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Good morning! It's Tuesday, October 3rd. If you love studying legendary entrepreneurs and haven’t heard of Herb Kelleher, strap in. He passed away at the age of 87 with a $2.5B net worth from founding Southwest, America’s most profitable airline!

THE FEATURE

Herb Kelleher– The Pioneer of Low-Cost Air Travel

Herb Kelleher was one of America’s most eccentric billionaires, known for smoking five packs of cigarettes a day, drinking Wild Turkey Bourbon, and antics like arm-wrestling a competing airline CEO for the rights to an advertising slogan.

In addition to these personality quirks, Kelleher co-founded and operated Southwest Airlines, the most successful airline in American history. Southwest was the best-performing stock in the three-decade period after its IPO– a $10K investment in Southwest IPO was worth $10.2M thirty years later.

What’s The Business?

When Kelleher was 35, he was a successful attorney who had clerked in the Supreme Court and owned his own law practice. However, his entrepreneurial spirit was looking for something new and interesting, which he found in his client Rollin King who owned a small San Antonio commuter air service.

In 1966, King pitched his idea for a regional airline to Kelleher using a cocktail napkin with a sketch of a triangle listing Dallas, San Antonio, and Houston on its three points, the “Texas Triangle”. With little capital and an idea scratched onto a flimsy napkin, Kelleher told King, “You’re crazy. Let’s do it.”

The founding mission of Southwest Airlines was simple but motivating. Kelleher and King set out to “democratize the skies” by making air travel affordable and accessible to the average American.

To do this, they centered their business model on fuel-efficient, low-cost planes accompanied by no-frills service. To this day, airline industry analysts regard Southwest’s entry into the market as a pivotal moment that brought air travel to the masses on a scale that was previously unimaginable. For comparison, airline competitor Braniff’s coach fare between Dallas and San Antonio in the early 1970s was $62 while Southwest’s fare for the same route was just $15. 

Today, Southwest is the nation’s most popular domestic airline and carries more than 120M passengers a year. But what’s even crazier is that in an industry plagued by red ink and high-profile bankruptcies, Southwest was profitable for 47 years straight under Kelleher’s leadership (the second most profitable airline was profitable for just 5 years).

How They Win

Keep it simple stupid

In the 1970s, airlines were primarily focused on attracting upper-middle-class and wealthy consumers with advertisements featuring their luxury seating and service options. Kelleher disrupted the airline industry by going back to basics and catering to the general population.

To cut down costs, Kelleher kept operations as simple as possible. For decades, the company only flew one kind of plane, the Boeing 737, which made it easy for pilots and mechanics to do their jobs.

It was Southwest’s single aircraft type and one-class service without frills that directly inspired the array of low-cost airlines that exist today, like Europe’s Ryanair.

Treat your workers like customers

During Kelleher’s tenure, Southwest never had a layoff, furlough, or pay cut for its 58,000 employees despite it being among the most unionized airlines in the world.

In Southwest’s foundational years, which were filled with financial struggles, Kelleher sold off airplanes rather than cut employee wages. That’s because he knew that a loyal employee base with high morale had a direct impact on customer service and consumer sentiment.

Kelleher’s commitment to his employees was legendary. Every Thanksgiving Eve, the busiest day of the year for airlines, Kelleher could be seen on the tarmac loading and unloading luggage onto airplanes. When he stepped down as CEO in 2008, the Southwest Pilots Union took out a full-page advertisement in USA Today thanking him for all he had done.

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