Chairman, Southwest Airlines Company
Born: March 12, 1931, in Camden, New Jersey.
Education: Wesleyan University, BA, 1953; New York University, LLB, 1956.
Family: Son of Harry Kelleher (general manager at Campbell's Soup factory) and Ruth Moore; married Joan Negley, 1955; children: four.
Career: New Jersey Supreme Court, 1956–1959, clerk; Lum, Biunno and Tompkins, 1959–1961, associate; Matthews, Nowlin, Macfarlane & Barrett, 1961–1969, partner; Oppenheimer, Rosenberg, Kelleher & Wheatley, 1969–1981, senior partner; Air Southwest Company, 1966–1971, legal counsel; Southwest Airlines Company, 1971–1982, legal counsel; 1982–2001, chairman, CEO, and president; 2001–, chairman.
Awards: Distinguished Achievement Award, Wings Club, 1996; CEO of the Year, Chief Executive , 1999; CEO of the Century, Texas Monthly , 1999; Wright Brothers Memorial Trophy, Aero Club of Washington, 2000; CEO of the Year, Fortune , 2001; Bower Award for Business Leadership, Franklin Institute, 2003.
Address: Southwest Airlines Company, 2702 Love Field Drive, Dallas, Texas 75235; http://www.southwest.com.
■ Herbert David Kelleher led Southwest Airlines Company to over 30 consecutive years of profitability, first as the company's cofounder and legal counsel from 1966 to 1982, then as its president, CEO, and chairman from 1982 to 2001. During his tenure Herb Kelleher produced the highest return to shareholders of any company in the S&P 500. He was known for stringent cost cutting as much as for his friendly management style and love of parties and publicity stunts. By creating a fun and rewarding workplace, Kelleher was largely responsible for the company's myriad awards and regonitions; Fortune magazine named Southwest the Best Place to Work in America in 1998. In 2001, at the age of 70, Kelleher retired from his positions as president and CEO, remaining chairman of the board.
Herbert Kelleher was the youngest child in the close-knit family of Harry and Ruth Kelleher in Haddon Heights, New Jersey, near Camden. As a boy Kelleher worked after school and on summer breaks at the Campbell's Soup factory where his father was a general manager. During his six years there Kelleher served as soup chef, warehouse foreman, and part-time analyst. Kelleher's family splintered apart during World War II: Kelleher's brother Harry joined the Navy; his sister Ruth went to work in New York; his older brother, Richard, was killed in combat in 1942; and in 1943 his father also died.
As the last child at home, Kelleher formed a special bond with his mother, who became the biggest influence on his developing work ethic. The two sat in the kitchen until the wee hours of the morning discussing business, politics, and ethics. Ruth Kelleher was a working middle-class Irishwoman who instilled in her children the importance of treating people with respect. She taught them to be egalitarian and to judge on merit rather than appearance. Kelleher soon discovered how right she was, as he told Fortune magazine: "There was this very dignified gentleman in our neighborhood, the president of a local savings and loan, who used to stroll along in a very regal way up until he was indicted and convicted of embezzlement. My mother said that positions and titles signify absolutely nothing. They're just adornments; they don't represent the substance of anybody" (May 28, 2001).
Kelleher was a good student at Haddon Heights High School as well as president of the junior class, captain of the football team, and a letterman in basketball and track. In addition to becoming a branch manager for the Philadelphia Bulletin for a wage of $2.50 an hour, Kelleher mowed lawns for several neighbors.
Kelleher attended Wesleyan University in Middletown, Connecticut, where he was an Olin Scholar and graduated cum laude with a bachelor's degree in English and philosophy in 1953. At college he began dating the Texas native Joan Negley, whom he had met on a blind date. Kelleher originally intended to pursue a career in journalism, but a Wesleyan trustee took the young man under his wing and persuaded him to try a career in law.
Kelleher was accepted to New York University Law School, where he was a Root-Tilden Scholar. Hard-working and fun loving even as a young man, Kelleher earned a coveted spot on the university's law review while also enjoying the Green wich Village scene. He described these years to Fortune : "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" (May 2, 1994).
Kelleher married Joan Negley in 1955 and earned his law degree in 1956. The following year he was admitted to the New Jersey State Bar and worked two years in the prestigious position of law clerk for a New Jersey Supreme Court Justice. In 1959 he joined the Newark, New Jersey, firm of Lum, Biunno and Tompkins, where he practiced law for two years.
Through visits to the Negley family in Texas during this time, Kelleher and his wife became increasingly attracted to the lifestyle and opportunities available there. They decided to relocate to San Antonio, where Kelleher became a partner in the law firm of Matthews, Nowlin, Macfarlane & Barrett in 1961. Within a few years he became restless with his career and began seeking a new challenge. One evening, a discussion over drinks with a client, an air charter service owner, led to the opportunity for Kelleher to combine his practice of law with the adventure of starting a new business.
The Texas businessman Rollin King had hired Kelleher as outside counsel in 1966. One evening they were having drinks at the St. Anthony's Club in San Antonio, when King, who already owned a small charter airline, sketched out a plan on a cocktail napkin. At that time air travel was affordable primarily to high-powered businessmen and the wealthy. King and his banker, John Parker, wanted to start a low-cost commuter airline so that the average traveler could fly between Dallas, Houston, and San Antonio. At first skeptical Kelleher soon became enthusiastic and scraped together enough money to buy a 1.8 percent stake in the proposed company. He also signed on as legal counsel and a director. In 1967 the airline was incorporated as Air Southwest Company, later to be renamed Southwest Airlines Company.
In its early days the airline industry was highly regulated by the government. Large air carriers had virtual monopolies on their markets, and those in Texas had some of the highest prices in the industry. Southwest was hoping to slip in and offer low-cost point-to-point service while other airlines remained committed to the hub-and-spoke system, in which most travelers were routed through major airports and had to change planes in order to reach their final destinations. Someone traveling from Houston to El Paso might have been forced to fly a first leg from Houston to Dallas before taking a second flight to El Paso. In the point-to-point system, the flyer would travel directly, nonstop, from Houston to El Paso, saving both time and money. A few California airlines were experimenting with point-to-point routes, and King thought the system would work well in Texas.
Existing Texas airlines felt that the proposed carrier would infringe on their markets. Thus, as tiny Southwest made plans to fly, the large airlines Braniff, Texas International, and Continental made plans to keep it grounded. As legal counsel to Southwest, Kelleher fought over 30 separate injunctions and lawsuits filed by those airlines in attempts to break Southwest before it had even started. By 1969 the big airlines seemed to have won: Southwest ran out of money, and the board of directors wanted to shut the company down. Kelleher, however, convinced them to persevere.
At length Southwest Airlines won the legal battles; the company took to the skies on June 18, 1971. Headquartered out of Love Field in Dallas, Southwest initially had only four planes and fewer than 70 employees. As the company remained short of operating funds, executives soon had to decide between selling off one of the planes or laying off employees. They sold the plane and set a precedent: in over 30 years Southwest never had an involuntary furlough.
The next big battle came in 1979 when the powerful Texas Congressman Jim Wright sponsored a law that prohibited airlines flying out of Love Field from servicing any states other than those which bordered Texas—New Mexico, Oklahoma, Arkansas, and Louisiana. The so-called "Wright Amendment" was intended to make the new Dallas–Fort Worth International Airport (DFW) the region's long-haul hub as well as to restrict Southwest's growth. Instead of limiting Southwest, however, the new law turned out to be the company's big break. Love Field was a half hour closer to downtown Dallas than was DFW. Thus, businesspeople on quick trips to neighboring states preferred flying out of Love Field. Southwest carved out a niche, soon winning a solid reputation for its convenient, low-cost commuter service.
Kelleher was eventually asked to take on increasing responsibilities at Southwest; he became the company's chairman, CEO, and president in 1982, even though he had little executive experience. Kelleher told BusinessWeek Online how he had prepared for his new job: "I learned it by doing it. I was scared to death when I was summoned off the bench to run Southwest Airlines on a permanent basis. I stayed up all night familiarizing myself with its problems: The air-traffic controllers were on strike. We had six new airplanes coming in. An industry analyst downgraded the stock when I moved in because he said I was a lawyer—and lawyers couldn't run anything" (December 22, 2003).
Kelleher would prove any and all doubters wrong. While airlines like Braniff folded and the entire industry struggled, Southwest maintained steady growth. With Kelleher at the helm Southwest became the fourth-largest U.S. carrier in terms of originating customers boarded (63 million per year). It was the only U.S. airline to have over 30 consecutive profitable years—even after the September 11, 2001, terrorist attacks, which severely damaged the rest of the industry. In 2003 Southwest operated 2,800 flights a day to 60 airports in 30 states and employed 33,000 people. That year the company had annual revenues of $6 billion and net profits of $442 million.
Southwest remained profitable in large part because of Kelleher's legendary cost controls. Early on, the company cross-trained employees to perform many tasks. They were able to reduce aircraft turnaround time—the time needed to discharge passengers, clean the cabin, refuel, and take off with a new set of travelers—from 55 minutes to 15, with ramp agents, flight attendants, and even pilots pitching in where needed to get the aircraft ready. Rapid turnaround was crucial when Southwest had only three airplanes, but the company kept turnaround low even as the size of the fleet grew to 375. The Southwest pilot Roy Martin told the Wall Street Journal , "It all boils down to Herb's corporate philosophy. Those airplanes aren't making any money while they're sitting on the ground" (October 26, 1992).
The low-cost, no-frills strategy permeated every decision at the company. Southwest avoided large, congested airports in order to reduce flight delays. The company did not offer inflight meals or reserved seating, and it was the first to introduce ticketless travel. It purchased only Boeing 737 airplanes, so that maintenance would be simplified. Fortune magazine reported that Kelleher personally approved every expenditure over $1,000—"not because I don't trust our people, but because I know if they know I'm watching, they'll be just that much more careful" (May 2, 1994). Kelleher obsessively monitored key indicators like cost per available seat-mile to make sure that Southwest always operated below the industry average. In fact, under Kelleher Southwest's unit costs ran 30 percent below most of its competitors.
Like Kelleher, Southwest Airlines had a reputation for hard work and high spirits. The company was voted Fortune magazine's Best Place to Work in America in 1998 and was consistently ranked among the top 10 most-admired companies in the nation. Southwest's cross-utilization of workers was unique to the airline industry. Pilots helped clean up cabins, ramp workers sold tickets, and Kelleher himself spent time loading baggage, ticketing customers, and mixing drinks on board. Statistically, Southwest employees worked longer and harder than employees at any other airline.
Rather than complaining, Southwest employees appeared to love their jobs. Flight attendants sang instructions and pilots cracked jokes. Kelleher continually cultivated such a funloving attitude at the company. He arm wrestled the CEO of another airline for the rights to use a slogan and posed as Elvis for an advertising campaign—although, company legend notwithstanding, he denied ever dressing up as the Easter Bunny. Kelleher seemed to have boundless energy, sleeping only four to five hours a night and reading several books each week. He was a chain-smoker and loved Wild Turkey bourbon and parties. When he was made aware that a night shift could not attend company celebrations due to their schedules, he turned up at an airport at two o'clock in the morning to throw a special barbeque.
Kelleher told Investor's Business Daily that the Southwest spirit was "the core of our success. That's the most difficult thing for a competitor to imitate. They can buy all the physical things. The things you can't buy are dedication, devotion, loyalty—the feeling you are participating in a crusade" (April 15, 2003). Stories abounded of Southwest employees going the extra mile: an employee stopped to help a stranded traveler change his tire, flight attendants visited passengers in the hospital, and a reservation agent drove an 85-year-old woman from DFW to Love Field so that she could make her connection.
Kelleher said the company hired for attitude, enthusiasm, and sense of humor. Many applicants were made to take personality tests. The vice president of People—which was Southwest's equivalent to a Human Resources department—once came to Kelleher embarrassed that she had interviewed 34 candidates for a ramp-agent position in Amarillo, Texas. Kelleher told her to interview 134 people if that was what it took to find the person with the right attitude for the job.
The airline was among the most generous in terms of compensation and benefits. In 1974 Southwest became the first airline to offer a profit-sharing plan; employees owned 13 percent of the company's common stock. Though it was the most heavily unionized carrier—85 percent of employees belonged to unions—management had an unusually cordial relationship with labor. The union leader Tom Burnett told the Wall Street Journal , "Lemme put it this way: how many CEOs do you know who come in to the cleaners' break room at 3 a.m. on a Sunday passing out doughnuts or putting on a pair of coveralls to clean a plane?" (October 26, 1992).
The company's low costs and high spirits were related. To charge lower fares, both low costs and high employee productivity were needed. When asked who came first—customers, shareholders, or employees—Kelleher explained to BusinessWeek Online , "Employees come first; and if employees are treated right, they treat the outside world right, the outside world uses the company's product again, and that makes the shareholders happy" (December 22, 2003).
Kelleher's strategy consistently worked. In an industry plagued by fare wars, recessions, oil crises, and disasters, Southwest did not have an annual loss from the time it first turned a profit in 1973 up through the early 2000s. Southwest won the industry's monthly "Triple Crown" award, for best on-time record, best baggage handling, and fewest customer complaints, more than 30 times between 1988 and 2004, as well as five consecutive annual Triple Crowns between 1992 and 1996. No other airline even came close.
Kelleher himself garnered numerous awards for his work at Southwest, including CEO of the Year from both Chief Executive magazine in 1999 and Fortune magazine in 2001. He was proclaimed the CEO of the Decade in the Airline Industry for the 1990s by Financial World , and Texas Monthly selected him as its CEO of the Century.
Kelleher successfully battled prostate cancer in 2000. Calling his condition "a temporary setback," he continued to work and smoke while receiving daily radiation treatments—"I don't smoke with my prostate," he quipped in BusinessWeek (January 8, 2001).
However, in 2001 Kelleher finally began to think about stepping back from day-to-day management of the company. He told Fortune , "For me, the cancer was never an issue. It was just something I had to get through, and I tried to keep my sense of humor about it. But I had an agreement with the board that when I got to be 70, we ought to do something about succession" (May 28, 2001). On June 19, 2001, Kelleher retired as president and CEO of Southwest Airlines, remaining chairman of the board. He continued to lead the company's lobbying efforts in Washington, D.C., and maintained control of schedule planning and aircraft acquisitions.
Kelleher was most concerned about finding a successor who would be respectful of Southwest's culture; thus, he turned to two old friends: James Parker, the company's longtime general counsel, was chosen to succeed Kelleher as CEO, and Colleen Barrett became president. Barrett began working for Kelleher in 1967 as his legal secretary and gradually moved up through the ranks, serving on the management team for several years before being appointed president.
Never one to sit quietly on the porch swing, Kelleher spoke to Fortune about his next project: "When I start to have more time, I have thought that I might write a few things. I might write about science. I might write about astronomy. I might write about Southwest: It would be a fascinating story; I wouldn't change a thing" (May 28, 2001).
See also entry on Southwest Airlines Co. in International Directory of Company Histories .
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