The airline business has never been an easy one in which to make a profit as the companies routinely cope with roller-coaster fuel costs, fare wars and heavy government regulation, a tumultuous environment that tends to drive companies into bankruptcy or merger. One outstanding exception, however, has been Dallas-based Southwest Airlines, which has managed to stay consistently profitable for the last 38 years.
Howard Putnam, Southwest’s CEO from 1978-1981, was one of the leaders who made Southwest into the airline powerhouse it is today. He will be speaking at the upcoming BAI Retail Delivery event on October 12 on the business strategies that made Southwest so successful. We caught up with him recently to ask him how these strategies and principles can be applied to banking.
Putnam’s answer: Know what business you’re really in and play your own game, build a high-morale corporate culture that embraces customer service, don’t nickel-and-dime your customers with annoying fees and keep it simple.
Q: Southwest has managed to flourish in an industry characterized by a lot of negative trends – roller coaster fuel costs, overcapacity, margin-killing competition, etc. The banking industry right now is likewise coping with a plethora of negative trends, such as low margins, heightened regulation and a sluggish economy. What lessons can bankers learn from Southwest’s ability to rise above its industry?
Putnam: I would liken Southwest in its early days to a community bank or to a credit union in that it had strong local roots. The support Southwest received from Texas was important in getting them through turbulent times.
The original idea for Southwest came from a man named Rollin King, who thought it was time to start a commuter airline in the state of Texas. That was back in 1966. He asked his attorney, Herb Kelleher, for help and it took nearly five years to get the airline in the air due to a lot of litigation over airports. This gave Southwest a tremendous leg up because people in Texas rooted for the underdog and it finally took to the air on June 18, 1971. I came in seven years later as the second CEO.
At that time, Southwest still had only 12 planes, 1,000 employees and flew only in Texas. Deregulation of the airlines was about to occur and the company was at a kind of crossroads, similar to where community banks and credit unions are today. I was then group vice president of marketing at United Airlines. When Kelleher, the chairman, interviewed me, I told him that the two of us should simply agree by handshake that, while other companies are simply going to play the game, we’re going to continue down the path that Southwest had started of changing the way the game was played. Herb agreed and I left United.
My advice to banks and credit unions is to do what I did when joining Southwest: sit down and reassess your business plan. Now is the time to do it. Southwest then had only seven officers, plus Kelleher. I took them offsite for a day and a half and said, “We’re not leaving this room until we can write on the wall in 100 words or less what we are going to be when we grow up. What are we going to do when airline deregulation hits? What are we going to do if the economy should go in either direction? What are we going to do if interest rates or crude oil prices shoot up?”
So, a day and a half later, it came to all of us, that we had to figure out what business we were really in, and I think that’s apropos for the financial industry right now. We figured out that we weren’t an airline; we were in mass transportation, which required a totally different strategy. We were going to compete with the automobile and the bus. We were going to make the market bigger, to make the pie bigger by getting more people flying, not trying to spend all of our marketing money stealing customers from American or United. They were in a different business.
The final piece we figured out had to do with culture, which Southwest had already started by accident. At that time, they only had female flight attendants, who wore uniforms kind of like the Dallas Cowboys cheerleaders. Those uniforms were important because these young ladies had all been cheerleaders or baton twirlers – they saw themselves as in show business. When they came to apply for a job at Southwest, they knew they were going to look good in that uniform.
So, we came up with a personality profile and a slogan that Southwest still uses today: “We Hire Attitudes and Develop Skills.” Too much focus in hiring is put on resumes and degrees. We quickly figured out that, if our brand was strong enough, we could attract the right kind of people with the same attributes: very optimistic, great attitudes, decisive decision makers. They didn’t like to be micro-managed. They loved people, loved customers and liked to have fun.
We put those attributes into a personality profile and Southwest still uses it today, thirty years later, to hire people across the board – flight attendants and management. Southwest now has 35,000 plus employees, 540 airplanes and carries more passengers than any other airline in the United States because they stuck to that vision that we wrote thirty years ago.
So, my advice to bankers is re-assess where you are. It seems to me that small businesses are the heart of America and community banks and credit unions are really the heart of the financial industry. My family has accounts with six banks and credit unions, large and small. Each one needs to clarify: what business are we really in and what is our niche?
Q: One thing Southwest seems to have done well is meet the expectations of its customers. How did you achieve that? Did you do a lot of customer research, as banks do today?
Putnam: I would like to say that we did but in those days, a lot of the technology was not available. We did a lot of in-flight surveys, a concept that I had learned at United. When people are sitting on airplanes and have nothing to do, they’ll tell you more than you ever wanted to know about themselves and their travel habits. So you can collect a tremendous amount of data for free whereas, if you try to get them at their homes or get them on the telephone, they won’t give you the time of day.
What we found out was that customers love the simplicity of Southwest and the low fares. We were actually competing with the cost to drive from Dallas to Tulsa or Dallas to Oklahoma City. We learned that people didn’t miss those seat assignments as long as they could get on and off the plane quickly. Our productivity was very high, which lowered our costs and therefore our fares. We trained our customer to understand our value proposition. While you’re not going to get a seat assignment, if you get there early, we’ll put you in that first little group and you can run down the jet way and find the seat of your choice.
The other research we did had to do with highways: if you could find two cities that had a freeway between them, like Dallas and Houston, there was likely a commerce interest in both directions. So, we did some car counts and got some statistics from the state highway commission on how many cars travel between this point and that point. We learned through experimentation that if you put in, say, seven round trips a day between two cities of a certain population, you could compete with the automobile. So between the in-flight research and looking at the freeways and the commerce, that was pretty much our great research project.
Another important point is that Southwest keeps everything very simple. There’s only one class of service, there’s only one kind of airplane, the Boeing 737. All of the ticket counters and check-in areas look the same. There’s no charge for baggage or meals, or anything else. “Your bags fly free,” as Southwest says. And they just hammer this message into the public: simplicity, value and great people.
Banks should stop nickel-and-diming customers on ATM fees, bounced checks and so forth and keep it simple. Also, broaden your market, for example, to all the people that don’t have bank accounts and operate mainly in cash. Bankers still have an opportunity to expand the market, rather than trying to take away market share from somebody else, which is a more expensive strategy.
Mr. Cline is managing editor of BAI Banking Strategies. He can be reached at [email protected].
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