Longhorn Gary Kelly Is Remaking the Once-Tiny Southwest Airlines

“I don’t like to lose,” Gary Kelly says to a room full of Texas football players, who nod their heads in agreement. The 64-year-old chairman of the board and CEO of Southwest Airlines is visiting the Forty Acres to give a talk on communication to the team. His mild manner, loose-fitting khaki slacks, and navy blazer seem out of place in the sour-smelling team meeting room of Darrell K Royal-Texas Memorial Stadium, where nearly 100 players wearing flashy new sneakers are sprawled out across cushioned seats, teeming with off-season restlessness. But Kelly, a former football player himself, manages to command their attention. It’s March 28, 2019, and Kelly, BBA ’77, Life Member, Distinguished Alumnus, is remarkably present, given everything that must be rattling around his mind. There was an engine failure on a 2018 Southwest flight, where a passenger died after being partially sucked out of her window, which was shattered from the debris.* Nasty winter storms wreaked havoc on flight schedules. And on March 13, only one week after the airline began offering its very first flights to Hawaii, Southwest grounded all 34 of its Boeing 737 MAX 8 airplanes, after two deadly crashes on other airlines. By the end of the first quarter, Southwest had cancelled more than 10,000 flights. Operating costs were up 7 percent.

And yet the once-tiny Texas airline still saw record-breaking growth in the first four months of 2019, reporting a revenue of $5.1 billion—4.1 percent higher than the same period last year. “There are so many risks in business, but especially in the airline industry,” Kelly says when we sit down in a stadium conference room before his chat with the team. “It’s just like life. Nobody can guarantee happiness and there are going to be challenges, so we have to be as prepared as possible. I’m right maybe half the time, but that’s it.”Kelly tells me there’s a word he loves: resiliency. “All you can do is do your best,” he says, “and understand that sometimes bad things are going to happen and then we’re going to stick together as a family.”

In its 48-year history, the company has never laid off an employee. And while dozens of airlines have filed for bankruptcy over the past 20 years, Southwest has turned a profit since 1973, just two years after it first entered the skies as a low-fare, short-haul carrier between Dallas, Houston, and San Antonio.

When the Airline Deregulation Act of 1978 introduced a free market into the commercial aviation business by removing government control of fares, routes, and market entry of new airlines, Southwest seized an opportunity to expand outside Texas. The airline began moving so quickly and consistently into new cities, forcing competitors across the same market to drop fares, that the Department of Transportation coined the new phenomenon the “Southwest effect.”

Today, the quirky airline once known as the “state bird of Texas” has become the country’s largest carrier of domestic passengers. A fleet of over 750 Southwest planes, playfully painted with a red, yellow, and blue heart on their bellies, now land in over 100 destinations—including the Caribbean, Mexico, and Hawaii.

Kelly’s first-ever flight, he tells the football team, was on a Southwest plane from San Antonio to Houston, for a recruiting trip his senior year of high school. “Our purpose is connecting people to what’s important in their lives, and our people believe this,” he says. “It’s grandparents that are able to fly and go see grandchildren. Parents able to come to UT for parents’ weekend. We feel like we made flying affordable for this country.”

Even competitors admit that Southwest’s co-founder Herb Kelleher revolutionized air travel with his business acumen and larger-than-life personality. But it has been in the past 15 years, under Kelly’s leadership, that Southwest Airlines has grown from being a niche industry rebel to a dominant player.

 

The quarterback and captain of Winston Churchill High School’s football team in San Antonio, Kelly spent his freshman year of college playing football for UT El Paso, before transferring to Austin in the fall of 1974. In El Paso, Kelly, who originally wanted to be an oceanographer, realized it would be tricky to study marine science in the desert of West Texas. So he decided to study accounting for the same reason a lot of 18-year-olds choose their major: His dad was an accountant. But on the Forty Acres, Kelly was surprised to learn that accounting isn’t really about numbers—“More theory and understanding business and transactions, and then translating that into some kind of financial representation,” he told Barron’s in 2012—and, he really enjoyed it.

Kelly worked his way through school at CPA firms and doing taxes for a law firm. As a senior, he married his eighth-grade sweetheart, Carol, BS ’77, Life Member, and after graduation went to work as an accountant at Arthur Young & Co. He flew Southwest all over the state with clients. Offering both affordability and great customer service, Kelly says it was the go-to airline for Texas businessmen: “You wouldn’t think of flying anybody else in those days.” A deliberate speaker, even during casual conversations, Kelly pauses a beat. “I hope nobody thinks about flying anybody else these days either!”

After around seven years with Arthur Young, the former student-athlete was itching for a job that felt more collaborative, and left to work in software. He was working as a controller for Systems Center, Inc., when an opening for a controller position at Southwest piqued his interest. Kelly, 31 years old at the time, landed the gig before they even conducted a search. “I guess people saw leadership qualities in me,” he tells the Texas football team, almost sheepishly.

Before he reached 35, Kelly was promoted to CFO, and, just 12 years later, executive vice president. By the age of 49, in 2004, Kelly became the airline’s fifth CEO. In 2008, he replaced Kelleher as chairman of the board, and in the same year, became president of Southwest, a title he relinquished in 2017.

It’s the kind of sped-up trajectory that suggests tremendous ambition. And yet, Kelly never really projected himself into the role, even when as CFO there were early speculations about who would succeed the beloved Kelleher.

Why not? “Humility, I suppose,” Kelly says. “And, Herb is one of a kind. It’s hard to imagine that one can fill his shoes.”

***

Nan Barry started in Southwest’s tax department as an accountant. Around the time Kelly was transitioning into his role as CEO, Barry was rising steadily in company rank, working in leadership in the finance department under then-CFO Kelly. But she was unhappy. “I don’t know if it was stupidity or honesty,” she says, “but he asked me how things were going and I told him, ‘I don’t like the work.’ And this is one of the things I so respect about him. He didn’t panic. It was like ‘Hmm. Well, I might have another option for you.’”

Within the year, Kelly called her. “I think I’m ready,” he said. “Are you ready to take a leap of faith?” Since the day he stepped into his role as CEO, Barry (whose official title is managing director of the executive office) has served as Kelly’s chief of staff, at his side for a series of initiatives—including launching international service—that have transformed the company.

As time went by, and despite his initial hesitation, Kelly realized he was prepared for the role. “In hindsight I found that being CFO was a great training ground,” Kelly says, “because you have to know the company inside and out.”

In 2011, Kelly revamped Southwest’s Rapid Rewards program with the hopes of winning over more long-distance travelers. The old program was simple and geared, as Kelly puts it, toward the way they had previously trained their customers: Fly Southwest short distances and earn rewards to fly long.

“We had to change all of that,” he says, “and make the trip on Southwest on long distances just as rewarding.” It was the first of a series of major, often risky, decisions from Kelly. “If we were going to continue to grow and win more customers, we had to create more capabilities for ourselves,” he says. “The biggest thing that’s happened since I’ve been CEO is that we’ve pivoted away from being so dependent on just short-haul markets.”

And that happened, over the past decade, through the momentum of what Kelly called his “four big ideas:” revamping Rapid Rewards; increasing capacity by 25 percent with the purchase of its largest low-cost competitor, AirTran Airways; modernizing its fleet with larger Boeing jets; and, in 2017, overhauling its entire reservation system for the first time in 30 years.

That quiet but deliberate transformation is what set Kelly apart from his predecessor. A 2011 Chicago Tribune article calls the course Kelly plotted “a big departure for a scrappy carrier.” “Southwest Airlines CEO is defining himself as a leader,” reads the headline of a 2010 Dallas Morning News profile.

“There have been some very risky, very big bets that we made and they all worked beautifully together in a time when we really needed them to,” says Chris Mainz, a senior public relations manager who has been with Southwest for almost 20 years. “You transform from one successful business model to another without hitting rock bottom in between. [Kelly] had the vision, the foresight to push that through. I don’t know that he gets enough credit for that.”

Even as the company has grown from 25,000 to nearly 60,000 employees under Kelly’s tenure, Southwest has managed to keep its people happy—a feat companies consistently have a difficult time with, no matter how many nap pods, office kegs, and catered lunches they boast.

From the days of Kelleher, employees have been encouraged to be themselves, which may sound trite until you’ve heard one of their flight attendants go off-script.

“Well!” one dryly bellowed over the intercom after a recent Southwest flight I was on thudded to the ground during an especially foggy landing. “We’ve just dropped straight out of the sky into Baltimore, folks!” When you land with a jolt onto a rainy runway, after a journey that began at 5 a.m. standing barefoot in front of a TSA-agent barking at you to chug an entire water bottle, a bit of humor can go a long way. This is a fact not lost on the details-obsessed Kelly, who almost exclusively flies Southwest when he travels, and, like all Southwest employees, sits toward the back to give preference to customers.

“We’re asking our employees to be servants, to serve customers and to be hospitable,” Kelly says. “If they don’t feel like they’re treated the same way, there’s little chance that will translate.”

Former UT president and a past chancellor of the UT System, William Cunningham, has been on Southwest’s Board of Directors since 2000, and currently serves as its lead director. He first crossed paths with Kelly in 1976. The class was Marketing 337, and professor Cunningham had 400 students. “It was a large class,” Cunningham says with a smile. “I like to say that Gary sat at the front and got an A, and I’m sticking with that story.”

Cunningham, who still teaches corporate governance on the Forty Acres, says the freewheeling culture Southwest prides itself on has to start at the top. “In all fairness, Kelleher and [Southwest’s president emeritus] Colleen Barrett, understood that and they transferred that,” he says. “But the important thing is that Gary understood it, picked it up, and has pushed it.”

Kelly is a voracious reader—mostly biographies of leaders (especially his favorite, Winston Churchill)—and makes a point to interact with as many people as possible. “What all are you working on these days?” he’ll ask everyone he can think of, from other business executives to his neighbors and members of his Methodist church in Plano. “What’s new? What’s not working so well?”

“Those personal interactions,” Kelly says, “there’s real opportunity there. It’s amazing what you can learn.”

He brings that same perspective to the Southwest boardroom. When he sits down for a meeting, Kelly expects everyone to be prepared to speak up. “I’m not asking for perfect information,” he says. “We’re looking for ideas and we’re looking for perspectives. Even if I’ve essentially made up my own mind, I still want to go through that rigor.”

Before absorbing AirTran, Kelly spent five years bringing in major investment banking companies to speak to where the airline industry was headed before telling the board, “I think we need to look at AirTran.” And in 2007, when the company was looking for a way to introduce order to its boarding process, Kelly put together a taskforce of employees, who proposed lining up passengers according to lettered and numbered boarding positions. Kelly didn’t like it.

He had a hard time imagining that people would know where to go. And even if they did, it was totally self-policed. “It was just new for me and so I let them try it,” he says. “And to be honest with you, I couldn’t come up with anything better myself.”

What does he think of it now?

“I think it’s the best boarding method in the industry,” Kelly says. “You just have to admit: You all were right, I was wrong, let’s do it.”

***

The former accountant is a different brand of “people-person” from his outsized and extroverted predecessor, whose hearty laugh was so iconic, it’s now memorialized at Southwest headquarters with a button that employees can push to send it echoing down the halls. The unconventional and emotive Kelleher showed his employees that they mattered through his words, which were lengthy, effusive, and often hilarious. “He would tell all of us how much he loved us,” Kelly told Southwest Magazine. “Not Southwest, not the business. He said, ‘I love you.’ There’s nobody I ever worked with who talked that way.”

Kelly, on the other hand, connects through listening. His drive to make informed decisions also makes him an incessant information seeker. Kelly asks thoughtful, penetrating questions in a way that reveals both his deep curiosity and analytical nature. And while he’s a fierce competitor, he’s also an empath. “I like to see people succeed and grow and develop,” Kelly says. “A lot of organizations aren’t patient in that way … attention is spent on the very top performers and those in the middle of the performance pack get ignored. I like to see everybody have a chance.”

In 2008, as fuel prices soared, Kelly took a resolute stance to not charge bag fees, despite coming under intense criticism from Wall Street. “But our employees said yay,” Kelly says. “And that’s important.”

He asks me to imagine being the agent who has to tell the lower-income traveler who just spent plenty on a ticket that, surprise, they owe another $30 for their bag. “No employee wants to be in that position,” Kelly says. “They want to be proud of the product they’re offering.”

There was no way then to know whether charging for bags—or not—would generate more revenue. But he tried to think through the math regardless: One more loyal customer would equal about the same money for the airline as six bag fees. “I just thought we are much better off trying to keep you as our customer and not risk that,” Kelly says.

He was right. The decision not only gave Southwest, which markets itself as the transparent airline with no hidden fees, a major brand advantage against competitors; it’s a move, Kelly estimates, that was worth more than a billion dollars. In the middle of the recession, as the airline industry struggled, Southwest managed to increase its market share.

Despite his gut, team of experts, and the numbers all supporting Kelly’s bags-fly-free stance, he says it still felt like a huge risk: “You have to be humble enough to know that you just never know.”

***

If the past decade was about transformation, Kelly says the next 10 years are about stability through a focus on basics: reliability, hospitality, and safety. “A leader has to gauge: ‘How hard do you push?’ There’s a logical pace a company needs to go through,” he says. “You look at this year and just all the instability that the external environment has created for us. So at least we’re not piling on a lot of internal change while these things are happening.”

Right now, one of the company’s most difficult challenges is when the airline gets off track early in the day. Unlike many major airlines that operate based on a hub-and-spoke model—routing most connections through one central hub—Southwest operates based on a complex point-to-point model, which emphasizes flying directly from city to city. Like at the doctor’s office, delays compound throughout the day. If a plane doesn’t get to its first “point” on time, it can be really hard to catch it back up. “It just takes a lot of horsepower,” Kelly says.

Meanwhile, they’ll keep trying to make sure everyone’s having a good time doing something that isn’t always pleasant. This Memorial Day, it seemed Southwest got behind early. By midday, I had an alert that my evening flight from Los Angeles to Austin was delayed by nearly three hours. But when I arrived at the packed Southwest terminal at LAX, the mood was downright chipper. Down at Gate 18A/B, Southwest was hosting a Memorial Day luau.

American flags dangled off the gates, palm tree balloon arches swayed under the industrial-strength air conditioning, and a flight attendant led a hula hoop contest for a $25 Southwest voucher. “Now put your hands up,” she shouted to the dozen or so contestants. “Uh, OK, now dab!” she laughed. A jolly-looking pilot, sipping on a Chick-fil-A milkshake, wandered up and stopped to watch, before continuing on to offer each of the nearby gate attendants chocolate from a bag. The scene was, for an airport terminal on a holiday weekend, frankly idyllic. I can’t speak for the rest of my sold-out flight, but by the time I was buckled in—one beer and one luau later—and headed home (“as fast as we can get you there,” promised the flight attendant), the delay seemed much easier to forgive.

“That’s the point,” Kelly says. “We need to make a profit, but we truly believe that’s a byproduct of having a great working environment and offering great service to customers. You do those two things better than anybody else, everything will fall into place.

*Editor’s note: At least 10 passengers are currently suing Southwest and Boeing. After this story went to press, two more plaintiffs filed litigation.

Illustration by Edmon de Haro; photograph by Nick Pacione

 
 
 

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