Kelleher, Herb

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Kelleher, Herb

(1931-)
Southwest Airlines Company

Overview

Herb Kelleher, resorting at times to somewhat unorthodox techniques, has led Southwest Airline Company to nearly three straight decades of profits in a financial climate that has brought many other, larger passenger air carriers to their knees. Capitalizing on its low–cost, no–frills approach to air travel, Southwest has grown from a short–haul carrier serving cities in Texas to a robust multi–regional airline serving about 60 cities in 29 states. Kelleher prides himself on creating a unique corporate culture at Southwest that allows for extensive employee participation in corporate decision–making. One measure of Kelleher's success is the fact that Southwest experienced only one strike in the first 30 years of its existence. In mid–2001, Kelleher stepped down as Southwest's CEO but retained his position as chairman.

Personal Life

Kelleher lives in San Antonio, Texas, with his wife, Joan. The couple, who married on September 9, 1955, have four children, Julie, Michael, Ruth, and David, as well as two grandchildren.

The fourth child of Harry and Ruth Moore Kelleher, he was born in Camden, New Jersey, on March 12, 1931. He grew up in a close family and as a boy worked after school in a Campbell's Soup Company factory, where his father was employed as a general manager. Kelleher's father died when Herb was only 12, and shortly thereafter an older brother was killed in combat in World War II. The loss of father and brother in such quick succession brought young Kelleher closer to his mother. In an interview with People, Kelleher recalled that he and his mother "became very close. We'd sit up until 4:00 A.M. talking about business, politics, everything."

During his high school years in Camden, Kelleher excelled at sports and served as president of the student body. After graduating from high school, he attended Wesleyan University in Middletown, Connecticut, where he majored at first in English literature, planning eventually to get into journalism. He later switched to pre–law, graduating cum laude in 1953. He pursued his law studies at New York University and sampled the high life in New York City's Greenwich Village, where he maintained a small apartment. Of his law school years, he later told Fortune magazine: "I had a little apartment on Washington Square, and you could just open your door and entertaining people would walk in and you'd have an instant party." In 1955 Kelleher married Joan Negley, whom he had met while attending Wesleyan.

After his 1956 graduation from NYU's Law School, Kelleher went to work as a clerk for a New Jersey Supreme Court justice. In 1957 he was admitted to the New Jersey State Bar, and two years later, he left his job as clerk to practice law with the Newark, New Jersey, firm of Lum, Biunno & Tompkins, where he remained for the next two years. Kelleher's wife was originally from Texas, and he found himself increasingly attracted to the Lone Star State when he and his wife visited her parents there. Finally, in 1961, Kelleher pulled up stakes and headed south to Texas, where he joined the San Antonio law firm of Matthews, Nowlin, Macfarlane & Barrett as a partner. Although he was happy to be living in Texas, Kelleher found law practice less fulfilling than he'd hoped. Of his early years in San Antonio, he later told People: "Every day I went to work, I felt my shoulders droop a little more."

Career Details

Things began looking up for Kelleher after a client, banker Rollin King, came to him with an idea for launching a short–haul airline, serving cities in Texas and operating out of Love Field in Dallas. King's plan, sketched out on a cocktail napkin as attorney and client threw back a few bourbons, called for establishing frequent, low–cost air service, linking the Texas cities of Dallas, Houston, and San Antonio. King's proposal so excited Kelleher that he scraped together enough of his own money to buy 1.8 percent of the proposed airline and signed on as a legal consultant for the project. In March of 1967, Kelleher incorporated Air Southwest Company, the name that was later changed to Southwest Airlines Company.

As good as the idea sounded to Kelleher, he found that getting the project off the ground was to be a real challenge. Other regional airlines serving cities that Southwest hoped to serve pulled out all the stops in an effort to block the airline's launch. They repeatedly hauled the company into court to argue that the market was already adequately served and could not absorb yet another carrier on these intrastate routes. And the obstacles didn't disappear when Southwest finally did begin flying in 1971, as it faced restrictions that limited how far Southwest's jets could fly.

Interviewed in 1998 by Your Company, Kelleher was asked how he had become convinced that a short–haul intrastate airline was a viable proposition. "I admit I was skeptical at first, so I did some research," Kelleher recalled. "I went to California and visited the operations of Pacific Southwest Airlines and Air California. Both were young intrastate carriers. After some due diligence, I concluded that an airline based on their model could be successful in Texas. After all, consumers began flocking to the California intrastate carriers almost immediately, because they loved the convenience of short–haul flights."

In the late 1970s, Southwest's competitors mounted one challenge to the new carrier that ended up backfiring. The Wright Amendment, named after Texas Congressman Jim Wright, blocked airlines flying out of Dallas's Love Field from serving states other than the four that bordered Texas unless they first touched down at an airport within the neighboring states. Far from clipping Southwest's wings, it fit precisely with the company's short–haul strategy, paving the way for decades of robust growth. Starting in 1973, Southwest has posted profits every year, a record envied by the airline's competitors.

As successful as it has been, Kelleher's management style is nothing if not unorthodox. Southwest's long–time chairman and CEO often rode to work on his Harley and once settled a legal suit with an arm–wrestling match. And for special occasions, Kelleher was known to dress up as Elvis Presley or the Easter Bunny, just to keep his employees smiling. And smile they did, as Southwest built for itself a reputation as the nation's most profitable airline, posting 2000 sales of nearly $5.7 billion and a profit of $603 million, up more than 27 percent from the previous year.

Chronology: Herb Kelleher

1931: Born.

1953: Graduated with B.A. from Wesleyan University.

1955: Married Joan Negley.

1956: Graduated with law degree from New York University.

1966: Joined fledgling Southwest Airlines Co. as a legal consultant.

1971: Southwest Airlines began commercial flights.

1978: Named President of Southwest Airlines.

1979: Congress passed Wright Amendment, intended to clip Southwest's wings.

1982: Named CEO of the year by Financial World magazine.

2001: Stepped down as CEO but retained chairmanship.

Asked by Your Company about his personal management policy, Kelleher said, "Being an underdog is a lonely undertaking that takes a lot of sweat equity, but a leader's fighting spirit infects an entire organization and drives everyone to succeed." As to what it takes to be a good leader, Kelleher observed: "You have to be a good follower to begin with, because you have to show that your real focus is on the well–being of your people and the organization as a whole. Above all, employees come first. That means you have to be willing to have your people tell you you're full of crap or your idea stinks and accept that for the betterment of everyone. You also have to have a clear set of values that you implant in the company. It's up to the CEO to set an inspirational example of how workers should behave."

In 2001, 30 years after Southwest first took to the skies, the company announced some major organizational changes. Effective June 19, 2001, Kelleher handed over his responsibilities as CEO to James Parker but retained his position as chairman. Colleen Barret, a long–time member of Southwest's executive management team, took over as president and chief operating officer. Shortly before stepping down as CEO, Kelleher was interviewed by Mark Haines of CNBC's Squawk Box. He outlined his hopes for Southwest's long–term future, saying, "With Southwest Airlines' low cost and very strong balance sheet we're going to be able to continue to expand and to do so for years to come." Also interviewed by Haines was Parker, who said, "There is not going to be any change of course or change in direction in Southwest Airlines. Herb, Colleen, and I have worked together for 22 years, and we have a very experienced and mature management team at Southwest that has worked together for a long time, and we have a very common understanding of what the Southwest Airlines business model is."

Asked by Your Company which one of his offbeat antics was his personal favorite, Kelleher didn't miss a beat, answering: "A spoof of litigation: The arm–wrestling match I had with Kurt Herwald, the chairman of Stevens Aviation, to decide the rights to an advertising slogan. Stevens, an aviation sales and maintenance company in Greenville, South Carolina, had been using 'Plane Smart' as its slogan at least a year before Southwest unknowingly began running its 'Just Plane Smart' campaign. Rather than pay a team of lawyers, Herwald and I decided to wrestle it out at the Sportatorium in Dallas. It was a hoot. The whole world focused on it. BBC called to interview me in London. I told them I was too busy training. In the end I got trounced."

Social and Economic Impact

In an economic arena that has seen far more failure than success, Herb Kelleher has piloted Southwest Airlines to nearly three straight decades of profitability. This is an achievement of which any corporate executive could be proud, but it is doubly impressive because it was achieved in the volatile airline sector, an area of the economy where profits have been especially scarce.

To accomplish this feat, Kelleher developed a staff totally dedicated to the company's success and took drastic measures to keep costs down. Fortune magazine reported: "Kelleher personally approves every expenditure over $1,000—'not because I don't trust our people but because I know that if they know I'm watching, they'll be just that much more careful'—and he constantly monitors the key industry standard, cost per available seat mile, to make sure he stays a penny or two below the pack." Part of the air carrier's success was credited by Time magazine to "Southwest's labor–union contracts, which permit an easy, largely voluntary cross–utilization of workers. Thus pilots and flight attendants occasionally help clean up planes, ramp workers sell tickets, and counter agents unload bags. Flight crews are paid by the trip rather than the hour."

Another important element in Kelleher's strategy for success has been turning Southwest's planes around quickly. Schedules often call for a complete turnaround in 15 minutes from the time an incoming plane arrives at an airport gate until it pulls back with a new set of passengers for an outbound flight.

Kelleher's brilliance as a manager has been widely recognized. In 1992 he was named CEO of the Year by Financial World, only to receive a similar award two years later from Fortune magazine. In 1996 he received the Outstanding Business Leaders Award from Northwood University, and in 1997 University of Michigan's Business School honored him with its Business Leadership Award.