airline’s general counsel, will replace the chain-smoking, whiskey-drinking Kelleher. Colleen Barrett, a longtime Southwest executive with an industry reputation as a customer service guru, will become president and chief operating officer.

Once Kelleher’s legal secretary, Barrett, 56, will be the only female president of a major U.S. airline.

Analysts said the announcement was important because it settled a lingering succession issue for Dallas-based Southwest, generally regarded as the nation’s most successful airline. Kelleher, 70, was diagnosed with prostate cancer in 1999 and underwent eight weeks of radiation treatment.

Although he has since declared himself fit, Wall Street became nervous with how closely the future of Southwest was linked with the charismatic but aging leader.

“Succession planning has been a major priority at Southwest for quite some time,” Kelleher said Monday.

Parker, 54, said customers and employees won’t see any dramatic change at the airline. One of the reasons Kelleher said he felt comfortable giving up day-to-day control at the carrier he spent much of his life building was because Parker had a good understanding of Southwest’s culture and market niche.

Parker, who joined Southwest in 1986, also takes on the title of vice chairman, leaving him in position to succeed Kelleher, who will remain chairman under a three-year contract that runs through 2003.

Parker and Barrett, however, will face an early test of their management skills in diffusing a rare labor dispute at the airline.

Members of its Transport Workers Local 555, representing 5,300 workers in ground jobs, voted down a tentative contract agreement by 2 to 1 in December.

Parker said the company will get back to negotiations after a union election scheduled for this month.

Historically, Southwest has maintained good relations with the 85% of its work force that belongs to unions, even as labor struggles have crippled other airlines. Southwest has had one strike, which lasted for only eight hours.

Though investors have sought a succession plan, the announcement of the management change had little effect on the company’s shares, which fell 54 cents to close at $17.35 on the New York Stock Exchange.

“There’s no way to replace a person like Herb; he is the soul of the company,” said Glenn Engel, an analyst with Goldman, Sachs & Co. in New York. “But this does put a team in place.”

Indeed, Kelleher acknowledged that the management change was far from a retirement, saying he would cut back his work to 50 hours from 70 hours.

“Kelleher has spent less time on the day-to-day operations of the company for a while. What he has done here is taken his two most trusted colleagues and elevated them to jobs they were already mostly doing,” Engel said.

Certainly the maverick Kelleher has left his mark on the company and its corporate culture. Known for his buoyant personality, Kelleher has dressed up as Elvis Presley at company functions. He arm-wrestled the chairman of Stevens Aviation for the right to the “Just Plane Smart” slogan. He had a jetliner painted in the black and white color pattern of a killer whale when the carrier signed a sponsorship deal with Sea World.

His jocularity and hands-on management have helped maintain high employee morale in an industry that is continually beset by nasty labor disputes. The company touts that having a sense of humor is a prerequisite for employment.

Passengers first flew on Southwest Airlines 30 years ago, on June 18, 1971. Kelleher will stay on as chief executive until June 19 to commemorate that event.

But the airline’s birth was four years earlier, when Texas businessman Rollin King and Kelleher, a transplanted New Jersey attorney, sketched together a route structure on a cocktail napkin.

They wanted to create a low-cost airline for Texas that would connect Dallas, Houston and San Antonio. Their efforts quickly faced legal challenges from two established airlines, Braniff and Texas International.

But Kelleher was up to the challenge, convincing the Texas Supreme Court to allow Southwest to move ahead. Braniff and Texas International eventually went out of business, unable to compete in a deregulated market.

Southwest quickly grew and today offers more than 2,700 daily flights across a network of 57 cities in 29 states. It is the fourth-largest carrier of domestic air passengers.

Southwest has a stock market value of $13.1 billion, about the same as the corporate parents of American, Delta, Northwest and United airlines combined.

Kelleher jumped into the daily operations when Southwest President Lamar Muse--later involved with the defunct Muse Air--resigned in 1978 following a dispute with King. Kelleher took over as chairman and interim president. He became chief executive in 1981.

Under Kelleher’s guidance, Southwest carefully stuck to its original plan of flying short-haul routes, often of about one hour in duration. The airline has kept to only one type of aircraft, the Boeing 737, to reduce maintenance and crew training expenses, though it has aggressively purchased updated models to keep its fleet of 348 jets from aging.

Southwest also has deftly exploited underused and smaller airports, pitching convenience, timeliness and frequency of schedule as advantages over airlines that concentrate in the nation’s busiest airports.

Its low operating costs and careful expansion have allowed Southwest to post 28 consecutive years of profit in an industry notorious for large cyclical swings. The carrier’s earnings last year rose 31.8% to $625.2 million. Revenue rose 19.3% to $5.6 billion.