CHICAGO -- Free whiskey, loopholes in regulatory "schemes" and a little luck helped shape Southwest Airlines into one of the nation's dominant, and perhaps most profitable, fliers in the nation. But mostly, Southwest's incredible success has been driven by "an unbreakable bond" between employees and customers. That's what former Southwest CEO Jim Parker told attendees of the 2008 NACS Show's opening general session in Chicago on Sunday.
"A low cost structure is very important, probably essential," he said, "but by itself a low cost structure is not enough. We knew from [image-nocss] the very beginning it would have been very easy to have a low cost structure and lousy service," or vice versa.
In the early 1970s, just a few years after the company's inception in 1968, Southwest was on the verge of turning a profit. Competitors did everything they could to keep that from happening. One competitorthe now-defunct Branifftried to drive a stake through Southwest's heart by promoting flights between Dallas and Houston at a lowball price of $13, half of what Southwest charged.
Southwest, which at the time flew only in the "Texas triangle" of Dallas, Houston and San Antonio, had to make a decision: keep flights priced at $26 or drop them to $13. Company executives realized that slashing prices would have sapped the company of much-needed profit, while keeping prices at $26 would have driven customers into the arms of Braniff.
It found a different solution and proclaimed it boldly in a two-page advertisement in Texas newspapers. In the ad, Southwest explained that nobody would "shoot Southwest Airlines out of the sky for a lousy $13," said Parker, and told customers that if they thought $13 was a fair price, they could pay that; however, if they thought $26 was the right amount, they would receive, when they got off the airplane, a free bottle of whiskey.
"For a time Southwest was the leading distributor of whiskey in the state of Texas," said Parker, who served as Southwest's CEO from 2001 to 2004 and currently sits on the board of casual-dining chain Texas Roadhouse. Brainiff's promotion "badly backfired" and Southwest would up turning a "massive profit," according to Parker. The year was 1973.
"Every year since," he said, "Southwest Airlines has been profitable and has voluntarily shared profits with employees through a company profit-sharing plan."
Parker explained that Southwest probably should not have survived its early years, but ultimately became "the most studied company in the world." He attributed that partly to luck and partly to risky decision-making, but mostly to the bond between its employees and the customers they serve. Such a bond comes as a result of an environment "where people feel valued," where they understand the company's mission and want the company to succeed.
Perhaps the greatest example of the bond between Southwest and its employees and customers came in the immediate aftermath of the Sept. 11, 2001, terrorist attacks. After the company learned all its aircraft, employees and customers were safe, it made a decision to offer customers refunds for future flights, no questions asked, no strings attached.
"We didn't have time for the bean counters to tell us how much it would cost," he said. "In retrospect, it was probably a stupid decision."
Customers responded in an unlikely fashion; many did not seek refunds, essentially telling Southwest to keep the money. Some even sent additional money of their own. Parker talked of the power of "opening an envelope and seeing a $20 bill fluttering out," which was further proof of this bond.
And while other airlines were laying off employees, cutting pay and mothballing planes, Southwest earmarked $179 million for employees as part of its profit-sharing plan. Parker said it was a matter of "what we thought was the right thing to do." And in the midst of "the most challenging quarter for the airline industry," Southwest found a way to get people back on its planes and make a profit in the fourth quarter of 2001.
He attributed that and other benchmarks to a low-cost, high-efficiency operations infrastructure backed by extremely strong customer service in which employees maintain the attitude of "I can make a difference."
"You can't make people do the right thing," he said. "What you can do is create an environment where people want to do the right thing, not just from an ethical standpoint but from a business standpoint."Parker is the author of the recently released book Do the Right ThingHow Dedicated Employees Produce Loyal Customers& Large Profits.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.