I only met Herb Kelleher once but he gave me advice that I’ve never forgotten: worth its weight in frequent flyer perks and then some.
Kelleher, co-founder of Southwest Airlines and its long time CEO, passed away on Jan. 3. While Southwest dominates as an airline industry staple, it’s worth taking a step back to remember just how innovative and disruptive it was at the time.
Kelleher and co-founder Rollin King famously sketched the business plan outline on a napkin (just as Groupon founder Andrew Mason did decades later).
Texas was a big state but the cost of inter-city air travel on major carriers was, they believed, excessively expensive. Their vision: a low-cost shuttle service between the major Texas cities that catered to business travelers … to make air travel as cheap as driving.
If we want to use a current financial services analogy, they identified friction in the system: a place where pent up demand searched for an innovative solution.
Not everything went well in the beginning. The established carriers (remember Braniff?) did not take this new entrant lightly. They tied up Southwest in litigation for two years—forcing it to burn through cash—and then matched their fares in an effort to drive it out of business.
Of course, it didn’t work. Braniff, PanAm, TWA and many legacy carriers are gone. And the surviving ones had, at one point, to declare bankruptcy, restructure and/or merge to survive. Southwest turned the corner to profitability only two years after it started operating.
Southwest has never had a loss.
The legacy carriers thought the crux of the matter was merely about price. When they dramatically lowered their fares to match Southwest, they reduced revenue but still had the same cost structure.
Meanwhile, Southwest established a different business model. Kelleher knew the key to success was to keep planes in the air, not on the ground. He and the Southwest team established 15-minute turnaround times: less time on the ground, more time carrying paying customers. And that meant running things differently, with what might be called universal staff, or at least multifunctional staff, despite working a highly unionized industry.
Cabin attendants prepped the planes as passengers left, which eliminated the time and cost of separate cleaning crews. Gate staff helped load luggage, reducing time on the ground.
It was all about thinking differently. They kept expenses down by using secondary airports, the same model planes (less training, standardized maintenance support) and fewer in-flight amenities. Use staff more efficiency to improve revenue. And stay true to the business model.
Kelleher also knew that “people made the difference”—an oft-quoted aphorism but at Southwest they lived it. It was their brand, after all. The airline famously sold one of its four planes in their early years when they needed the cash, rather than lay off people. He made it up by turning around planes in 10 minutes instead of 15 so they could maintain their schedule.
They hired staff, even support staff and pilots, that could fit their quirky culture. At least if you had to endure an early morning crowded business flight, you could laugh about the flight attendants who gave you a rap version of that boring safety announcement.
And he stayed close to the front line.
Even as the airline grew and matured, Kelleher helped load baggage on the busiest travel days. He periodically worked flights, giving announcements, handing out peanuts, talking to customers.
What was the advice Herb Kelleher gave me about banking?
Learning from Kelleher
I was running retail banking for BankOne (now owned by and operated as JPMorgan Chase) in Dallas. One of the banks we acquired had been Southwest’s lender when it first started. So we got invited to an event for the original employees—those that joined the company in its first year.
It was a celebratory and sometimes raucous affair. Kelleher seemed to know everyone in the room personally and told stories about them. And they reciprocated with sometimes cringe-worthy tales about the trials and tribulations of a startup airline.
Herb stopped by our table and we struck up a conversation. He was well known then and frequently spoke to industry groups. I naively suggested it would be great if he told the Southwest story to our management team.
He surprised me. “Appreciate the invitation but I don’t speak to banking groups anymore.” Why?
“I did it a few times, but always discovered that on the way to their executive floor I’d stop and talk to the tellers and the other staff. And by the time I got to the boardroom I’d know more about what was going on than they did.” An overstatement, but it had a ring of truth.
We can’t all possess the outsize personality of a Herb Kelleher but we can learn from his example:
- When did you last spend time in your branches, not just breezing through the main office on the way to the executive floor? Better yet, have you ever spent a few hours as a teller or a customer service representative, doing their work and seeing what really occurs on the front lines?
- When was the last time you answered phones in your call center? Spend a few hours there as a new trainee and you’ll really understand why customers call and what it takes to deliver the quality service you promise.
- Have you taken over the relationship management for some of your larger deposit or loan customers? I don’t mean just making some periodic customer calls. If you are the “relationship bank,” do you take a personal role in actually managing some of your more important relationships?
Putting it all together: Personify ‘the people business’
We are after all in “the people business,” serving the people who are our customers. The people who serve our customers. The people who serve the people serving our customers.
Herb Kelleher taught me that if your business depends on efficient baggage handling to load planes quickly and turn them around, then every once in a while you have to stand in the baggage handlers’ shoes. And if our business depends on how we interact with customers, then every once in a while we have to do exactly what we expect our staff to do.
And finally, we must continually innovate and improve. That’s the way Southwest survived the deregulation of the airline industry and the explosion of more competition. As Kelleher advised, the best way to survive is to “keep moving, and stay strong.” No visionary bank executive could come up with a finer high-flying rallying cry.
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David Kerstein is president of Austin, Tex.-based Peak Performance Consulting Group. He can be reached at: firstname.lastname@example.org.